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Harmony cutbacks show ravages of low gold price

Publication: Business Report
Source: www.iol.co.za
Journalist: Dineo Faku

Harmony Gold Mining’s austerity measures aimed at reducing services and corporate costs in South Africa and cutting capital expenditure for the 2014 financial year locally and in Papua New Guinea have highlighted challenges in the mining industry as a result of the weak gold price.

Harmony planned to reduce services and corporate costs in South Africa by R400 million and would cut overall capital expenditure locally and in Papua New Guinea by R1.4 billion for the 2014 financial year, it said on Friday.

However, Harmony said there were no plans for shaft or mine closures.

The JSE-listed firm said it would cut costs by renegotiating terms with suppliers and contractors. It would also open the opportunity for staff to take voluntary retrenchments.

Graham Briggs, the chief executive, estimated that 500 jobs could be cut.

“There are 37 000 people working in Harmony including contractors. It’s going to be surprising if the total number of job losses is going to be more than 500,” he told the media during a conference call on Friday.

Harmony’s share price dropped 0.36 percent to close at R39 on the JSE on Friday, its lowest in eight years as it posted substantial losses for the quarter to March on the back of a slump in sales and volatile gold price.

Harmony said operating costs for the quarter were significantly higher as a result of the lower gold production and the closure of Kusasalethu mine in January because of safety concerns.

An analyst who spoke on condition of anonymity said on Friday he expected that more producers would have to cut costs. “Harmony has to take drastic action to break even as a result of the gold price. We can expect similar action from other gold producers,” the analyst said.

Harmony’s overall gold production was 15 percent lower quarter on quarter at 7 699kg in the March quarter, compared with 9 074kg in the December quarter, as a result of the temporary closure of Kusasalethu, the damage to the ventilation shaft at Phakisa and the effect of a slow start-up after the festive season break, the company said.

Harmony, the third-biggest producer of gold in South Africa, posted a net loss of R124m for the March quarter compared with a net profit of R731m in the previous quarter. The decline was a result of a 22 percent drop in gold sales and a 2 percent decline in the gold price in March.

The total headline loss was 47c a share compared with earnings of 158c a share in the previous quarter. The total basic loss per share was 29c per share in the March quarter compared with earnings of 169c in the December quarter.

The volatile gold price, which was fixed at $1 469.25 (R13 104) an ounce in London on Friday afternoon, and which has fallen 30 percent from its record level $1 921 in September 2011, threatened the growth of gold producers including Harmony, whose input costs had increased over the past 10 years, the analyst said.

Harmony reported a 17 percent rise in cash costs in the quarter to R362 491 a kilogram.

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