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HARMONY GOLD MINING COMPANY LIMITED - Harmonys Golpu Project to proceed to feasibility

Release Date: 15/12/2014 07:05:00      Code(s): HAR       PDF(s):  
Harmony’s Golpu Project to proceed to feasibility

Harmony Gold Mining Company Limited
Registration number 1950/038232/06
Incorporated in the Republic of South Africa
ISIN: ZAE000015228
JSE share code: HAR
(“Harmony” or “the Company”)

Harmony’s Golpu Project to proceed to feasibility

Low capital development cost and high grades maximise free cash flow

• Staged development of the Golpu deposit with the first stage
(‘Stage 1’) targeting the upper higher grade portions of the ore body
• Stage 1 comprises of two block caves. The first block cave
operating at 3Mtpa and first production forecast for 2020, followed
by a deeper block cave operating at 6Mtpa in steady state from 2024
• Attractive return on investment, with an estimated Internal Rate of
Return (IRR) of 17%
• Lowest quartile cost for copper including capital (C3) at
US$1.42/lb and the cash cost for gold at approximately negative
US$1 700/oz
• Approximate life of Stage 1 is 27 years, with annual production
peaking at 320 000 ounces of gold and 150 000 tonnes of copper in
• Substantially lower project capital, with maximum negative cash
flow of US$785m to be funded by Harmony

Harmony Gold Mining Company Limited (Harmony) is pleased to advise
that the Harmony board has approved the updated prefeasibility study
(PFS) of the Golpu Project in Morobe Province, Papua New Guinea (PNG)
and has agreed to progress the project to feasibility study stage

This updated prefeasibility study covers the first stage of Golpu’s
development. Stage 1 of the Golpu development targets the upper
higher value portion of the orebody. Work will continue on optimising
a second stage mine development (Stage 2), which will encompass the
rest of the ore reserves. Both the feasibility study for the first
stage and the updated prefeasibility study for the second stage of
the project are scheduled to be completed by the end of calendar year

The updated prefeasibility study entails low development capital
cost, targets high grades to maximise free cash flow generation and
demonstrates the potential of this world class ore body.

“The updated prefeasibility study supports our view that Golpu is a
spectacular ore body with a large copper component, affordable and
mineable. Key objectives of the study have been achieved by reducing
the capital of the project, lowering operating costs and improving
the rate of return”, said Graham Briggs, chief executive officer
(CEO) of Harmony.

Harmony’s CEO notes that the development of the Golpu Project aligns
with Harmony’s strategy of profitable, low-cost operations: “The
conclusion of the updated PFS is a major project milestone and has
demonstrated the significant potential of this world-class orebody,
which contains mineral resources of 20 million ounces of gold and 9.4
million tonnes of copper. Attributable annual production for Harmony
is significant and averages at 500 000¹ gold equivalent ounces per
year in years 2024 to 2029. Stage 1 is expected to have a life of
approximately 27 years”.

The Golpu project team, with the assistance of WorleyParsons as
project consultant, have incorporated a total of 52 000 new drill
core samples into the updated study - significantly improving the
understanding of the geological framework. This has redefined the
boundaries of the high grade porphyry event in the upper part of the
orebody, which will be mined by block caving method. This enables a
reduction in the size of the footprint of the block caves compared to
the 2012 prefeasibility study significantly reducing capital

The Stage 1 project capital on a 100% basis is estimated at US$2.3bn,
yielding an attractive return on investment with an internal rate of
return of 17%. The updated prefeasibility study recommends the
development of twin exploration declines to establish further
geotechnical and geological data to support the feasibility study. A
decision on the declines is anticipated in the first half of 2015.

The two proposed block caves in Stage 1 are designed to access
approximately 40% of the contained metal (gold and copper) of the
Golpu reserve. The approximately 60% remaining of the reserve would
be extracted by a future deeper block cave (Stage 2). The mining and
processing infrastructure of Stage 1 would then be utilised to
support development of Stage 2.

