HIDDEN VALLEY MINE HISTORY AND WHAT IS AHEAD INCLUDING PROPOSED EXTENSION OF THE MINING LEASE - Austmine
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HIDDEN VALLEY MINE
Hidden Valley operational update FY20
HISTORY AND WHAT IS AHEAD INCLUDING
PROPOSED EXTENSION OF THE MINING LEASE
2 HARMONY
2 – WHERE WE OPERATE
▪ Harmony Gold Mining Company Limited of South
Africa (Harmony) is a public company registered in
South Africa and listed on the Johannesburg and New
York stock exchanges
▪ It is South Africa’s largest gold producer, operating
nine underground mines, 1 open pit mine and multiple
surface sources in South Africa
▪ Harmony has significantly invested in PNG mining and
exploration since 2004:
Hidden Valley operational update FY20
➢ Hidden Valley Mine (HVM)
➢ 50% of the proposed Wafi-Golpu Project
(Morobe Province)
➢ 100% of the Kili Teke prospect (Hela Province
➢ 100% of Wau-Namie prospects (Morobe
Province – in vicinity of HVM)
3 3
HIDDEN VALLEY MINE - TENURE
▪ HVM is 100% owned and operated by Morobe
Consolidated Goldfields Limited (MCG), a wholly
owned subsidiary of Harmony.
▪ MCG is the holder of:
➢ Mining Lease ML151
➢ Mining Easement ME 82
➢ Lease for Mining Purposes LMP 80
Hidden Valley operational update FY20
▪ ML 151 was issued on 4 March 2005 for an initial term
of 20 years, expiring on 3 March 2025
▪ Construction of mine in 2007 and commencement of
commercial operation in 2009
▪ Mine faced closure in 2016. Harmony acquired 100%
ownership and undertook a significant reinvestment
program (Stage 6 stripping – PGK 571 million)
4 OVERVIEW
4
OF OPERATIONS
▪ Mining is undertaken in Hamata and Hidden
Valley/Kaveroi (KVK) pits on ML151
▪ All waste is stored in engineered facilities on site
including:
➢ Process tailings report to TSF1. Return water
used in the process plant or treated and
discharged to Upper Watut River
➢ Waste rock from HVK stored in the South dump
(closed), Nosave interim dump (complete) and
Hidden Valley operational update FY20
Niekwiye (active) Waste Rock Dump (WRD)
▪ Majority waste rock from Hamata Pit is non acid
forming and used in the construction of the existing
TSF1
▪ Environmental compliance point at Nauti c. 17km
downstream
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5
HIDDEN VALLEY IS A SAFE MINE
▪ Risk based, proactive approach to safety
▪ World class safety statistics – very low injury rate
▪ Implementing many safety initiatives including:
➢ early warning sirens (potential TSF failure
protection)
➢ collision awareness
➢ fatigue detection
➢ Personal Protective systems
▪ Employee Health programs in place
Hidden Valley operational update FY20
▪ Covid-19 Quarantine Centres and site protocols
▪ Community health programs form part of the
ongoing corporate responsibility
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6
HIDDEN VALLEY IS AN ENVIRONMENTALLY RESPONSIBLE MINE
▪ TSF1 – only large terrestrial tailings
storage facilities in PNG.
▪ All waste is captured in engineered waste
dumps and TSF1.
▪ TSF1 designed to highest standard -
ANCOLD (Australia National Committee
on Large Dams)
▪ KCB design engineers and permanent
presence on site
Hidden Valley operational update FY20
▪ 3rd party review (GHD Consultants) and
Independent Technical Review Board
provide further levels of governance
▪ Quarterly update presented to MRA TSF1 in foreground and engineered valley fill rock waste dumps in the background
▪ No major environmental incidents or non
compliances
▪ Ongoing rehabilitation
7 HVM
7
– A SOCIALLY RESPONSIBLE MINE
▪ Nearest towns are Wau and Bulolo. Mine employment, subsistence farming and
alluvial mining are predominant income generating activities
▪ Landownership:
➢ Watut and Biangai people are principal landowners of ML 151
➢ Tier 1 Landowners – Principally Nauti, Kuembu and Winima villages
(population of 1,250). Represented by Nakuwi Association
▪ Memorandum of Agreement signed in 2005, governing:
➢ allocation of royalty between stakeholders, including Future Generations Trust,
Business development (supply and procurement), employment and training,
Hidden Valley operational update FY20
Hidden Valley Development Foundation (infrastructure projects; grants)
➢ MOA reviewed and Revision provisionally negotiated in 2014 (Initialled but not
executed by all parties)
▪ Local economy significantly relies on mine employment, royalty payments and
establishment of local companies (particularly NKW Holdings Limited) to supply and
service the mine
▪ Development initiatives provided by MCG currently focus on:
➢ agri-business opportunities
➢ Health and education
➢ Infrastructure projects (solar power; road maintenance)
8 8
Tier 5 Non
citizen 4%
Tier 1
Nakuwi
landowners
13%
Tier 4 Rest of
PNG employees
43%
Hidden Valley operational update FY20
Tier 2 Bulolo
District
employees
28%
Tier 3 Morobe
Province
employees
12%
9 HIDDEN
9
VALLEY MINE GENERATES SIGNIFICANT ROYALTIES
▪ MCG has paid an aggregate PGK 151 million in Royalties as at 30 June 2020
