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Harmony holds off on deals until debt falls

Publication: Business Day
Journalist: Charlotte Mathews

HARMONY Gold Mining had been investigating potential acquisitions in the past six months but did not expect to do any deals until after it reduced its debt levels next June, CEO Graham Briggs said on Friday.

Many junior and exploration companies, even gold producers with high debt levels, were experiencing stress in the current market and were unlikely to be able to raise finance easily in the next six to eight months, he said.

SA was a good place for miners to operate because of the weakening rand but Harmony was not interested in the local acquisition opportunities. It wanted longer-life, better-grade assets and needed to look at acquisitions internationally.

Briggs said Harmony’s decreasing debt levels would give it a major advantage. At the end of June last year the group’s net debt was R3,9bn, which had fallen to R2,35bn by the end of September this year. By next June it expected debt would fall to R224m, assuming a gold price of R220000/kg and applying the proceeds from the sale of some of its uranium dumps.

Harmony was bullish on the outlook for the gold price, despite the volatility seen recently. Gold was still an important part of the investment universe and, with fewer new gold discoveries and funding for explorers under pressure, fundamentals were improving.

In the September quarter, Harmony produced 6% more gold at 12342kg compared with the June quarter as both tonnages and grades improved. After a 3% weaker average rand price at R217295/kg, revenue rose only slightly to R2,7bn from R2,6bn in June.

After a 9% increase in cash costs to R151827/kg, together with increases in items including amortisation, corporate costs and impairment of the investment in Pamodzi Gold, headline earnings, including discontinued operations, dropped to 24c a share from 65c.

An analyst said Harmony’s unit cost increase at 9% was lower than AngloGold’s 12% or Gold Fields’ 23%, but it could have been distorted by the movement of certain costs from operations to corporate. If the R48m increase in corporate costs was moved back to unit costs, Harmony’s cash costs would have risen similarly to AngloGold’s.

Interim financial director Frank Abbott said this move was partly offset by the reallocation of certain costs below R250000 back to operations, so Harmony’s cost increase was not in line with AngloGold’s

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