Harmony Gold output dips, profit up

Allan Seccombe | Mon, 08 Feb 2010 08:44
[miningmx.com] -- A higher rand gold price and the removal of winter electricity tariffs from the cost line contributed towards a headline profit of R207m at Harmony Gold in the December quarter in which underground production fell as the group shut down loss-making operations.

Cash operating profit was 45% higher at R800m.

Harmony has shut four shafts over the past four months and is looking very closely at another three, namely Harmony 2 and the Merriespruit 1 and 3 shafts. Harmony is minimising job losses by transferring workers to its growth projects at Doornkop and Phakisa and its newly acquired President Steyn operations.

“We will continue to closely monitor Harmony 2, while the Merriespruit shafts appear to have remaining potential, provided they meet their production targets,” Harmony CEO Graham Briggs said.

Harmony 2 is a relatively small producer of 30,000 tonnes/month at 3 grams/tonne and has is struggling from an orebody point of view. "We'll have to see in the next six months. We don't plan to close in the next quarter... It's the only operation really under threat," he said.

Harmony recorded a R3m restructuring cost and might match that in the current quarter related to the closures, said financial director Hannes Meyer.

The received rand gold price was up 10.6% at R264,774/kg.

“While the higher Rand gold price received during the December 2009 quarter was most welcome, we still hold the view that general rand strength is likely to continue for so long as any global economic uncertainties last. We therefore expect the gold price to remain fairly flat for the next 12 months in R/kg terms,” Briggs said.

Harmony has burned its way through a sizeable chunk of cash in the past six months, moving to net debt of R220m at the end of December from net cash of R730m in the September quarter. The bulk of the outflow, some R890m, went to capital expenditure, and R380m on the President Steyn acquisition.

This prompted some analysts to warn that the net debt position could deepen as Harmony continues investing in its growth projects and its newest acquisition, the President Steyn mine.

On top of the purchase price, Harmony has to spend nearly R300m more to bring President Steyn up to production of 150,000 oz/year in two years.

Underground volumes fell by six percent and grade was flat at 4.51 grams/tonne (g/t), which meant underground gold production was nearly six percent lower at 325,268 oz.

Surface operations kicked up production by almost 47% to 46,688 oz because of the ramp up in production at the Hidden Valley open cast operation in Papua New Guinea.

“Re-treatment of surface tailings is proving to be an attractive proposition from both safety and cost perspectives,” Briggs said.

Harmony plans to more than double throughput at its Phoenix Project in the Free State to 900,000 tonnes per month from the current 400,000 tonnnes. At Project Saints, Harmony will upgrade the mothballed St Helena plant to treat tailings over the next 20 years. Harmony is studying financing options to fund these projects.

Harmony's management will not only deal directly with operations but matters on a larger scale in South Africa.

"We will continue to engage in robust, constructive debate on issues that may affect the South African mining industry - in particular the outrageous power price increases being considered and the nationalisation of the mines," Briggs said.

Eskom, the power utility, has requested three annual hikes of 35% each, something that will ramp Harmony's electricity costs to R3bn a year in South Africa from the current R900m. This increase in costs will accelerate the closure of marginal shafts and lead to job losses.