▪ Since Harmony’s re-investment (FY17 – FY20), PGK 59.2 million has been paid
Royalty Distribution Royalties (2%) paid till June 2020 - PGK151M
25.0 200
Local Communities,
22.5 180
Morobe Provincial PGK 6.8M, 4.5%
Government,
PGK 34.4M, 22.8% 20.0 160
17.5 140
PGK millions
Hidden Valley operational update FY20
PGK millions
15.0 120
Landowner Groups, 12.5 100
PGK 56.6M, 37.5%
Bulolo District Treasury, 10.0 80
PGK 19.9M, 13.2%
7.5 60
5.0 40
2.5 20
Local Level Government, Future Generation Trust, - -
PGK 30.2M, 20.0% PGK 3.0M, 2.0% FY2017 FY2018 FY2019 FY2020
Annual Payments Cumulative Payments
10 SIGNIFICANT
10 CONTRIBUTOR TO REGIONAL AND NATIONAL ECONOMY
▪ In FY20, Hidden Valley contributed Direct benefit streams for FY20 PGK million
PGK634.2 million to the regional and Total employee salaries (excluding tax) 86.1
national economy Salary and wages tax 36.9
▪ Contractual engagement with Royalties and production levy 25.8
various local businesses, and Benefit share contributions 1.8
particularly with NKW Holdings Local procurement (excluding PPL power) 423.1
Limited (representing the interests of Power purchased from PPL (PNG) 56.6
Tier I landowners -Nauti, Kuembu
Custom duties and FCWT 3.8
and Winima)
Total benefits 634.2
Hidden Valley operational update FY20
▪ Over LOM to date, Hidden Valley has contributed PGK 555.5 million in royalties and direct paid taxes
Before
Description Currency FY2017 FY2018 FY2019 FY2020 Total
FY2017
Royalties PGK'M 91.8 10.7 8.7 19.5 20.4 151.0
Production Levy PGK'M 11.0 1.3 1.2 2.4 5.3 21.2
FCWHT PGK'M 22.2 0.3 3.2 2.5 0.7 28.9
Employee Taxes PGK'M 208.5 30.9 27.8 30.0 36.9 334.1
Customs and Excise PGK'M 3.9 2.3 7.4 3.6 3.1 20.3
Total PGK'M 337.4 45.4 48.2 58.0 66.5 555.511 SO
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– WHY EXTEND THE LIFE OF A MINE
• There is a reasonable investment case, but it is not compelling
• However, Harmony is sufficiently encouraged by:
➢ the gold and silver price outlook;
➢ the forecast recovery in CY20 of Harmony’s 2017 re-
investment (PGK 571 million);
➢ the forecast overall reduction of HVM’s Life of Mine
negative cumulative cash outflow; and
➢ estimates that the proposed extension will produce an
additional 449K ounces of gold and 7.9M ounces of silver
over the period FY24 – FY26,
Hidden Valley operational update FY20
• The mining lease extension will allow continued operations
involving
➢ An additional cutback on the HVK pit (Stage8)
➢ The construction of a 2nd TSF
➢ Mobile fleet and infrastructure replacement
• Without an extension to the term of Mining Lease ML 151,
mining operations are forecast to cease mid-202412 ..THE
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MAIN CHANGE TO THE OPERATION WILL BE CONSTRUCTION
OF NEW TAILINGS STORAGE FACILITY – TSF2
• Disposal of tailings into valley / pit impoundment
facility identified as preferred option based on
comprehensive options assessment undertaken by
KCB and independent third party review (GHD)
• TSF2 opportunistically uses existing Hamata Pit
disturbance.
• TSF2 uses the construction of cross-valley
embankment and will behave as a normal zoned
Hidden Valley operational update FY20
earth fill TSF, similar to the existing Hamata TSF
• Wil be designed using same standards (ANCOLD)
with governance and approval required by the
MRA
• Operation of TSF2 will be similar to TSF1,
capturing all tails and treating water discharge.13 13
THE EXTENSION IS NOT WITHOUT RISKS
• Although HVM is established, the proposed extension
is not without risk
➢ HVM has a history of cost overruns, unscheduled
stoppages, equipment breakdowns and weather
incidents
➢ The proposed programme of work will cost
approximately US$150M (maximum cash out),
with a return of approximately US$68M – which is
a substantial investment for a relatively short
Hidden Valley operational update FY20
extension of operational mine life and a return
which is extremely commodity price, cost and time
sensitive
➢ Payback and returns occur in the last two years of
operation only
➢ Significantly heightened PNG sovereign risk, due
to uncertainties currently attaching to the mining
industry in PNG14 14
IN CONCLUSION
• HVM is well established and a positive outcome will benefit all stakeholders. However, the investment proposition:
➢ presupposes the continuation of the present high gold price (a commercial risk)
➢ entails the assumption by MCG and Harmony of various geotechnical, operational and sovereign risks
• The investment case is reasonable, but not compelling. Capital is in short supply, and HVX is in competition with
other potential Harmony projects worldwide.
• Sovereign risk in PNG is significantly heightened. Fiscal, legislative and regulatory certainty and stability is
essential, especially as payback occurs late in the life cycle of the extension.
Hidden Valley operational update FY20Hidden Valley operational update FY20
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