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‘Don’t panic’ says exposed, unhedged Harmony on rand gold price slump

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JOHANNESBURG ( – The strengthening South African currency is decimating the price of gold in rand terms, at a time of rising energy costs and robust wage demands. “But, the important thing is not to panic,” says Harmony Gold CEO Graham Briggs, whose totally unhedged gold-mining company is currently still fully exposed to the price of gold in South African currency.

“Don’t suddenly do things that are going to have long-term negative effects,” Briggs advises, in an interview with Mining Weekly Online, adding that only if the slashed rand price persists should strong action be taken.

Currently, the unhedged Harmony has 100% exposure to the rand/dollar exchange rate, which has strengthened into the higher-R7-to-the-dollar range.

Although Harmony will benefit in the near term from small quantities of gold coming out of its joint venture at Hidden Valley in Papua New Guinea, the company remains overwhelmingly exposed to the price of gold in local currency and it is the most dominantly-South African gold producer of the three largest South African gold producers.

“The price is now two-thirds of what it was six or seven months ago. Now, that’s quite a dramatic change,” says Briggs.

So dramatic, in fact, that it comes uneasily close to Harmony’s base price of R225 000/kg, which it set in January for the purposes of planning.

“Who would have said that a few months ago, when the price was at R320 000/oz?”

Should the shattered rand price persist, Briggs plans to reduce capital expenditure and eliminate expenditures that are acceptable in times of plenty, like exploration, but unpalatable in lean times. He would also take the opportunity to high-grade.

On Harmony’s selection of R225 000/kg as a base planning price, he says that R225 000/kg is the breakeven price, but points out that it pays for ongoing capital alone and not for growth capital.

While Briggs is not unhappy with the mid-$900/oz dollar price of gold, he believes that the placing on to the market of significant volumes of gold scrap is part of the reason why the precious metal has failed to return to the magical $1 000/oz mark.

‘Everyone’s taken granny’s jewellery and started to sell it to pay some of the other bills, so there’s a lot of scrap coming on to the market, which is supporting the supply side of gold,” Briggs says.

On Harmony sitting on R1,5-billion in cash, he adds: “It’s absolutely the time when you need money in the bank… you need to be able to react quickly.”

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