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SAfm Market Update: Interview with Graham Briggs

Publication: MoneyWeb
Journalist: Alec Hogg

Listen to the SAfm Market Update broadcast


Alec Hogg: Graham Briggs joins us now, the chief executive of Harmony Gold. Graham, having a look at these financial results for the year to end-June, David Shapiro and I will no doubt have our normal disagreement on share prices and valuations and so on. But, if you have a look at where Harmony is, it is a record profit that you have achieved in the financial year to end-June, and this despite a drop in production. And I guess the longer-terms investors are going to say: "Is this the best you can achieve?"

Graham Briggs: Alec, ja, good evening. I think there is a drop in production, but it was done consciously. There was some restructuring that happened, so we didn't pursue ounces with respect to unprofitable ounces, and there was a lot of restructuring during the past two years and a lot of effort went into sorting the company out, getting into position where it will be much better going in the future.

Alec Hogg: You are just under 1.5m ounces a year now. You are planning, or so you say in your commentary, to get to 2.2m ounces. That's a long way.

Graham Briggs: That's a long way. Remember that we have spent a lot of capital on our projects, on our growth projects, a lot of that commissioning is happening. Hidden Valley commissioning is happening and that will produce in the region, probably, of 140 000 to 150 000 ounces for us per annum. Doornkop is commissioning a lot of what has been quite a difficult process, Phakisa has been commissioning ice plants and so on, and Elandsrand is building up. So ja, I think there's a lot of substance to the plans, but it is a fairly steep target to 2012.

Alec Hogg: You are also looking at Pamodzi Gold, that acquisition. You did announce today that you have come to an agreement with the liquidator to buy it for R405m - not it, but a big part of Pamodzi Gold. You happy with the due diligence?

Graham Briggs: Yes, we did extensive due diligence. These assets are obviously in an area that we know. We surround these assets with our assets, so we know the assets quite well. We have interesting synergies with them that nobody else has, so that's definitely a benefit.

Alec Hogg: So it makes sense for Harmony to buy them, whereas other gold miners perhaps wouldn't have made that much sense.

Graham Briggs: Yes, and I think the assets are difficult assets. There are some parts of the assets that are old and near the end, and those are in fact exactly how we'll treat them. The other pars of the assets need some development. So the northern part of the assets need a fair amount of development, a lot of synergies with Target and Tshepong. The southern assets - we'll try to get the best out of them, and that will be it.

Alec Hogg: The problem for Pamodzi Gold has been a lack of capital. You've managed to wipe out your debt. In fact, you're now debt-free. But you are talking about acquisitions on the one hand, however. You must have plans to invest some capital into Pamodzi to bring it into production.

Graham Briggs: Yes, yes. Indeed. And although we talk about acquisitions, we've been looking around and there's really nothing that we've found. So most of the money, if we have excess money, we will be spending on growth projects or indeed Pamodzi Gold.

Alec Hogg: You did announce a dividend today of 50c/share. That puts you on the not-so-attractive dividend yield of 0.6%. What was the point?

Graham Briggs: Fairly conservative. I think the intent was really to show shareholders that we are a healthy company again. We hadn't really planned to pay a dividend this early, but we are a healthy company. Dividends I think indicate thanks to shareholders for sticking by us for the last while.

Alec Hogg: You've got some real challenges on the costs front. Electricity according to, again, your statement today, is going to go from 12% to 16% of your operating costs. That'll wipe of about 10% of your profits at the current margin, just in electricity. You've got the wage settlements of 10%, which is above inflation. Where are you going to be able to cut costs elsewhere?

Graham Briggs: The high electricity cost is really a quarter phenomenon for this next quarter. September has got basically three months of winter tariffs, which is the high costs. So electricity certainly has gone up, but the 16% that we estimate right now is a September-quarter issue. After that it settles down to the normal - what will be the new normal at sort of R230m/quarter, up from R170m. The challenge on electricity is still to save the electricity and to use more electricity in off-peak periods and in such a way save on the costs. Labour has high increase - sort of 9.2% on the wage bill, which is about 5.2% on the total costs, and the challenge there is to improve productivity. We have put in place a lot of issues to try and help on that front, but that is really an area where we need to push some more.

Alec Hogg: Graham Briggs is chief executive of Harmony Gold. David, it's hugely expensive at the price.

David Shapiro: Well, look, I...

Alec Hogg: Way overpriced the share. R75/share, and you've got a 0.6% dividend - OK, that was just a nominal dividend they paid. Earnings yield - record earnings, remember - 3.5%. Go on, you've got to get better somewhere else.

David Shapiro: I agree with you. I think that Graham's done well. The company is in much better shape.

Alec Hogg: At least they aren't going to go bust. We know that.

David Shapiro: And what do you need to drag it out, to make it more attractive? You need the gold price to scream higher and the rand to fall a lot, to weaken a lot. Then you'll get the gearing. But at these levels you can see it's battling, and I think you touched the major point - costs. So I agree there's better places to put your money than in gold shares at the moment. But all credit to Graham, and I think to other mining companies, for turning things around.

Annual report

Integrated annual report 2016
Integrated annual report 2017


Investor brief

Harmony Investor brief, Sep 2017
September 2017 -
Harmony Investor brief

(PDF - 6.5MB)

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