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Harmony Gold Q2 results: Hannes Meyer – financial director, Harmony Gold


Journalist: Hilton Tarrant

Listen to the Moneyweb: Interview with Hannes Meyer, the financial director of Harmony

‘We have...closed down some of the shafts that were non-profitable.’

Hilton Tarrant: We are joined by Hannes Meyer, the financial director of Harmony, who is with us in the studio. Hannes, Harmony posting numbers for their second quarter to December today, posting headline earnings, versus a loss in the September quarter. Year-on-year, though, not looking too great, down 63% in rand terms. However, you are capitalising on a higher gold price, even with your production pretty flat.

Hannes Meyer: Yes, Hilton, thank you. There are a few things that we can control. We can control costs, we can control grade and production. What we've looked at, if you compare it to the previous six months a year ago, certainly there were certain ounces that fall out of our production profile. We have now moved to more profitable ounces, closed down some of the shafts that were non-profitable, and we obviously got a nice benefit on the rand. I think as long as we control costs, make sure we meet our production targets, we are sitting pretty good.

Hilton Tarrant: Hannes, you mentioned those costs. They did creep up from the first quarter to the second quarter. The gold price at around R240 000/kg, moving up to R264 000/kg. If you were to take a view forward - not wanting to get you to project the gold price into the future, but looking at these current levels - are you pretty much happy with where the rand is, where the currency is, and where the gold bullion price is?

Hannes Meyer: Hilton, I think we get various opinions, and our view is that it's probably going to be pretty flat for the foreseeable future. Long term, gold demand's probably still strong and the fundamentals still in it for a stronger dollar gold price. But, as you mentioned earlier, we are still R264 000, R265 000/kg over the last quarter. With our biggest measure in terms of the gold price that we receive it still remains in hand, and at R265 000/kg we are still pretty profitable on most of our shafts, although there are some of the shafts that we must pay close attention to and make sure that they are still operating well beyond the margin.

Hilton Tarrant: One of the big components of your costs is obviously electricity. We've seen quite a steep ramp-up in the electricity prices from, say, a year ago versus currently, Eskom currently trying to push through their 35% increase for the next three years. What does that do to the profitability of your shafts?

Hannes Meyer: Underground gold mining is a big consumer of electricity. Electricity is currently about 13% of our operation costs. A lot is used in cooling and hoisting. So if we do get these proposed increases, it will certainly increase that cost base quite a bit. We've got a few growth projects that we are building - the Doornkop, Phakisa and Elandsrand mine. We are improving those mines, it's coming in at a lower cash cost, but there are certain other operations that will be closer at the margin, and will be stretched at those proposed increases.

Hilton Tarrant: Surely there's a focus on efficiency, on trying to cut your consumption further than you already have?

Hannes Meyer: Hilton, there's been huge focus on this, and on all areas during the last few years. I don't think we've got a lot of important things to do on an efficiency basis; there's a constant focus on that, trying to improve as much as we can. It also depends on the shafts. Our newer shafts and newer growth projects are certainly close to the infrastructure and will be cheaper on a kilowatt-per-ounce-produced basis, compared to the older shafts, which are mining much further from the infrastructure.

Hilton Tarrant: Hannes, let's look at one of the interesting prospects for you, the Pamodzi Free State assets which you bought last year. What's the timing like there? When are we likely to see production?

Hannes Meyer: We are basically at the last stages of meeting the conditions precedent. We are hoping it might happen this week or next week. As soon as that happens, we will have our first blast and actually start mining there. We've already recruited about 800 people, so we've already re-employed some of those Pamodzi employees that were retrenched during the last year. So we are building up to that and we are looking forward to actually moving into those areas and starting production there.

Hilton Tarrant: Your prospects in Papua New Guinea - equally positive if not more positive than that ramp-up in the Free State, with Hidden Valley a quality asset. What's the ramp-up looking like?

Hannes Meyer: Ja, we are very excited about our Papua New Guinea assets. At Hidden Valley we should be reaching commercial production during this quarter. We've produced already quite a few ounces during the last quarter from Papua New Guinea, although it was still capitalised. It's probably February or March when we will reach commercial production, and there's also quite a nice silver by-product credit. So for the next year it's still probably on the high-ish cash cost side but, as we move into better silver areas and sort out all of the sort of commissioning hiccups that you do get from time to time, you'll see better cash costs coming through.

Hilton Tarrant: Hannes, the broader outlook for the group - still aiming at 2.2m ounces a year? You did about 1.5m in the previous year. Are you still comfortable with that target?

Hannes Meyer: Yes, we are still comfortable with that target. We produced 750 000 ounces for the first half of the year, so it's 850 000 left for the second half. Papua New Guinea is coming in, Phakisa is starting to deliver, Doornkop is coming on stream ... so our growth projects are really delivering and coming on stream and delivering the goods.

Hilton Tarrant: Hannes Meyer is the financial director at Harmony.

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Harmony Investor brief

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