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Precious Metals  
7 December 2017

Initial studies confirm value in Moab Khotsong deal for Harmony Gold

Dual-listed Harmony Gold has outlined several value accretive advantages that it could realise from its proposed acquisition of the Moab Khotsong operations.

Harmony Gold announced the acquisition of the Moab Khotsong and Great Noligwa mines from AngloGold Ashanti for US$300 million on 19 October 2017.

By acquiring the Moab Khotsong underground mine, which incorporates the Great Noligwa underground mine and related infrastructure, Harmony anticipates that it could boost its operational cash flows by more than 60%, and increase its average overall underground recovered grade by 11% and grow its South African underground mineral resource base by 38%, in each case as compared to performance in the 2017 financial year.

Through its analysis and due diligence investigation, and in applying the “Harmony Operational Excellence and Operating Model” to Moab Khotsong mine's operations, Harmony believes that it will be able to realise substantial cost savings. Harmony believes that the main source of these cost savings will be through a reduction in central support services costs allocated to the mine. Alongside these savings, Harmony has also identified certain procurement and metallurgy-related savings which it believes can be achieved.

Harmony believes there is the potential to increase the Moab Khotsong and Great Noligwa mines’ life of mine by mining additional high grade isolated blocks of ground (IBGs), extraction of the high grade Great Noligwa shaft pillar, as well as optimising the current plant facilities to treat the Mispah tailings facilities.

Extraction of the shaft pillar is technically similar to what Harmony has successfully achieved at its Bambanani operation in or around the city of Welkom in the Free State, where since February 2010, Harmony has been able to extract 479 252 oz of gold at an average recovered grade of 9.89 g/t, and extend the life of mine to 2022.

Harmony believes that the extraction of the Great Noligwa shaft pillar will yield a similarly positive outcome. The technical nature of the mining is similar and Harmony has proven expertise in this area.

Further to the above and based on its experience in mining IBGs, Harmony believes that it will be able to extend the life of the Moab Khotsong and Great Noligwa mines from 5 to at least 10 years subject to the outcome of the necessary studies after completion of the acquisition.

Harmony estimates that the net present value from extracting the shaft pillar and mining the IBGs   has the potential to be substantial.

Harmony’s internal assessment of the value of mining additional high grade IBGs as well as the high grade shaft pillar at Great Noligwa mine is broadly in line with the valuation of the Moab Khotsong mine.

Mispah tailings retreatment

The Mispah 1 tailings facility specifically, contains a mineral resource of over 70 Mt of surface tailings with an average gold grade of 0.30 g/t.

With the current installed plant excess capacity and the treatment and processing of waste rock nearing the end of its life, Harmony believes that there is considerable scope to convert these facilities to a surface tailings re-treatment operation, similar to those currently operated by Harmony at the Phoenix plant and the Central plant operations situated in or around the city of Welkom.

Harmony believes that optimisation of current plant facilities would have minimal capital requirements and low technical risk, and would create a relatively low cost, long life operation.

The necessary studies, including obtaining the necessary permissions, still have to be completed to   ensure value can be unlocked after completion of the acquisition. Harmony estimates a potential net present value of approximately US$20-40 million based on its prior experience of developing similar plants.

Zaaiplaats project

The Zaaiplaats project is potentially an extension of the Moab Khotsong mine which contained a mineral resource base of 6.8 Moz with an average gold grade of 17.2 g/t as at 31 December 2016. It is currently in pre-feasibility stage and Harmony will assess its attractiveness after completion of the acquisition.

Zaaiplaats is expected to provide Harmony with optionality, particularly in a rising Rand gold price environment. Harmony has attributed no value to Zaaiplaats as it is currently viewed as a potential future expansion opportunity.

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