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Merriespruit only remaining potential Harmony closure


Journalist: Martin Creamer

The 1 400-employee Merriespruit 1 is the only remaining gold shaft within Harmony Gold's virtually completed restructuring programme that may yet be closed, Harmony Gold CEO Graham Briggs tells Mining Weekly Online in a video interview.

The JSE-listed gold miner has closed six of shafts in the past two quarters – Brand 3, Merriespruit 3, Harmony 2, Evander 2, Evander 5 and Evander 7 – and Merriespruit 1 has already been impaired.

Impairment costs in the June quarter were 85% down on the R196-million of the March quarter and restructuring costs were down 32% on the R120-million in the March quarter.

Harmony achieved considerable savings following the closure of operations during the past two quarters, notably a R100-million cost reduction at the Virginia operations in Free State province in the fourth quarter.

The savings also contributed to Harmony's rand-per-kilogram costs remaining flat at R199 472/kg, despite the higher electricity tariffs and the inclusion of the operating costs of the new Hidden Valley project in Papua New Guinea. Harmony is currently proclaiming itself as South Africa's lowest cost underground rand-per-ton producer, which Briggs says gives the company a domestic strategic advantage.

"As far as restructuring costs go, there's nothing in our planning in the upcoming quarter," says Briggs, who adds that any restructuring costs that may arise in the future are likely to be small.

"There's probably one more closure coming up, and that's Merriespruit 1. We've given notice of that. But there is a challenge there because we have got agreement with unions, which is a unique one that looks at the gold price as well as costs," Briggs tells Mining Weekly Online.

Harmony Gold has agreed a productivity-linked deal with trade unions, which will limit job losses at its Virginia operations to under 1 000.

When the company announced that it was closing three lossmaking Free State operations, it agreed to keep certain sections of the Merriespruit 1 shaft open, provided that these did not make a loss for two consecutive months. In doing so, job losses would be kept at fewer than 1 000.

The shaft's total costs would also have to remain under R250 000/kg and, in terms of the agreement, the Merriespruit 1 team did well in July.

"Generally, we've been able to avoid a lot of the retrenchments. We've had surprisingly few ‘compulsory' retrenchments. We've had quite a few voluntary retrenchments and my expectation is that, if we were to close within the next three months or so, we'd probably be able to transfer more than half of the 1 400 people to our existing operations.

"That's because we always need miners and the like on our existing operations, and there is build-up coming at Phakisa and Doornkop, where I'm sure we could transfer a lot of those people," Briggs says.

Phakisa, in Free State province, Doornkop, in Gauteng province, and Kusasalethu - formerly Elandsrand - in North West province, are among Harmony's dozen operations in build-up phase.

Harmony declared a final dividend of 50c a share for the second successive year, which Briggs describes as an indication of the company's return to stability.

It recorded a 49% improvement in cash operating profit for the June quarter, to R942-million, attributable mainly to an 11% increase in the rand gold price received to R295 580/kg, and also to production improvements.

Gold production increased by 4% to 346 714 oz, reflecting an 11% increase in tons milled to 4 699 t.

Recovered grade was fairly constant at 2,24g/t, but was influenced by an increase in lower-grade tonnage from surface operations and the inclusion of Hidden Valley's operational results for the first time. The underground grade improved by 5,6% to 4,71g/t.

Total rand costs for the quarter increased by 8,6% to R168-million, the main contributor being the inclusion of Hidden Valley's operating cost for the first time and the 25% higher cost of electricity plus higher winter tariffs.

Hidden Valley, Harmony's 50:50 joint venture with Newcrest in Papua New Guinea, reached commercial production levels in May 2010. Production declared for the last two months of the June 2010 quarter resulted in an attributable cash operating profit of A$2,4-million.

Harmony continues to grow its exploration portfolio in Papua New Guinea, this month announcing the an increase in the mineral resource at the Wafi/Golpu porphyry copper-gold project, which is also part of the joint venture with Newcrest. This Wafi/Golpu resource now contains 16-million ounces of gold and 4,8-million tons of copper, or 38,5 million gold equivalent ounces.

Briggs says that Harmony's South African assets will generate sufficient cash to fund its growth projects. Studies at Wafi/Golpu and outside of the joint venture continue, with Harmony acquiring 8 000 km2 of additional exploration tenements.

Harmony Gold CEO Graham Briggs tells Mining Weekly Online’s Martin Creamer that Merriespruit is the only remaining shaft closure candidate.

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