By: Mining weekly

The dividend involves a total payout of 43% of net free cash and an increase of 23% over the previous dividend policy, which is now revised to allow for up to 50% of net free cash to be returned to shareholders, Harmony FD Boipelo Lekubo outlined at the presentation, which reported 9% lower half-year gold production of 724 000 oz and 21%-higher all-in sustaining costs of $2 115/oz.

“The cash we’re generating today is enabling us to fund a future in both gold and copper,” an upbeat Nel reported during the well-attended presentation covered by Mining Weekly.

The operating profit of Harmony, which is a geographically diversified producer with assets in South Africa, Papua New Guinea and Australia, was up 61% at R16-billion on 11% lower output but in-line underground recovered grade of 5.72 g/t. Basic earnings per share were up 24% at 1 563c.

Harmony’s portfolio is underpinned by 136-million ounces in mineral resources and about 37-million ounces of mineral reserves providing scale, longevity and optionality.

“Gold remains our core, while copper is our strategic growth lever,” Nel explained.

Harmony plans to bring 100 000 t of copper online a year from Australia within the next few to five years.

“Guided by long life asset optimisation and disciplined capital allocation, we prioritise value over volume to build a more profitable and sustainable Harmony over the long term. We’re not targeting a fixed copper-to-gold ratio. Our decisions are driven by fundamentals, economic value and reserve strength."

By financial year 2035, 40% of production may be copper from Eva and CSA, both in Australia, and from Wafi-Golpu in Papua New Guinea, “complementing our South African gold base and enhancing resilience and also margins. Operational fundamentals remain firmly intact, despite some short-term headwinds,” Nel noted.

The lower 724 000 oz of gold reported for the reporting period was impacted by an industry-wide cyanide shortage and lower plant recoveries in South Africa.

Although underground recovered grades decreased by 11% to 5.7 g/t, face grades mined were in line with our plans, and plant recoveries have reportedly now also normalised.

Hidden Valley’s production in Papua New Guinea was affected by a tectonic-related mill motor failure and gold shipping delays, which impacted the amount of gold sold during the period.

Group all-in sustaining cost (AISC) rose to R1.18-million per kilogram, or $2 115/oz, owing to lower volumes and much higher royalties paid.

“I'm confident that we’ll remain on track to meet full-year production cost and grade guidance. We’re generating strong free cash flows. On the back of consistent strong operational and financial results, we’ve revised our dividend policy to reflect the higher base dividend and additional performance related payout. This means shareholders could receive up to 50% of net free cash as a dividend. Our interim dividend has more than doubled, rewarding our shareholders alongside our growth aspirations," Nel pointed out, while emphasising that copper and gold are both intrinsically important to Harmony, which is well positioned for growth.

“Our diversified portfolio is delivering strong, adjusted free cash flow margins. This mix supports operating leverage, funds growth and underpins disciplined life-of-mine extensions,” Nel added.

Safety reinforcement

Harmony’s lost time injury frequency rate reached an all-time low of 4.23 and has remained below five for three consecutive quarters now.

“We're deeply saddened by the loss of our colleague in the second quarter, because any loss of life is unacceptable and reinforces the need for continued discipline and vigilance across our operations.

“We are systematically applying lessons learned and reinforcing safety across the organisation. Our remuneration scorecard is now also linked to both leading and lagging safety indicators.

“We're making clear progress delivering a loss-of-life free first quarter, with all major indicators improving year on year. This reflects strong compliance, effective management and supervisory routines and life-saving behaviours at every operation, on every single shift," Nel said.

Surface operations

Hidden Valley and South African surface operation margins were described as remaining excellent, with Hidden Valley’s surface operation margin at 48% and the South African surface operation margin at 42%.

South Africa’s high-grade underground mines are producing at a solid 37% margin, while margins at the South African optimised underground assets doubled to 22%.

The South African high-grade surface assets and Hidden Valley are operating at globally competitive AISCs.

South African optimised underground assets remaining higher on the cost curve skews the overall portfolio - these mines are profitable, and Harmony remains focused on optimising cash flows on these mines for maximum net present value over the life of the mine.