Engagement with key stakeholders, including the PNG national
government, the Morobe provincial government, landowners and
community representatives continues to ensure clear alignment on the
project objectives.

Golpu has the potential to deliver significant benefits to local and
regional communities and the broader economy of Papua New Guinea,
including local business opportunities, taxation and royalty revenues
to all levels of government. It will also offer benefits through
training and employment opportunities, business and community
development programmes, health and education investments and improved
regional infrastructure.

Environmental baseline studies and risk and impact assessments were
undertaken as part of the updated pre-feasibility study and will be
further developed during the feasibility study in preparation for the
submission of an Environmental and Social Impact Assessment to the
PNG Government for consideration.

Harmony and Newcrest each own 50% of the Golpu Project through the
Wafi-Golpu Joint Venture (WGJV). The PNG government retains the right
to acquire up to a 30% interest in the project, at any time up to the
date of granting the mining lease, at a price equal to the sunk costs
at the date of acquisition. If this right is exercised, the
government becomes a full equity partner in the project.

“The Golpu project is a significant value accretive game-changer for
Harmony”, says Graham Briggs, CEO of Harmony. “Harmony intends to
fund the earlier stages of the project from internal cash flows, and
reviewing other funding options for the latter stages. In the current
environment of volatile gold prices, we are focussed - more than ever
- on cost control and cash generation at existing operations. In
addition, shareholder value is created through investing in Golpu,
securing a sustainable, profitable future for Harmony.”

Key items for Stage 1 (100%)

Area          Measure                         Unit
Production    First ore                       Date                2020
              Steady-state production         Date                2024
              Ore mined                       Mt                   146
              Life of Stage 1                 Years                 27
              Cu metal produced               Mt Cu                2.2
              Au metal produced               Moz Au               3.7
              Peak gold production (Year
                                              koz pa               320
              Peak copper production (Year
                                              kt pa                150
              Gold recoveries                 %                     77
              Copper recoveries               %                     94
Capital       Project capital                 US$bn                2.3
              Sustaining capital              US$bn                0.8
              Total life of Stage 1 capital   US$bn                3.1
              Maximum negative cash flow      US$bn                1.6
Operating                                     US$/t
              Total operating cost (real)     US$/lb
              Cash cost (C1) (after gold      Cu                  34.6
              credits)                        US$/lb              0.78
              Total production cost* (after   Cu                  1.42
              gold credits)                   US$/oz        ~ negative
              Cash costs (after copper        Au                 1 700
              credits)                        US$/oz        ~ negative
              Total production cost* (after   Au                   950
              copper credits)
                 Gold price                              US$/oz                      1 250
                 Copper price                            US$/lb                       3.10
                 Exchange rates                          AU$/US$                      0.90
                                                         PGK/US$                      2.58
Stage 1
                 Percentage of reserve utilised          %                            ~40
                 Internal Rate of Return
                                                         %                             17
                 Net present value (at a
                                                         US$bn                        1.1
                 discount rate of 8.58%)

Overview of mining operations
Golpu is expected to comprise of at least two stages.

The updated prefeasibility study for Stage 1 of Golpu recommends two
block caves accessing the high value core of the Golpu ore body.
Stage 1 extracts 146Mt at an average grade of 1.02g/t gold and 1.60%
copper.      The proposed start-up production rate is 3Mtpa mined from
Block Cave 1 (BC1) and 6Mtpa mined from the deeper Block Cave 2

BC1 is situated approximately 425m below surface and will extract
12Mt of cave ore over a five year period at a peak production rate of
3Mtpa.     During caving operations, ore from the block cave draw points
will be delivered by diesel load haul dump units to an underground
jaw crusher and then conveyed to surface.

