Harmony Gold reports steady H1 production in SA, lowers sister mine targets

Papua New Guinea mine subjected to geotechnical issues and other operational disruptions.
Image: Waldo Swiegers/Bloomberg

Listed mining group Harmony Gold says its South African operations for the six months to end-December 2021 remained steady, reporting a 22 355 kg output for the period, slightly higher than that seen in the previous comparable period.

The company noted in a Sens update on Wednesday that the rand per kilogram cost for its South African operations remained largely within the guidance of R765 000/kg to R800 000/kg.

Read: Could this be gold’s year to shine?

The same however cannot be said for its Hidden Valley mine in Papua New Guinea, which saw a production output drop of 26% to 1 871 kg for the period.

Harmony Gold attributed the drop in production at its operations on the island to Covid-19-related restrictions and geotechnical issues, which it says “prevented the effective mining of stage 6 of the open pit, resulting in more lower grade stockpiles being processed”.

This, together with a damaged overland conveyor belt, are among the issues that led to the company lowering its production output targets for the mine for the full year to end-June to 115 000 to 117 000 oz – down from its earlier forecast of 153 000 to 161 000 oz.

“The modified guidance from Hidden Valley will result in a 4% adjustment to total production from 1.540 to 1.630 million ounces as guided at the beginning of FY22, to 1.480 to 1.560 million ounces,” the group said.

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Director of mining at Mergence Corporate Solutions Peter Major says Hidden Valley’s recent performance is a sign that Harmony probably should not have invested in it to begin with.

“Harmony seems to be getting more marginal by the day and its Hidden Valley gold mine in Papua New Guinea is as high cost and marginal as they come,” he tells Moneyweb.

“While this mine is only around 10% of Harmony Pty Ltd’s total gold production, it has taken a much larger percentage of the company’s time and money these past 15 years,” says Major.

“A hugely disproportionate share. Not a good investment at all in most people’s view,” he adds.

Market reaction

On the back of the group’s operational update in anticipation of its interim results for the six months period ended December, Harmony Gold’s share weakened just over 2.6% on Wednesday, to close at R60.60.

Sanlam Private Wealth senior portfolio manager Greg Katzenellenbogen tells Moneyweb it is no surprise that the miner’s share price took a bit of a downturn, adding that this is a consequence of the disappointing reports coming out of its Hidden Valley mine.

“I’m not sure how long the geotechnical issues will persist or how quickly they will get them under control but that is the disappointment and the market is reflecting that in its price because they’ve had to revise their production down,” Katzenellenbogen says.

He adds that although the drop in production at Hidden Valley may be concerning, in the greater scheme of things, the drop will only result in a 4% adjustment to total production and the company is still faring well.

“I still think it’s quite well leveraged to the gold price so I still believe that it can offer significant returns if you get a sharp upward movement in the gold price, so it remains a speculative but decent investment.”

Listen to Fifi Peters’s interview with Harmony CEO Peter Steenkamp:

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