Johannesburg, South Africa — 30 August 2012 – Harmony Gold Mining Company Limited “’ South Africa’s third-largest gold producer “’ says that Papua New Guinea (PNG) will have to pay if it wants a stake in the company’s promising Golpu project in the Asian country.
Reuters reports that Harmony is staking its future on the US$4.8 billion project it is developing with Australian group Newcrest Mining.
Papua New Guinea has the right to a 30% stake in mining operations, But Harmony chief executive Graham Briggs said if the government exercised this option it would include development costs already forked out.
“This is not a free carry; it will be full participation if the government gets involved. Assuming they would take 30%, they would have to pay 30% of the historical costs,” Briggs told analysts on a conference call.
The gold and copper project’s prefeasibility study estimates an initial mine life of 26 years with annual production of 490,000oz of gold and 290,000t of copper. The aim is to start production in 2019.
Briggs said it was difficult to say whether the government was in a position to pay for the stake, but discussions with ministers suggested that they saw the project as generating significant growth for the region.
“This is certainly a game-changer in Papua New Guinea “’ it could add considerable amounts to the GDP and there are lots of opportunities for the government to leverage off this,” he added.
Results of the prefeasibility study peg the cost of establishing a copper-gold development at around US$4.8 billion, which will be shared evenly by Harmony and Newcrest.
Chief financial officer Frank Abbott said the firm would consider debt or bonds to top up its capital expenditure needs as the production of its Papua New Guinea operations got nearer.
“We don’t see the need for additional funding until 2017, and then it will depend on the gold price,” Abbott pointed out.
He indicated that if the gold price remained in the US$1,600/oz range, the company would need to raise R4 billion, but if it dipped to US$1,400/oz it would require almost R7 billion. Spot gold is currently fetching about $1,665.00.
The project is a game-changer for Harmony as it diversifies production away from high-cost and politically-risky South Africa, where labour violence in the platinum belt has killed 44 people this month.
The company currently gets 90% of its output from South Africa and aims to lift production to 1.7Moz by 2016 from a target 1.3Moz in 2013.
Source: Reuters Africa. For more information, click here.