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Classic Business: Mining update with Graham Briggs, CEO of Harmony Gold Mining Company – 01 July 2009

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JOHN FRASER: Harmony, one of our leading gold producers today gave a bit of an update on how things are going and to update our listeners we welcome the CEO of Harmony, Graham Briggs.

Looking at production – we’ll have to talk about safety at some stage but on production levels are things looking a bit more positive?

GRAHAM BRIGGS: Yes they are - a tough month in April we had this quarter so May and June much better; April was a tough month. As you know everyone had mini weeks during April – they had three weeks which were very shortened and of course that affects us as well – our employees also enjoyed those public holidays and we had the election during that month it was a little bit of a difficult time during April but a better quarter than last quarter – around about 3% more production – 4% from underground which is good. It was better and certainly met a little bit more of our expectations than previous quarter.

JOHN FRASER: Costs – that’s always a challenge and that’s something that Harmony has been grappling with for a long time – how are you doing on the cost front?

GRAHAM BRIGGS: Yes costs were up a bit - there were two reasons for that – obviously there was an increase in tonnage which means an increase in production and that always leads to an extra bit of costs in the sort of variable portion. Electricity – we have winter and summer tariffs. Winter tariffs can be quite a bit higher so we had one month of winter tariffs which also increased the costs a little bit. Ultimately productivity is where we’re focusing on to get the costs in a better area in the cost per kilogram phase and that’s really what our drive is going to the future.

JOHN FRASER: We occasionally hear these global numbers out of the Chamber of Mines or Stats SA saying something that South Africa is slipping again in mining production – from your own point of view, what is the current state of play compared to what it was a few years ago and are you planning to expand production significantly into the future?

GRAHAM BRIGGS: The South African industry is certainly slipping – last year it went down something like 13% in production; my expectation for this year is another 10% so it will continue to slide. Harmony is sort of stabilised around this 1.5 million ounces for the last two years and we are planning to increase to 2.2 into 2012, so we’ve got some projects concerning lots of money on growth projects and those will come into fruition in the next few years.

JOHN FRASER: We were mentioning costs just now – one of your most important costs is people – your labour costs – what’s happening in the current discussions?

GRAHAM BRIGGS: People are our single biggest costs - in the total cost scenario around 55% of our costs are labour costs and there are wage discussions happening at the moment - lots of discussions in ‘smoking rooms’ – well we can’t have smoking rooms these days anymore but there would be if they were allowed to smoke there. Yes, lots of discussions, so very difficult to comment on that. We’ve got a way to go - hopefully by the end of this month we’ll have some form of agreement. But it is difficult for both labour and the companies. Obviously we’re fighting the cost increases; people are fighting the various things that are happening in the industry with inflation and so on but we need to get to a win-win situation and therein lies the balance of getting to that win-win situation on labour costs.

JOHN FRASER: Of course the gold price is immensely volatile – what’s it been doing in rand terms recently?

GRAHAM BRIGGS: It’s a rollercoaster to say the least – seven months ago we were somewhere around R320,000 a kilogram and yesterday at close of business we were at about R227,000 – that’s a third less – it’s horrendous. It’s like we don’t get enough thrills at work; we get our thrills at work rather than the gold mining industry – everyone else has to go bungee jumping and rollercoaster riding – we have enough thrills in our work!

JOHN FRASER: Looking back to that horrible, negative series of reports about illegal miners who had got into workings in the Free State and you were having to deal with the problem of bodies being brought to the surface – looking back – could and should security have been a lot tighter? Couldn’t; should you have implemented better proceedings for monitoring who goes down and who comes up from underground workings or was this just something that was out of your control because these were criminals stealing your gold?

GRAHAM BRIGGS: Yes, it’s quite a tragic situation. That fire that the illegals created killed a lot of people and at the same time there is a lot of corruption that is happening; a lot of bribery; people get bribes with lots of good, hard cash to get under ground; to turn the other way and don’t look at what’s happening at the moment. While we were taking bodies out of one shaft people were trying to get down another shaft – more criminals down another shaft! It is a tragic situation; it’s obviously big; it’s driven by syndicates – people that are really in this whole syndicate business. It is being addressed now – very high level, with lots of parties including the Minister of Mines being involved in that. She’s certainly made a commitment and got the parties around the table to try and help. It’s such big money involved in it that unfortunately as much security as we put in, as much criminals find ways around it, but we have done a lot and a great many things on security; on access control, to try and keep people out.

JOHN FRASER: What’s the biggest lesson you’ve learnt?

GRAHAM BRIGGS: It’s very difficult – I think that the big lesson that we’ve learnt is that maybe we could have emphasised the whole crises a lot earlier; maybe so many people wouldn’t have got killed but it has been going on for many years now and there are a lot of people around it and suppliers and people involved in this process – it’s a lot of criminal activity so crime is what’s driving it - we could have probably reacted a bit quicker but on hindsight it’s very difficult to react and it maybe needed a crises like this to get the reaction that it did.

JOHN FRASER: Of course, you were in the spotlight but presumably this is a problem across the mining industry, particularly the gold mining industry?

GRAHAM BRIGGS: It’s a problem… other people don’t emphasise the problem. We have a unique situation in the Free State where a lot of different mines over different years were tunnelled, all underground – you could walk from one area to another; there are a lot of access points. The other issue in the Free State is that the tunnels actually stay open because they’re relatively shallow so you can still access some old areas – in other areas these tunnels would collapse so it’s a bit of a unique situation and therefore we’re more exposed. Remember also in the early days in the Free State, very high grade mines so these areas are getting targeted by criminals.

JOHN FRASER: I couldn’t bring you on the programme without asking you something that’s not involving Harmony directly at the moment, although Harmony has had its own share of corporate activity a few years ago in the GoldFields saga – what do you make of Xstrata and Anglo American at the moment - presumably that’s something you’re watching with fascination?

GRAHAM BRIGGS: I can’t give you an opinion on that but with what’s happening in the world there are going to be these sort of things happening – mergers, acquisitions activity – the reality is there are a lot of exploration efforts – they haven’t been successful; there is a demand for commodities and there is going to be a demand for commodities in the futures; getting your foot on good quality assets is going to be a very desirable business and that’s really what’s going to drive it - there are going to be more of these issues happening – mergers and acquisitions are certainly going to happening in the next few years.

JOHN FRASER: Okay, you’re being very coy on the issue but the South African government and the unions have been very vocal on it – what is the relationship like at the moment between the mining industry and government because there have been times, I’m thinking particularly of Anglo American when they were having serious communication problems with Pretoria – is there a good dialogue these days; is there a good understanding and what do you make of the new minister?

GRAHAM BRIGGS: Well when it comes to the new minister I’m quite impressed; she’s certainly grabbed things by the scruff of the neck and sort of filling in her information boxes, I’m sure she’s going to do a very good job. When it comes to the rest of the government there’s probably a long way to go in understanding how business works and how government should work and you know it’s very difficult to see that business could actually run some of these industries; it has to be done privately.

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