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Graham Briggs, the outgoing CEO of Harmony Gold, tackled the question of who is to succeed him by saying it was probably tough for the company’s board to find someone “crazy enough” to accept the post.
Enter Peter Steenkamp, formerly Harmony’s chief operating officer before leaving for other pastures. Ironically, one of Steenkamp’s first tasks at Harmony will be to find a new COO following the departure of Alwyn Pretorius, who quit the firm only two months after Briggs announced his retirement plans in June.
The mid-year period was a tough time for Harmony because it had seen its share price fall a quarter in a month amid painful restructuring at the Doornkop and Kusasalethu mines, as well as project curtailments and impairments the previous year at the Phakisa and ?Target mines.
Briggs told finweek in an interview, however, that that period of restructuring was a turning point, and Harmony was now able to survive the slide in the dollar gold price; a move no doubt aided by improved US job figures that will give the Federal Reserve the confidence to raise rates.
“The restructuring has taken a lot of management time, but we are over that – barring anything changing dramatically [due to] external factors,” said Briggs. “We’ve also gone through wage negotiations in a positive manner.”
UBS analyst, Kane Slutzkin, said Harmony’s recent September quarter results suggested “a potential inflection point” for the share in which Harmony’s management could translate stronger rand prices for gold of over R500 000/kg into improved cash flow.
In the main, however, the view from analysts was more cautious. “Our initial read is that this business remains in trouble,” said Richard Hart of Arqaam Capital. “While weakness of the rand may assist in containing US dollar cost inflation, it is wreaking havoc on the ?balance sheet.”
The company produced free cash from last quarter’s outflow but it drew down R300m of a Nedbank revolving credit facility following a drawdown of a dollar-denominated revolver in the previous quarter, which translated into R541m in debt. “This company is presently unable to fund its entire capital expenditure bill from operating cash flows and will continue to require the assistance of its debt facilities,” said Hart.
That’s not the opinion of Briggs, however. He told finweek Harmony could zap its R2.5bn debt pile in two years, now that the restructuring was finished.
He also disagreed with a note from Goldman Sachs, which suggested Harmony had underinvested in its assets. “We haven’t been shy on capex,” he said. “We haven’t been starving our operations.”
The plan now is that in knocking out debt, the company will be in a position to fund Golpu, a copper and gold prospect in Papua New Guinea it shares equally with Aussie gold miner Newcrest Mining.
In a sense, Golpu is Harmony’s purpose with the SA gold mines providing the headroom to finance it. “If you go back five years we have spent R2bn to R2.2bn on Golpu, which has come out of SA-generated cash. We get criticised for not paying dividends, but Golpu is very important for the company,” Briggs said.
This is an excerpt from an article that originally appeared in the 19 November 2015 of finweek. Buy and download the magazine here.
