Skip to content skip to secondary navigation Top of the page

News
and events

Media coverage

Disclaimer:
Please note that the articles contained in this section of the website have been selected from articles published by the media. The facts and opinions expressed therein are those reported by the journalist and publication and therefore may not necessarily reflect those reported by the Company.

Summit TV: Harmony targets R1.8bn in cost cuts

Austerity will be the buzzword for Harmony Gold, which is looking to slice R1.8bn from its cost bill, mainly by reducing project spend at its Wafi-Golpu asset in Papua New Guinea (PNG).


Publication: Mineweb
Source: www.bdlive.co.za

Interviewers: Giulietta Talevi

Podcast: Graham Briggs, CEO: Harmony

Summit TV: Austerity will be the buzzword for Harmony Gold, which is looking to slice R1.8bn from its cost bill, mainly by reducing project spend at its Wafi-Golpu asset in Papua New Guinea (PNG). The reason of course is the weaker gold price but production issues over the March quarter haven’t helped with its cost bill, and joining me now in the studio is Graham Briggs, the CEO of Harmony Gold. That R1.8bn in costs, where are you looking to save that from the business?

Graham Briggs: R400,000 of it will come out of services, corporate costs, contracting, various sorts of agreements and so on, so that’s the sort of spread along a lot of the corporate and services area. R400m will come out of South African capital, and that’s not in any one particular project — it’s looking across the various capital areas in the total mines in South Africa. And then the R1bn (from) PNG, most of that will come out of Wafi-Golpu but some of it out of Hidden Valley. The reason we’ve been able to look at Wafi-Golpu in a different way is that really since the pre-feasibility study we’ve done a lot of drilling and that drilling is indicating some real enhancements, especially in Lift 1, which is the area of focus. In the pre-feasibility we did indicate various areas of improvement and they seem to be coming so there’s basically more metal in that area, there’s better recoveries and therefore we believe we’ve actually got a scalable project here — something that can build up to the big mine and not go sort of the big bang, as we were planning before.

Summit TV: Okay so that’s what you mean by a staged approach to Wafi-Golpu.

Graham Briggs: Yes, staged not only in production buildup but probably in capital spend as well, so that sort of staging. It will eventually be a big mine but you know we’re doing a lot of the planning, we need to do those studies and really what we see in the ore body now is a much-improved ore body, especially in the upper levels, which would imply less capital in the early stages.

Summit TV: Graham, can you just remind us how much then you would be spending in total on capital in PNG over the next year. You’re nine months into your financial year but if you had the remainder three months in the next financial year...

Graham Briggs: This year I believe the Wafi-Golpu expenditure is probably going to be around about $112m-$115m, so it’s quite a large amount and that’s where quite a lot of the capital’s gone. In Hidden Valley it’s been quite a bit less and it’s really focused on those improvements — the crusher and so on.

Summit TV: Now, you talk about Harmony being a high-cost South African producer and your all-in costs for the first six months were R393,354 a kilo — now you’re working on a budget of R400,000 a kilo, but the price today is about R425,000 so there’s still a margin of safety but are you worried about it shrinking further?

Graham Briggs: Well I think the last issues in the beginning of April really indicated to us that a bit of the fizz went out of the gold market. ETFs (exchange-traded funds) were being sold, so physical gold was starting to get sold and we saw those sales starting basically around Christmas time and progressing, and then the gold price plummeted to below $1,400 per ounce. We’ve seen recovery now and there’s a lot of buying of physical gold. For instance the Indians are starting to buy gold and so on. They’re clever businessmen — I don’t think they would buy if they didn’t think it was near the bottom, so you know we don’t think that the gold price is going to drop below $1,400 per ounce. So that’s where we get our numbers from — we think there’s a danger if a lot more gold comes onto the market that it may fluctuate around that point. We’re still bullish on gold so we still think gold’s going up but you know there are these short-term areas.

Summit TV: Well, you hope gold’s going up but you do actually make the point that you’re not going to focus on the gold price. You’re going to focus on what you can actually control. But are there any shafts in South Africa that are at risk with the price where it is now.

Graham Briggs: No there aren’t. You know, most of our areas that have been underperforming are those growth shafts, so Phakisa, Kusasalethu, Bambenani’s building up, Target 3 is building up nicely, but that’s where the total costs, because of the capital, have been high — above R400,000/kg. The others, they’ve been performing well. The two mines that are closest to it is probably Unisel — it’s a mine with a relatively short life, about five years, it really hasn’t got huge potential in the ore body — and then there’s another mine, the open pit, which is really a low grade and that would be easy to put on care and maintenance, if you have to.

Summit TV: Is Kusasalethu going to have a much better quarter ahead? It was obviously affected by lots of issues and you eventually reached a deal with the unions, so are things — have they ramped up to full production where you want it to be or is it still taking time?

Graham Briggs: It’s still taking time. Unfortunately we’re back at about 90% of the employees back. As we speak we’re producing about 50% of the tonnage, so it’s busy ramping up. We think that this quarter that we’re in, we’ll get to about 50% of the gold production, but the next quarter it should be back into normal production. We have in the last two quarters — the December quarter and the March quarter — we lost a total of 2.5 tons of gold from Kusasalethu. Not often you can see the cost of a labour issue on a mine because normally there are all sorts of changes that happen but this was a closure through various things and now we’re reopening it so you can actually calculate the cost of that.

Summit TV: And of course the thing is we’re heading into wage-negotiation season, which begins in June. Are you bracing yourselves for strife or do you think you’ve got a pretty good situation? You also make the point that Amcu is now 60% of mine members at Kusasalethu. Do you think that, given that dynamic, it’s quite combustible?

Graham Briggs: There are a lot of dynamics here. There are more participants in this year’s wage negotiations than there have been before, not only from a Union side but also from an employer side. You know, because there are various transactions — you’ve got Pan African, you’ve got Gold One, you’ve got Village Main Reef, so you’ve got more participants from the employer side, you’ve got more participants from the Union side, being Amcu. For us it’s particularly interesting because we have a dominant NUM labour force, so 90% of our members are NUM, 10% is Amcu, but in Kusasalethu’s case, 60% is Amcu. Now you can imagine the dynamics that are going to happen if you’ve got, you know, different stances in the negotiating room. It’s going to be an interesting process and I’m not preparing for strife — I think that would be wrong. I’m not going to go and bash and say, “We’re going to see you out on this.” That’s not the way to do it. I think we’ve demonstrated before a constructive way — we’ve been managing to get variable pay into our negotiating, sharing the profits. That also aligns employees’ interests with those of shareholders — with that of keeping the company a sustainable company.

Summit TV: Very quickly, Graham, and this is sort of completely separate to your mining, you upped your stake in Rand Refinery to 9% from about 1.8%. How much did that cost you and what was the reason behind that? Just to end off with.

Graham Briggs: I can’t tell you the costs off-hand but really it’s about Rand Refinery being a good business, that’s the start of it. It’s also got a beneficiation angle because the product of rand refinery is the beneficiated product. If you look at the gold business, really the big product in the gold business is gold bars and gold coins and that’s what Rand Refinery produces. A very small proportion of gold gets beneficiated into jewellery, and especially in this country. The jewellery market in this country is minimal compared with some other countries and is really very small compared with gold bars and gold coin production, and that’s where the big emphasis is going to be in the future.

Annual report

Integrated annual report 2016
Integrated annual report 2016

(HTML & PDFs)

Investor brief

Harmony Investor brief, Sep 2017
September 2017 -
Harmony Investor brief

(PDF - 6.5MB)

Register for alerts




Joomla Extensions powered by Joobi