“Our first rand or dollar goes to safety and sustaining our operations. We then allocate organic projects and advanced copper and gold scale only where risk adjusted returns clear our hurdles.

“We continue preserving balance sheet strength for discipline and consistent through the cycle dividends.

"Every initiative competes on risk, margin and cash conversion while we grow selectively, sequentially and affordably, turning today's gold price tailwind into durable compounding value,” Nel added.

Eva project

The project metrics of the greenfield Eva copper/gold project are based on an estimated copper resource of two-million tons. Construction is underway and the ramp-up to first production is expected before the end of the 2028 calendar year.

Eva’s average grades of 0.4% copper and 0.07 g/t gold support the decision to scale processing capacity to 18-million tons a year.

Production of 65 000 t of copper a year for the first five years is planned, with average annual production of 60 000 t over the life-of-mine of at least 15 years. Being consolidated are six deposits and ten openpits.

The total capital, spread over a three-year period, is expected to come in at between $1.55-billion and $1.75-billion.

Cash costs in the first five years are expected to be $2.07/lb on base assumptions.

CSA’s immediate copper

The CSA mine, which is Australia's highest-grade copper mine with a reserve grade of above 3.4% and more than 12 years of reserve life, provides immediate copper.

Integration is progressing as Harmony embeds its governance, operating standards, and disciplined approach to capital and risk management.

Since taking full ownership towards the end of October last year, CSA employees have been aligned to Harmony’s culture and values.

A seven-day safety stoppage has been implemented to upgrade secondary egress systems and shafts.

A geotechnical sequence is being established at the mine, decline development is being prioritised and ventilation projects implemented.

The development of the upper mine has been paused pending further drilling to improve orebody confidence.

An upgrade of the shaft steelwork of two levels is underway, resulting in a one-month stoppage in quarter three.

Roughly R300-million in costs have been removed since acquisition, mainly relating to corporate overheads and financing costs.

Complete mine optimisation is expected to take around 18 to 24 months.

Copper production of 17 500 t to 18 500 t is expected at a recovered grade of above 3.5% for financial year 2026, this despite the one month planned stoppage in the shaft.

Capital expenditure of R1.1-billion is planned during this financial year.

The cash costs at CSA are expected to be between $2.65/lb and $2.8/lb and longer-term guidance will be provided in August.

The CSA orebody is described as being "exceptional", with recent exploration indicating material growth potential with significant high-grade intercepts already evidenced.

Planned is an underground and surface drilling programme over 24 months to improve geological, geotechnical and metallurgical understanding for mine design, long-term planning and potential expansion.

Harmony is positioning CSA for long-term value creation through safe, predictable production and unlocking potential regional synergies as our footprint in Australia grows.

Dividend detail

Regarding Harmony’s amended dividend policy allowing for up to 50% of net free cash to be returned to shareholders, Lekubo noted that this was subject to the discretion of the board and net debt-to-earnings before interest, taxes, depreciation and amortisation levels.

“The revised policy now includes an improved base dividend, which has been increased from 20% to 30% of net free cash, after all capital, including major capital.

“In addition, an upside dividend may be paid based on leverage levels.

“When leverage is equal to or above 0.5 times and below one times, only a base dividend of 30% of net free cash flow is payable.

“As leverage improves, the board may, at its sole discretion, consider an upside dividend of up to 20% of net free cash.

“In line with our new dividend policy, we are pleased to announce an interim dividend of 530 South African cents per share for this reporting period, resulting in a rolling 12-month dividend yield of 2.2%.

“This represents a total payout of 43% of net free cash and an increase of 23% over the previous dividend policy,” Lekubo explained.

While gold is underpinning cash generation, copper is providing durability and growth, Nel pointed out.

“Our strategy is aimed at building enduring long-term value.

“We’re doing this through safe, profitable ounces, quality reserve conversion and disciplined copper scaled alongside our sizable gold portfolio.

“Our four strategic pillars of responsible stewardship, operational excellence, cash certainty and capital allocation guide everything we do,” Nel emphasised.