Briggs chides Kusasalethu as ponders change

[miningmx.com] – HARMONY Gold was considering an alternative plan for its West Rand mine Kusasalethu, currently closed for two weeks as it deals with the problem of illegal mining, in order to restore it to profitability.

“I did say some time ago that we would be addressing the non-perfomers that we could not afford,’ said Harmony Gold CEO, Graham Briggs. “Kusasalethu is the next one we need to deal with,’ he said.

In August, Briggs closed Target 3 which contributed 4% of the firm’s 1.13 million ounces in gold production only weeks after saying its Phakisa mine expansion had been discontinued and written down for R1.27bn.

Briggs is responding to calls among analysts to guillotine loss-making assets. Goldman Sachs said in a report earlier this year that Harmony was not proactive enough in tackling its loss-makers.

“There are quite a few things that need to change including the attitude of the people,” said Briggs of Kusasalethu’s problems. “Absenteeism needs to be worked on, and we need to get back to a status of ‘we are winners’ rather than ‘we are losers’,” he said.

The mine was producing between 450 kilograms to 500kg a month (16,000 – 17,500 ounces) compared to 1,200kg to 1,400kg (42,000 to 53,000 oz). “It’s a big expensive mine, employing about 6,000 people so its complicated,’ he said.

Kusasalethu, which burned R48m in cash during the quarter, did not achieve its planned production owing to equipment failures in the metallurgical plant, said Harmony Gold in its first (September) quarter report published today.

Commenting in its first quarter operating and financial figures, Briggs said: “Kusasalethu’s production has continued to be problematic and management is working on an alternative plan to return the mine to profitability”.

The two-week closure of the mine relates the prevalence of illegal mining at the operation which BDLive said would cost Harmony about R112m in lost revenue.

Illegal mining in the vicinity of the mine had resulted in three underground fires. Briggs said the risk of another fire harming employees was too great a risk to bear.

“The risk of yet another underground fire that we are not prepared to take and therefore we are reverting to this temporary closure,’ said Briggs on October 31.

Harmony said: “Mr Briggs notes that Kusasalethu’s production has not reached planned levels and these ongoing incidents of sabotage further undermine the mine’s sustainability’.

Harmony narrowed its net loss to R266m in the first quarter compared to a net loss of R1.22bn in the last (June) quarter of its previous financial year following the write-down of Phakisa.

The improvement was based on a 6% improvement in gold production, a function of another increase in grade although Briggs rankled against claims the company may be “high-grading’ certain assets.

“I feel like I get battered on grade,’ he said. “We are not high grading but if we are mining in a big bulk area with higher grade then we will keep on mining it,’ he said.

All-in Sustaining Costs (AISC), which includes corporate and exploration costs, increased a percent to R431,000/kg which compares to a gold price received in the quarter of R443,000/kg providing Harmony with a wafer-thin margin operating margin of about 2.7%.

Nonetheless, the group was cash flow positive. It reduced net debt by about R230m to R1bn in the period. On a basic headline per share basis, Harmony posted a 61 cents loss against a 282 cents/share loss in the previous quarter.

Commenting on plans to seek new acquisitions in Africa, Briggs said the company had looked “at a few things’, but said progress had been slow.

“I think we can operate quite well in emerging economies where there are a lot of community issues, as in South Africa,’ he said. “We are not going to run off to South America as have no advantage of operating better there than any one else. Africa is on our doorstep and we should be looking there,’ he said.

“Some companies are attempting to sell assets to tackle their balance sheets,’ said Briggs. “Some of the juiciest assets are the ones that we are looking at,’ he said.

AngloGold Ashanti said on November 3 that it was considering selling a share or its entire shares in its Colombian asets and Obuasi, a high-grade gold mine in Ghana.