BC2 is situated approximately 1 050m below surface.                     BC2 will be
mined at a rate of 6Mtpa to extract 134Mt of cave ore over a 23 year

Access to the orebody is planned to be via twin declines developed
from   the    Watut    River   flats.   During   the    production      phase   it     is
envisaged     that    an   inclined   conveyor   is    installed   in    one    of    the
declines for transportation of production ore to the process plant
located near the portal; the other being used for ventilation.
            Schematic of proposed operations – refer to website

The   two   proposed   block   caves   in    Stage      1    are   designed   to   access
approximately 30% of the tonnes, which contain approximately 40% of
the metal (gold and copper) of the Golpu reserve. The mining and
processing    infrastructure    would       then   be       utilised   to   exploit   the
remaining 70% of the tonnes, which contain about 60% of the contained
metal (gold and copper) of the Golpu reserve. Stage 2 will focus on
block cave 3 (BC3). Study work completed to date on Stage 1 and Stage
2 combined indicates no material difference in metal recovered from
the 2012 reserve.

 Schematic cross section of Golpu porphyry deposit 2012 compared to
                       2014 - refer to website

Capital costs and funding

The capital cost estimate has been completed to a Prefeasibility
level of accuracy and includes all capital from 1 January 2015.

                            Stage 1 capital cost
                               estimate (100%)
                          Area                 US$m
                          Direct costs
                          Mine                              893
                          Process plant                     155
                          Infrastructure                    554
                          Total direct
                          costs                         1602
                          Indirect costs
                          management                        284
                          Owners' costs                     127
                          Total indirect
                          costs                             411
                          Contingency                       287
                          Total capital
                          costs                      2 300
Harmony’s 50% share of study and capital requirements for Stage 1 is
estimated to be as set out in the table below.

                                       Harmony equity (35%)
                    Harmony equity
                                            PNG Government

                  Project capital           Project capital
                          US$m                      US$m

        2HFY15            (15)                      (15)

        FY16              (55)                      (55)

        FY17             (105)                      45*

        FY18             (205)                     (140)

        FY19             (250)                     (175)

        FY20             (155)                     (110)

        Total            (785)                     (450)

*Assuming PNG government buys a 30% interest in the project

Harmony will fund the first three years from operating cash flows and
from FY18 onwards, debt financing will also be considered. From FY21
Stage 1 will be cash flow positive after capital expenditure.

Operating costs

The key driver for the mining costs is the power requirements for
ventilation, cooling and mine dewatering, which accounts for $6.56/t
(55%) of the mining costs.        The key driver for ore treatment costs is
also power, which accounts for 42% of treatment costs.

Power   is   a   key    project   driver    that    influences     both    mining   and
treatment    cost      assumptions.   The    study    has   used    a     power   price
assumption of US20c/kWh. The Project will source bulk power from
either its own power station or from an independent power producer.
              Operating costs                 US$/t
        Underground mining                    11.83
        Treatment                             12.86
        Infrastructure                        3.17
        General and
        administration costs
        Total                                 34.64

Production profile of Stage 1

The Stage 1 production schedule below outlines the ore mined and the
metal recovered from BC1 and BC2 (on a 100% basis).

Production schedule graph – refer to website

The cash flow for Stage 1 forecasts a maximum negative cash position
of US$1.6bn in 2020 as the project moves into initial production from
BC1. Once BC2 is in full production in 2024, it is estimated the
project     will   produce   significant     free     cash   flows,   with     total
undiscounted free cash flow of approximately US$5.8bn over the 27
year life of Stage 1.

Stage   1   positions   Golpu   as   a   lowest   quartile   cost   producer    with
copper including capital (C3) at US$1.42/lb and               the cash cost for
gold at approximately negative US$1 700/oz.

Process plant, infrastructure and waste management

The updated study anticipates the construction of a 6Mtpa process
plant scheduled for commissioning in the first year of production in
calendar year 2020, which will produce a copper-gold concentrate.

The Golpu project is located in a greenfields location. The main
infrastructure requirements for the Golpu project are access roads,
tailings storage, water management, port facilities and power supply
and transmission.

It is expected that the copper-gold concentrate will be filtered at
the mine site and transported to the Port of Lae by trucks for the
initial     production,     with     the   concentrate       to    be    pumped     to    the
filtration plant located at the port as production rates increase.

