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Harmony lifts Q1 output, profit as newer assets ramp up

Publication: Mining Weekly
Source: www.miningweekly.com
Journalist: Natalie Greve

JSE-listed Harmony Gold has, for the second consecutive quarter, lifted gold production 12% to 9 635 kg for the first three months of the 2014 fiscal year, from 8 588 kg in the prior quarter.

This came on the back of improved recovered grades at most underground operations and the Kusasalethu mine building up to normal production after the temporary closure of the shaft earlier this year.

Kusasalethu, Tshepong, Target 1, Phakisa, Hidden Valley and Unisel, which were currently being ramped up towards steady-state production, all showed improvements during the quarter ended September 30.

The 12% increase in production drove a considerable 55% boost in operating profit for the three months, from R671-million in the June quarter to R1.03-billion in the quarter under review.

CEO Graham Briggs said on Friday that the company’s strengthened output performance was largely the result of the closure of its original, marginal assets and a renewed focus on its newer operations, which had enabled the low-cost producer to access higher-grade mining areas.

“Harmony has built new mines, enabling it to access new mining zones. It takes time before you reap the results of a long-term strategy, and ours is finally paying off. We have illustrated in the past two quarters that we can deliver and have positioned ourselves to continue delivering,” he said during a conference call.

An improved quarterly performance for South Africa’s third-largest gold miner came as the rand gold price remained steady over the period, with a marginal 0.4% increase from R427 534/kg in the June quarter to R429 566/kg in the quarter under review.

Quarter-on-quarter, the dollar gold price decreased by 5% from $1 407/oz in prior three months to $1 342/oz in the September quarter as the rand/dollar exchange rate weakened by 5% from R9.45 to the dollar in the previous quarter to R9.96 to the dollar in the period under review.

Cash operating costs for the quarter increased by R140-million on the prior three months as a result of a R38-million increase in wages, owing to a yearly wage increase, as well as a R147-million increase in electricity costs on the back of winter tariffs.

“However, these cost increases were partially offset by a R57-million saving at Papua New Guinea-based Hidden Valley,” said Briggs.

Owing to the higher gold production for the September quarter, cash costs decreased by 7% from R347 456/kg in the June quarter to R324 272/kg in the quarter under review.

Similarly, total capital expenditure decreased by R183-million, or 23% quarter-on-quarter, to R622-million, as most operations recorded a decrease in capital expenditure.

Meanwhile, Harmony posted improved quarter-on-quarter revenue from R3.5-billion in the previous quarter to R4.01-billion, driven by a 15% increase in gold sales and stable gold prices of R429 566/kg.

Total exploration expenditure decreased from R219-million to R142-million for the quarter as the Wafi-Golpu project, also in Papua New Guinea, was repositioned and the miner advanced other cost-saving initiatives.

The long-term portion of borrowings increased during the quarter as a further $60-million was drawn against the dollar syndicated revolving credit facility.

Over the same period, cash and cash equivalents increased by R199-million to R2.3-billion, resulting in a net debt of R871-million.

Prospects

Despite short-term gold price volatility, Briggs held that long-term fundamentals remained in place for continued growth in commodity demand.

“Since the financial crash of 2008, investment demand has been among the gold market’s principal drivers. The rand per kilogram gold price has been static in the past two quarters and we are expecting this trend to continue in the short term,” he commented.

However, Briggs acknowledged that, as gold prices weakened and gold mines worldwide remained under pressure owing to rising costs, the company’s only means of remaining profitable was to reduce costs, improve its productivity and lift output.

“We believe Harmony is well placed to meet these challenges, as we are an acquisitive company, known for reinvesting.

“Major capital expenditure has been spent, we have a strong balance sheet with low debt and look forward to the value that Wafi-Golpu will add in future. As a result, we remain firm believers in gold’s ability to preserve value,” he said.

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