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31 October 2011 23:15

Harmony Q1 results: Graham Briggs (Harmony) & Peter Major (Cadiz Corporate Solutions)

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    Although exciting in Papua New Guinea, concerns locally.


    ALEC HOGG: Well, the big news around Harmony Gold right now is the longer-term impact on the group by its two major projects in Papua New Guinea. The bigger of these is Wafi Golpu, described as one of the richest gold strikes of the last century. At the quarterly results presentation today our colleague Geoff Candy asked chief executive Graham Briggs how Wafi Golpu might change Harmony.

    GRAHAM BRIGGS: It changes the face of Harmony dramatically, because our cash costs are in the region of call it $1 100 an ounce right now. Now, admittedly we are still in build-up in South Africa, and that cash cost comes down as we build up to two million ounces. So that continues for the next few years. But when you add copper into the mix, and you credit cash costs of that, well, that’s when you can take cash costs down to $600 – or, depending on the copper price of course, even further. For the whole company. So it has a dramatic effect on the whole company. As you right put it, it is the elephant in the room. It's got huge potential. And that’s what’s nice about this type of deposit. It's a real big deposit, it's long-life, and it's got potential of being a sort of first-quartile cash producer from a copper mine status, and certainly from a gold mine status a negative cash cost producer.

    ALEC HOGG: Pete, it's a share that, it seems, every time that Graham Briggs talks about Wafi Golpu or Hidden Valley, the Papua New Guinea operation, it goes up. It was the best performer of the Top 40 on the JSE today, up by 1.5%. Justified?

    PETER MAJOR: Ja, I think it is, Alec. You get a little bit of a prospecting tinge to this company. A prospecting company that doesn’t produce anything always releases all these great results, and that’s how they keep the share price up. But this is a producer that has a kind of prospecting tinge to it in a very big way. It consists of a huge deposit and, as Graham said, the copper alone could justify a mine at 1.5% copper. And the gold alone 1.5g/ton. They’ve been talking about this for a long time and I think it has helped the share stay up. It's always disappointing to me, though, on the local operations because after years and years of rationalisation and heavy capex, we were all led to believe that working costs would be coming down, grade would be coming up. But I think if you average the South African results it looks like about the lowest grade they’ve ever made in the last 10 years. So that just seems to be taking a lot longer.

    ALEC HOGG: So a bit of a flag-waving here. Although exciting in Papua New Guinea, concerns locally.

    PETER MAJOR: Ja, very much.

    ALEC HOGG: Would you be buying the shares at R105?

    PETER MAJOR: No, I always base my decision to buy and sell on a macro, and I just think that the gold price just looks a little bit strong right now and the results don’t justify that there's a lot more not in the price right now. And especially when they say Wafi Golpu might be producing full-bore at about 2023, well, I’ll be long dead by then.

    ALEC HOGG: Wow! David Shapiro will still be on earth. He’s here forever. But Dave, you bought Harmony a while ago, didn’t you?

    DAVID SHAPIRO: No, I haven't got them – eventually. But you know what happens? A lot of institutions are holding it on the basis of that. A lot of value investors are in Harmony on the strength of future profits. They can wait until 2023.

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