THE MINING EXECUTIVE MAGAZINE JANUARY/FEBRUARY 2020 EDITION

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TheMINING EXECUTIVEMagazine FEBRUARY 2020BusinessReviewPeter Steenkamp:Sheer willpower to deliver strongstakeholder value: Harmony Gold Ltdslowly edging out of the woods.GOLD.hat does it take for a companyWoperating about 9 undergroundgold operations in South Africa,and several surface sources, as well as 1 largeopen pit mine in PNG to ensure a consistentgrowth curve and deliver strong financialperformance for shareholder value? This isprobably the question the Harmonyexecutives might have asked themselves overand over again as the company slowly andagonizingly edges its way out of the murkywaters of a streak of financial losses.On a recovery path, the Randfontein, SouthAfrica headquartered gold mining giant,Harmony, has managed to reduce its losses byover 40% for the 2019 financial year.Harmony recently released its financial andoperating results for the year ended June 30,2019 with net losses coming up to 2.6 billionRands, 41% less compared to 4.47billonRands reported in 2018. Losses per sharedecreased 50% to -498c. While headlineearnings per share increased 19% to 204c.Harmony is listed on the Johannesburg StockExchange, its primary listing, and on the NewYork Stock Exchange, on which its shares arequoted as American Depositary Receipts. On30 June 2019, the company's marketcapitalisation was R17.1 billion (US$1.2billion).With 70 years ofexperience, Harmonyis currently South Africa'slargest gold producer.All that glittersisGOLD.MINING GLOBAL DECISIONS IN YOUR PALMSwww.theminingexecutive.comIts largest shareholder is African RainbowMinerals Limited (ARM) which has a stake of13.83% in the company with the remainder ofits shareholders geographically diverse, whichinclude some of the largest fund managersglobally. The Company's mining operations inSouth Africa include Kusasalethu, Doornkop,, Tshepong operations , Masimong, Target 1,Bambanani, Joel, Unisel and an open pitKalgold. The Company also treats severalsurface sources.. On the international front,the company has the Hidden Valley operationand exploration projects that include Wafi-Golpu project and Kili Teke prospect.Operations Performanceor the financial year ending June ofF2019, the company produced volumesthat show an increase in goldproduction by 17% to 1.44Million ounces(Moz) (compared to 1.22Moz for the 2018Financial year) of gold translating to 23%increase in production profit. There was a 2%increase in underground recovered grade to5.59g/t at South African mines with free cashflow boosted by Moab Khotsong and HiddenValley operations. The company's hedgingstrategy contributed to improved cash flowmargins too. The company moved 52.7MegaTonnes (Mt) (compared to 50.8Mt for 2018) inwaste and tailing with however an increase inCarbon emission at 3.9Mt (compared to 3.0Mt for 2018).“At Hidden Valley, commercial levels ofproduction achieved in June 2018 weremaintained during FY19. Safety, goodoperational momentum and disciplined costmanagement contributed to Hidden Valleyachieving gold production of 6 222kg26
TheMINING EXECUTIVEMagazine FEBRUARY 2020(200 042oz) and generating operational freecash flow of R573 million (US$40 million) ata margin of 16%. Stripping of the cutbackswill continue for the next two and a halfyears, to deliver an average life of mine all-insustaining cost of below US$950/oz,”indicated Peter Steenkamp, Harmony's ChiefExecutive Officer.In terms of revenue stream, the companygenerated 26.9 Billion Rands in revenue (compared to 20.5 Billion Rands in 2018) towhich 26.8 Billion Rands (compared to 24.2Billion Rands in 2018) went to employees(54%, Suppliers (23%), Sustaining Capital(21%) with the South African Governmentreceiving 1% and another 1 % spent oncorporate social responsibility activities.Harmony mined and processed 26Mt of goldbearingore, which generated waste of 53Mt,consumed 3.3 million MWh of electricity,resulting in 3.9Mt of CO2 e emissions, used23 million m3 of water in primary activitiesand has 74 000ha of mining land undermanagement. The company which employs39773 (approx. 37400 in South Africa and2400 in Papua New Guinea) people inclusiveof contractors went all the way to invest 484million Rands in employee skillsdevelopment in South Africa alone(something that still very significant, mayneed to be upped considering the safetystatistics). The wage bill gobbled 12.5 billionRands split as 11.5 Billion Rands for SouthAfrica and 1.1 Billion Rands for Papua NewGuinea (compared to 9.5 Billion Rands in theprevious year).So staggering is its expense bill that saw thecompany spending discretionary 8.5 BillionRands with 3.2 Billion Rands alone goinginto electricity (compared to 3.2 BillionRands and 2.3 Billion Rands in 2018).In terms of the share market, there was a 19%increase in headline earnings per share to 204SA cents – 8% increase to 14 US cents. Thecompany has since managed to refinance andincrease its existing US$350 million loan andrevolving credit facility, raising it to $400million facilitated by Absa Bank Limitedwhich reflect the confidence of participatingbanks in Harmony's credit quality, its miningDr Patrice Motsepe,Chairman Harmony Gold (source: Harmony Gold)“Harmony's share price outperformed 80% of the major gold mining companies locally andabroad as the share price increased from a low of R22.14 per share at the end of June 2018 toR43.30 per share at the end of September 2019. Harmony is a highly geared gold share andis well positioned to benefit from the uplift in the gold price,” indicated Dr Patrice Motsepe,Chairman Harmony Gold.Dr Motsepe strongly believes the volatility in the gold price has created an opportunity tohedge a portion of Harmony's gold production to increase its profit margin and strengthen theoverall balance sheet. “Our hedging programme contributed R477 million (US$34 million)to the group's overall cash position during the 2019 financial year.”The taxes and royalties were on the lower side with 248 Million Rands paid (compared to489 Million Rands for 2018) with the South African government receiving 164 MillionRands and the remaining 84 Million Rands going to the New Papua Guinea government. Theincome tax was pegged at 2.1 Billion Rands and 207 Million Rands in Papua New Guinea.Commitment to good governanceHarmony Gold's board approves the company's strategy and oversees its execution. “Theboard also formulates and ensures that there are robust governance standards and that weconduct and operate our business ethically and in line with good global practice. The rangeand depth of skills and expertise on our board has been invaluable as we navigate the currentsocial, political, economic and environmental challenges and opportunities, “highlighted DrMotsepe.The company is positively geared to increases in gold price and cites its uniquely skilled andexperienced leadership teams, especially in sustaining and prolonging the operating lives ofdeep-level gold mines, extensive institutional knowledge of gold mining and relatedtechnology and partnerships with stakeholders as its core strengths to ensure betterperformance for the current financial year 2019-2020.Like any other mine , the company has to manage top risks, which includes safety at itsoperationsMINING GLOBAL DECISIONS IN YOUR PALMSwww.theminingexecutive.com27
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THE MINING EXECUTIVE MAGAZINE JANUARY/FEBRUARY 2020 EDITION

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