Summary of next steps

The updated prefeasibility study recommends the development of twin
exploration declines to establish further geotechnical and geological
data. A decision on the declines is anticipated in the first half of

The   feasibility    study    will    address     and   finalise        technical    issues
identified    in   the    prefeasibility     study.     It   will       progress    further
environmental, social and cultural heritage studies associated with
access    roads    and    tailings     storage.    Further        work    will     also    be
conducted     to   identify    the     optimal    solution        for    power     for    the

Advanced exploration activities are subject to board and government
regulatory approval. The Harmony board will consider the advanced
exploration activity in the first half of calendar year 2015, once a
pre-development agreement has been concluded.

Both the Stage 1 feasibility study and the updated prefeasibility
study for Stage 2 are targeted to be completed by the end of calendar
year 2015.

¹   Equivalent     gold   ounces     converted    by    using     a     copper    price    of
US$3.10/lb and a gold price of US$1250/oz
Please also refer to www.harmony.co.za/investors for the presentation
in support of this release.

Forward looking statements

This release contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as
amended, that are intended to be covered by the safe harbour created by such sections. These
statements may be identified by words such as “expects”, “looks forward to”, “anticipates”,
“intends”, “believes”, “seeks”, “estimates”, “will”, “project” or words of similar meaning.
All statements other than those of historical facts included in this release are forward-
looking statements, including, without limitation, (i) estimates of future earnings, and the
sensitivity of earnings to the gold and other metals prices; (ii) estimates of future gold
and other metals production and sales, (iii) estimates of future cash costs;( iv) estimates
of future cash flows, and the sensitivity of cash flows to the gold and other metals prices;
(v)   statements        regarding    future     debt       repayments;      (vi)    estimates       of   future      capital
expenditures; and (vii) estimates of reserves, and statements regarding future exploration
results    and    the    replacement    of    reserves.       Where    the    Company      expresses      or    implies      an
expectation or belief as to future events or results, such expectation or belief is expressed
in good faith and believed to have a reasonable basis. However, forward-looking statements
are subject to risks, uncertainties and other factors, which could cause actual results to
differ materially from future results expressed, projected or implied by such forward-looking
statements.      Such    risks    include,    but    are    not    limited    to,   gold      and   other      metals   price
volatility, currency fluctuations, increased production costs and variances in ore grade or
recovery   rates    from    those     assumed   in     mining      plans,    project    cost    overruns,       as   well   as
political,    economic      and     operational      risks    in    the     countries    in    which     we    operate      and
governmental regulation and judicial outcomes. For a more detailed discussion of such risks
and other factors (such as availability of credit or other sources of financing), see the
Company's latest Annual Report on Form 20-F for the year ended June 30, 2014 which is on file
with the Securities and Exchange Commission, as well as the Company's other SEC filings. The
Company does not undertake any obligation to release publicly any revisions to any "forward-
looking statement" to reflect events or circumstances after the date of this presentation, or
to reflect the occurrence of unanticipated events, except as may be required under applicable
securities laws.

Competent Persons Statement

The information in this presentation that relates to Exploration Results, Mineral Resources
and Ore Reserves is based on information compiled by Gregory Job, BSc, MSc, who has 26 years’
relevant experience and is a member of the Australian Institute of Mining and Metallurgy
(AusIMM) and a full-time employee of Harmony. He is entitled to participate in Harmony’s
equity long term incentive plan, details of which are included in Harmony’s 2014 Remuneration
Report. Mr Job has sufficient experience which is relevant to the styles of mineralisation
and types of deposits under consideration and to the activity which he is undertaking to
qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”). Mr
Job consents to the inclusion in this presentation of the matters based on this information
in the form and context in which it appears.    For details of Exploration Results, Mineral
Resources and Ore Reserves refer to the Harmony website.

For more details contact:

Marian van der Walt
Executive: Corporate and Investor Relations
+27 (0) 82 888 1242 (mobile)

Henrika Ninham
Investor Relations Manager
+27 (0) 82 759 1775 (mobile)

12 December 2014

J.P. Morgan Equities South Africa Proprietary Limited

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