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Harmony Gold "back on its feet" focusing on organic growth


Publication: Mineweb
Journalist: Tessa Kruger

CEO says company has lost 800kgs (24,900 ounces) of gold due to power cuts in South Africa.

Formerly distressed gold miner Harmony Gold (JSE:HMY) appears to be rising to its feet again with strategic plans for all operations in place and being implemented in the March quarter. This is despite the company's estimated production loss of 800kg of gold in the December quarter due to the prolonged closure of its Elandsrand mine.

Harmony chief executive officer Graham Briggs said today the company was only expecting "slightly" lower gold production at the end of January quarter as it had the benefit of Elandsrand Mine producing again. This would partly offset losses due to the four day power cut in January and the need to continue operations at only 90% of full power due to the need to conserve power by the country's power utility, Eskom.

Harmony lost about 1,170kg of gold production in the December quarter due to the shaft incident at Elandsrand, which led to a 44 day closure of the mine. Briggs said Harmony was able to reduce its normal power use by 3% through working more economically and stopping mining in the lower grade, high cost area of Bambanani, an underground operation in SA.

However, the CEO was not too concerned about limited power supply in South Africa, and said that Harmony was continuing with capital expenditure of R4bn ($521m) in the current financial year and R2.5bn ($325m) in the next.

Referring to the company's former accounting troubles, he said that interim financial director Frank Abbott was doing an excellent job at the moment and the company was "right on top of its finances". Harmony was still working on its IT system and had various highly qualified people assisting with the matter.

Briggs said the company would ensure its finances were in good hands if Abbott did decided to leave the company and return to major shareholder African Rainbow Minerals (ARM).

He confirmed that Harmony had started to make a recovery from very poor results in the June quarter of last year when the company experienced problems with new accounting software and said there was now "lots of motivation in the company among the guys".

Briggs had no fear that limited power supply in South Africa would stem the company's plans to achieve "more consistent results in tonnes and grade" through organic growth.

"Harmony has been focusing on organic growth and these projects are now mines under construction, most building up in production from now to 2010. All of these mines will have a longer life with generally higher grades. These production units are larger and we will be expecting more consistent results, both in tonnes and grade," he said.

He added that "these long life mines, together with those already in production, make up the bulk of Harmony's reserves and will have lower cash costs."

An analyst, who preferred to remain anonymous, said the changes being implemented by Harmony would start to show within six to nine months. He expected job shedding - part of the company's "intensive cost control measures since October 2007" - to make a significant impact on the bottom line.

Harmony announced a headline loss of 43cents (US6cents) per share for the December 2007 quarter compared to a loss of 30 cents (US4 cents) per share in the September 2007 quarter. The company said it generated a cash operating profit of R449.8m ($66m) from continuing operations compared with R314.6m ($44m) in the September quarter.

This came on the back of an 8.5% increase in the gold price received to R169,502/kg, but a 4.7% stronger rand/US dollar exchange rate of 677cents.

Total kilograms produced from continuing underground operations fell by 8.3% to 12,403kg, while cash operating costs remained almost unchanged at R133,234/kg ($17,362/kg or $540 an ounce).

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