Harmony to conquer more gold assets with clean balance sheet

Gold major Harmony (JSE:DRD, Nasdaq:DROO) will be aggressive in its pursuit...

Gold major Harmony (JSE:DRD, Nasdaq:DROO) will be aggressive in its pursuit of more producing gold assets once its debt is wiped out to zero by June this year and its capital expenditure falls dramatically from R2.8bn ($280m) this year to R1.8bn ($180m) in two years.Chief executive officer Graham Briggs said today the company has already completed due diligences and four site visits to projects and one gold producer to evaluate possible opportunities. He said that any acquisitions or joint ventures would be evaluated and weighed against the company’s existing projects and the company would not release any new projects until its debt "is sorted out".Harmony reduced its total borrowings from R4,598m ($460m) in June 2008 to R2,859m ($286m) in December 2008, while it increased cash from R491m ($49m) to R1,645m ($165m) over the same period through a capital raising of R979m ($98m) and issuing 10,504,975 shares (2% of issued shares) at an average subscription price of R93.20 per share.The company has a R1.7bn ($170m) convertible bond due in April this year, but Briggs said the last $169m ($17m) payment from the Rand Uranium sale expected in April would offset this."It is not so long ago that the company had huge debt, it is a great improvement," said Briggs.He said Harmony did not necessarily have to own 100% of a new project but could form a joint venture with a company that owned a producing mine but required capex. In terms of location the company would look "everywhere there was gold", including in South Africa. "which was a good place to do business", especially with the current rand gold price that exceeds R300,000/kg ($930 an ounce).Briggs commented that the company would naturally consider all factors and that it was for example not likely to build a new mine in a country with high political risk.  "In a place such as Asia the cost of a new project could be $300m - investing in a new project is a big decision to make," said Briggs.He added that the company had already spent the required capital at Phakisa, Doornkop and Elandsrand and built most of the infrastructure, including shafts. Harmony’s capex profile would decrease dramatically in a year and since the company was a "gold bull" it would ensure it had a good project pipeline.The chief executive officer commented on the issue of the company paying dividends by saying that when the company’s debt is erased in June its board would consider this issue."Harmony would not pay dividends right now but it would be on the agenda at the board meeting," said Briggs.Briggs said the company’s first focus was on its operations and that it was still on track to reach production of 2.2m ounces of production by 2012. "That’s without corporate activity," he said.Harmony is currently tackling issues at both Target and Elandsrand underground mines in South Africa where production has been undermined by factors such as labour issues.It is following a process at Elandsrand to change the behaviour of employees and to improve standards to achieve safe production. This is aimed at bringing an improvement in production and profitability and Harmony expects to hit its short term target of 1,800kg (58,000 ounces) of gold production here in the next quarter.At Target mine, which has shown it is on the way to recovery with a 26% improvement in production in the last quarter and recovery grades increasing 40% to 4.43g/t, Harmony believes it can take current production of 669kg (21,500 ounces) per quarter to 900-1000kg (29,000 - 32,000 ounces) "easily".Bambanani mine that recently saw three underground fires break out was still suffering from the effects but the company was not concerned about the underlying cause of the events as a better understanding between people has been reached.However, there was still much work to be done to get costs down and the company was working with suppliers to this end. "Although the gold price has been rising, the company has not seen costs come off," said Briggs.Responding to a question on the company’s view of the gold price, he said Harmony has been saying $900/ounce for a while, but "our crystal ball is as murky as yours".A prominent analyst said Harmony still carried the "normal gold mine risks", but it was putting good and big plans in place that had every chance of succeeding. He said that in terms of fundamentals it was becoming a "better investment opportunity".Harmony saw an 8% improvement in its cash operating profit to $112m in the last quarter but a 8% drop in gold produced to 362,242 ounces. This was offset by a 17% improvement in the rand gold price to R253,441/kg ($788 an ounce).