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Harmony quarterlies

Publication: Summit TV
Journalist: Giulietta Talevi

Watch the Summit TV interview.

Summit TV speaks to Graham Briggs chief executive of Harmony about their quarterly results that includes a production increase of 6% but higher electricity and labour costs

Giulietta Talevi: Welcome to Face to Face. Harmony Gold was the third of the major gold producers to release their quarterly numbers. Graham, your production over the September quarter was 6% higher - which was ahead of your own guide and market expectations - what was behind that lift?

Graham Briggs: It was obviously a quarter where some of our projects were starting to deliver - they were really on the cusp of delivering more - so some of these predictions obviously we don’t quite right. It’s always good to present better results than we predicted.

Giulietta Talevi: Which projects are starting to deliver as you say?

Graham Briggs: The projects we’ve been talking about for quite a while - Doornkop, Elandsrand and Phakisa. Those projects are just starting to deliver into the growth and their capital is coming down quite dramatically. Those are really picking up. That’s what we’ve been driving for spending a lot of money - everyone supported us with the huge capital we spent in the last few years - but now they are starting to deliver.

Giulietta Talevi: You’ve still recorded a net loss ultimately of R29million. Was that because of the strong rand?

Graham Briggs: The stronger rand. Costs were up a little bit - although we got better gold it didn’t quite cover all of that. The stronger rand - a little bit stronger - mainly because of the exchange rate. That was the thing so the gold price in rand terms was down a bit from the previous quarter.

Giulietta Talevi: The stronger rand - it’s actually weakened a bit in the last couple of days - but up until now I’d imagine it’s been having quite a harsh impact on your more marginal shafts. You mentioned possibly having to look at restructuring the higher cost operations - are you actually looking at shaft closures at this stage?

Graham Briggs: What we’ve been looking at is there’s quite a few of our shafts that are really close to the end of their lives - in fact we’ve given quite a lot of notice that the ore bodies have already depleted - so in our plans over the next three years we have got several shaft closures. It’s always been our intention to try and move people from the existing shafts into the build-up operations. There’s operations like Brand where we’ve really got a lot of ore out of those shafts in the last five years - we took them over when they were nearly depleted and managed to mine them for that much longer - but they really are almost finished now. It’s really a depletion of the ore body situation in quite a few of those shafts. They’ve been in our plans but it’s a case of timing as well.

Giulietta Talevi: Are there any other shafts that weren’t in your plans that are now being affected by the stronger rand?

Graham Briggs: No, there aren’t. The shafts we are talking about are in Virginia - there’s five operations there. Some of the operations have actually been underperforming slightly - but those aren’t at issue. That’s two of our operations in the Virginia complex. At Evander we scaled back shaft seven quite dramatically just over a year ago. The ore body is depleted there. Then there’s two and five shafts in Evander.

Giulietta Talevi: You mentioned higher power costs are having an effect. You said at the presentation that if Eskom gets its way with a 45% price increase over three years that could add at least 15% to your costs as I understood it. Can you give us an idea of what percentage of your South African production would actually be rendered completely unprofitable if Eskom gets its 45% increase over three years?

Graham Briggs: It’s quite a complex situation because - obviously if the power goes up it’s not just the direct cost of power to us. Everything else around that goes up - steel costs will go up, all the commodities that we buy those costs will go up. There will be lots of pressure on wages and on people being able to pay their bills therefore there will be wage demands so it’s quite a vicious circle that we get into. The 15% is per annum that it will cost us more if that were to happen - if that proposal were to go ahead - so that’s quite a dramatic effect. It’s easy for us to calculate the effect of electricity only - but it’s very difficult to calculate the whole effect and how many mines we’d have to close - but certainly a large amount of production would be in jeopardy there is no doubt about that. Probably 90% or 92% of our production still comes from South Africa so we are very sensitive to this issue of costs in South Africa.

Giulietta Talevi: Presumably you must be making a submission to Nersa on this very issue?

Graham Briggs: We are certainly involved in that process, yes.

Giulietta Talevi: Talking about the fact that around 90% of your production is still from South Africa you’ve got a mine in Papua New Guinea that must be quite key for you at this stage because mining in South Africa is becoming a lot more difficult and a lot more expensive - can you talk a bit more about your plans to perhaps increase production from other operations around the world?

Graham Briggs: I think it’s sensible for a gold mining company to have a little bit of geographic diversification - in other words mining in different countries adds a bit of diversity. We’ve been spending some time in Papua New Guinea building Hidden Valley Mine and doing a fair amount of exploration. Papua New Guinea is a great country to explore - there’s certainly going to be more mines there in the future. Wafi-Golpu is turning out to be a great province with gold potential and copper gold porferys as well. That’s certainly a focus. We are really doing it from the project development and exploration side - we are focussing on that side. When we look at acquisitions it would be nice to find a nice juicy acquisition offshore somewhere - the reality is that the prices those people want to divest at is very high as they’re factoring in the $1,050 gold price in dollar terms so those acquisitions are expensive. We’ve always said that if we acquire something it will be to add value to Harmony and to add value it has to be more competitive than what we have. That’s in the $500 to $550 range so it needs to be lower than that. There aren’t too many dripping roasts out there.

Giulietta Talevi: The analysts say - and you’ve said it in your commentary - that in order for you to mitigate the impact of the stronger rand and higher costs you have to increase your production. Can you talk a bit about your production forecast for the 2010 year as a whole and is it likely to rise substantially from these levels?

Graham Briggs: Our production forecast is just above 1.6 million ounces for this year so a fairly slow start coming off last year of about 1.46 million ounces - but that increases quite dramatically in the forthcoming year building up to 2.2 million ounces in 2012. For this year we’ve got that slow build up - but it’s coming through and it’s showing in this quarter and it will show even more in the next quarter. That’s around 375,000 ounces this quarter moving a little bit and getting to just over 1.6 million ounces for this year. The production we are talking about is coming from newer projects - newer mines that will be more competitive. The older mines with very high costs will get closed down and these will be the newer mines.

Giulietta Talevi: Will that bring your costs down because they have been rising?

Graham Briggs: It certainly will bring our costs down. That’s the whole plan - we are planning the cost per kilogram coming down to R145,000 in the future. Obviously things like Eskom play into that - I don’t want to give a prediction on that.

Giulietta Talevi: The gold price where it is at around $1,045 an ounce and the rand having weakened to about 7.70 against the dollar - are you making enough money as it stands?

Graham Briggs: Yes. We’ve certainly been spending a lot of capital - this quarter we spent R950million, next quarter will be about R100million less and it decreases by R100million every quarter for the next three quarters. That gold price difference is between the quarter and today is around R220million more in profit that we get from the gold price.

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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