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New acting Harmony CEO’s targeting 18t to 20t a quarter


Publication: Mining Weekly
Journalist: Martin Creamer

Embattled Harmony Gold’s current solution lies in increasing tonnage and getting more gold out, says acting Harmony CEO Graham Briggs.

“We have to turn around the declining gold production,” says Briggs, 54, who takes over from Bernard Swanepoel, 46, who resigned suddenly on August 6.

His surprise departure and a poor results warning resulted in 30% of the value of Harmony’s nigh 400-million shares in issue being destroyed.

“Costs are not the big fight, although we will trim out some. The number one priority is getting the production engine going well,” Briggs tells Mining Weekly in an exclusive interview.

He is targeting 18 t to 20 t of gold a quarter, assuming no further sales and closures.

What he describes as “this terrible” quarter will be below 18 t because volumes of gold were lost in an ore-pass issue at Bambanani and grade issues at Tshepong and Joel – all in the Free State – and other issues in Australia. He presents officially on August 27.

Harmony expects to announce a headline loss a share of between 130c and 160c a share for the June 2007 quarter, compared with the March 2007 quarter headline profit of 58c a share, brought about as a result of a combination of 12% lower gold production and an increase in costs.

A newly installed accounting software system is also being blamed for some March quarter costs being captured in the June quarter, but Briggs assures that the accounting system fault is now fully understood and should not recur.

On increasing production, he says: “It’s a case, initially, of rallying the guys and convincing them that this is not a disaster and cutting away things that keep the team from the rock face,” says Briggs, who joined Harmony in 1995, the same year that Swanepoel, then only 32, was appointed MD.

Some 48 000 Harmony employees are active on 15 locations, 47 000 of them operational at 11 South African mines, 450 on two projects in Papua New Guinea and 3 530 on a mine and a project in Australia.

Australia’s Mount Magnet and South Kal assets are being sold and a GM and a project manager are overseeing the development of Hidden Valley while a prefeasibility study takes place at the Wafi Golpu project, both in Papua New Guinea.

Some 94% of Harmony’s gold is produced in South Africa, where 11 GMs are in charge of “some great orebodies”, says Briggs.

He is optimistic about Tshepong’s Sub 66 Decline Project, which involves an extension at depth of the mine from the current shaft bottom to 2 200 m through the construction of a 1 200m twin decline system. The project is expected to bring to account a resource of 1,4 million ounces over a 13-year life-of-mine.

Next to Tshepong is Phakisa, which is expected to yield 136 t of gold over 19 years.

Doornkop is coming on stream slowly, and “it’s going to be great”, Briggs says.

He is also convinced that, with the gold price at a record rand level of R150 000/kg, Harmony’s so-called leveraged assets, like Bambanani and others, “can make a good wack”.

Briggs likes the promise of Eight Shaft, in Evander, and also Elandsrand.

“During the past 18 months, there has been a re-emphasis on development, and we need to make sure that flexibility is maintained so that the orebodies can be mined optimally,” he explains.

While he will not undo deals – and he regards the sale of the Orkney shafts to Pamodzi Gold as a done deal – there are no other local shafts up for sale, he insists, despite one analyst’s suggestion in the media that Target is to be sold.

“We are going to continue to be unique and we need to do more from our existing orebodies, which can be made to perform better,” he says.

Uranium sweetener

Briggs says some of Harmony’s underground operations have high uranium potential.

If there were a uranium plant and a gold plant at those operations, and if gold and uranium could be co-extracted and streamed through those plants profitably, he foresees the potential for significant by-product credits.

This would lower production costs and facilitate the mining of greater quantities of gold – or, in miners’ parlance, lower the cutoff so that lower ore grades are mined.

Both surface and underground uranium potential is being studied at the Cooke, shafts, in Randfontein, and at Tshepong, Phakisa and Masimong, in the Free State, along with various business models.

“We will probably understand our uranium surface resources in the next six to ten months and the underground study will be longer,” he says, adding that it cannot be ignored that uranium has the potential to reduce the cost of producing gold.

