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Harmony turnaround continues apace
Allan Seccombe
Posted: Fri, 31 Oct 2008
[miningmx.com] -- HARMONY Gold will post similar production and cost numbers in the fourth quarter of 2008 to those in the September period as it continues eroding its debt, leaving it in a position to step up its search for acquisitions, CEO Graham Briggs said on Friday.
Harmony posted a six percent increase gold output of 12.3 tonnes or nearly 400,000 oz in the quarter in which costs jumped to R151,000/kg, nine percent higher than the previous quarter.
Net profit was R402m against a R71m loss in the previous quarter. For a second quarter running, Harmony impaired its 32% stake in Pamodzi Gold, this time by R112m.
Two operations within the Harmony stable of mines are coming under intense scrutiny to restore their operational performance. These are Elandsrand and Target, both of which turned in poor quarterly results.
Elandsrand, which contributed 12% of
Harmony’s 12,342 kg ((397,000 oz) of gold in the September quarter, has been placed in “intensive care”, Briggs said on a conference call.
The mine has the potential to produce 2.5 to three times the gold it currently is, but it’s going to take more than six months to turn around the poor safety performance at the mine, the low morale, the lack of communication and other issues, Briggs said.
As an indication of how seriously Harmony is taking the revival of Elandsrand it has seconded its chief operating officer Alwyn Pretorius to the task, replacing him temporarily by Bob Atkinson, the head of projects.
“It has a top class ore body… it has all the potential to be a world class mine,” Briggs said. “The bad in Elandsrand is people-related... This not only negatively affects safety but production.”
“People who don’t perform will disappear. Everything is getting looked at, the discipline of mining and especially in the safety area,” he said.
Elandsrand’s cash costs ballooned by 19% to R160,152/kg and its cash profit slumped nearly 40% to R86m in the quarter despite gold production staying steady at 1,530 kg.
Target, a mine that lends itself to mechanisation, has been a perennial underperformer, but management has been changed and efforts are underway to better understand the orebody.
It is not a candidate for disposal, Briggs said. Target’s cash profit dived 70% to just R9m after cash costs bulged to above R200,000 kg.
“If you go back to the acquisition and the promises made at that time, certainly we haven’t kept those promises in Harmony’s history,” he said.
“We need to understand that orebody much better. As South Africans, we don’t spend enough time on planning and understanding an orebody before we go ahead in mining.”
With the sale of its Cooke assets into Rand Uranium and cash flows from its mines, Harmony will cut its net debt level by June 2009 to R224m
from R2.4bn at the end of the September quarter.
It is this improvement that positions Harmony to pursue growth, especially at this time of crisis for junior explorers and developers, who are finding it nearly impossible to raise capital because of the global financial meltdown.
Briggs has told Miningmx that Harmony has switched its emphasis in looking at prospective purchases of producing assets instead of just exploration or early-stage assets.
“There are loads and loads of opportunities out there. We don’t plan to increase our debt levels in the next while in order to make an acquisition,” he said on Friday. “We’ll be in a position in June to look more seriously at things like that and get onto sites to do due diligences.”
“Our decreasing debt is a major advantage for us.”
Briggs ruled out buying domestic assets that are near the end of their lives. AngloGold Ashanti is in talks to sell its Tau Lekoa mine, which produced 38,000 oz
of gold in the quarter.
“We are now focused on longer-life assets,” he said, a change in strategy from when Harmony under the leadership of Bernard Swanepoel bought old, marginal mines to drive down costs and extract profits from them where the majors couldn’t.
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