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'Back-to-basics' works for Harmony


Publication:

Johannesburg - Harmony Gold Mining, the world's fifth and South Africa's third-largest gold producer, on Friday reported a 6 percent increase in total production to 396 803 ounces for the three months to end September 2008.

The company posted a net profit of R404 million for the quarter compared to the R71 million loss recorded the quarter before.

However, headline earnings per share fell 79 percent to 8 cents from 38 cents in the June quarter.

While the company managed to maintain revenue at R2.68 billion for the quarter, an increase in operating costs and a decrease in the gold price received during the quarter resulted in a 19 percent decrease in cash operating profit to R808 million in the September quarter from the June quarter's R995 million.

Operating costs were 15 percent higher to those reported in the June quarter, mainly due to higher power costs with Eskom's 20 percent general tariff increase effective from the beginning of July and higher winter tariffs, annual wage increases effective from July 2008 and stores price hikes of 16 percent.

Quarter on quarter the gold producer's power bill rose by 43 percent and its labour bill by 13 percent.

Capital expenditure for the quarter decreased by 25 percent from R1.3 billion in the June 2008 quarter to R993 million in the September 2008 quarter.

The company's 'back-to-basics' approach has allowed it to return to profitability after a tumultuous year and re-establish a sustainable production that generates earnings to fund dividends and growth.

Harmony chief executive officer Graham Briggs said: "Increased volumes, improved average grade and consequent higher gold production demonstrate clearly that the measures we have applied in implementing our 'back-to-basics' philosophy during our stabilisation phase of our strategy, have delivered the stability we need to implement the next phase of our strategy, being organic growth."

Briggs said while some operations have been slower to turn around than it would have hoped, he believed the company was ready to embark on the 'organic growth' phase of its three-phase growth plan to June 2012.

"We now have sufficient latitude to focus more closely on delivery of our various organic growth projects in South Africa and of the Hidden Valley project in Papua New Guinea, also to clear our debt burden and strengthen our balance sheet, positioning to look towards the third 'organic-acquisition' phase of our strategy from June 2009," said Briggs.

Harmony, which produced 1.55 million ounces in its 2008 financial year, is targeting a 2.2 million ounce production by 2012.

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