While corporate activity is off his agenda currently, the exception may be corporate activity related to Harmony’s uranium dumps, the striking of a partnership at Wafi, in Papua New Guinea, finalisation of the Pamodzi-Orkney deal, and disposal of West Australian assets.

“But I don’t think that the shareholders would support my going out there now and doing acquisitions,” he says.

Resignation news

Briggs was in the Free State visiting shafts when, on the afternoon of Thursday, August 2, he got a call from a director who said that Harmony chairperson Patrice Motsepe wanted to see him.

That evening he phoned Swanepoel, who told him of his plan to resign because of his belief that, after 12 years, new leadership was needed at Harmony.

Briggs saw Motsepe at the Michelangelo, in Sandton, on Friday August 3, where he accepted the position of acting chief executive.

He says that the ‘acting’ title will remain until the directors go through due process, which they have undertaken to do “fairly quickly”, for the sake of certainty.

“The reason they said it was ‘acting’ rather than ‘interim’ was that they did not want me to keep the seat warm, but to go out and do the job. They wanted action,” Briggs says.

During Swanepoel’s 30-day notice period, Briggs is free to consult him to the fullest extent, while a local radio station reports that the Harmony board has forbidden Swanepoel to make any public statements.

Mineral resource skills

Briggs, who is best known for his mineral-resource management skills, believes that an intimate knowledge of orebodies is crucial.

“The orebody is king and understanding how to get the best out of it is essential,” he says.

“You need to continue regular sampling. You can’t just plug in a number and say you need to do a specific number of metres of development of the orebody without knowing its shape and size and faulting,” he points out.

The Harmony Way involved understanding the detail and Briggs is intent on re-energising the Harmony Way, which was a company maker.

“We have leadership and we have good-quality people below that leadership and also at budding management level,” Briggs says.

Shareholder support

“There must be a few angry shareholders and we need to communicate our message of opportunity to them,” says Briggs.

“We can regain what has been lost and make the situation much better and we can grow the share price once again, and that is just from what we have,” he assures.

“The coming quarter will be better than last quarter, and that is something we are working hard towards,” he predicts.

“The last quarter was extraordinary in respect of cost and systems issues. We understand those issues now, we need to get to understand them better and not make the same mistake,” he says.

“Bambanani is coming on stream, so its next quarter must be better,” he reiterates.

“The combination of Tshepong and Phakisa is probably the jewel in the crown,” he says.

He rates the Papua New Guinea assets as “excellent” and sees extensions beyond the first announced ten years at Hidden Valley.

On the company’s shedding R10-billion in market capitalisation from R38-billion to R28-billion, Metropolitan Asset Management’s Liston Meintjies remarks that, in the Harmony situation, share price and company value need to be separated.

With gold trading at R150 000/kg, he foresees a “wonderful” cash flow from operations that are producing gold, excluding the new developments.

On the reported accounting system problem, Meintjies says: “No board of directors should be happy to report that there is a problem with their accounting system or that the problem has been in existence for six months, without having come forward and revealing this.

“They have surprised the market and, in the kind of market we’ve got, it was bound to be a dream come true for any hedge-fund operator,” Meintjies says, adding that these operators could have “shorted” Harmony on the Monday and Tuesday of the second week of August and then “pocketed a tidy sum” in buying back on Wednesday.

But on value, Meintjies is not convinced that Harmony could have lost 30% in two days.

He sees the value of Harmony as being what it was before the drop or what it ought to be doing in about three years.

With the dollar weak, he sees the gold price heading up and finds Harmony lucky to have in Briggs an acting CEO, who, he says, has been with the company a “good long time”.

Briggs was formerly MD of Harmony Australia, responsible for Harmony’s International portfolio of assets.

Founded in 1950 as a Rand Mines-managed company, Harmony was independently listed on the JSE in 1997 and later on the London, the Berlin, the Paris, the Brussels, the New York stock exchanges and Nasdaq.

Since 1995, the company has expanded from a single, lease-bound mining operation into a large independent gold producer that generates an annual turnover of about R8-billion and extracts about 2,4 million ounces of gold a year.

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