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Costs, lower output drive Harmony into a quarterly loss

Journalist: Bheki Mpofu

HARMONY Gold, the world’s fifth- largest gold miner, moved back into the red again in the third quarter to March as a result of lower production and higher costs.

Harmony reported a net loss of R295m from a profit of R118m posted in the previous quarter, while the cash operating profit was 21% lower at R634m. This was mainly due to lower production from continuing operations, Harmony said.

Gold production was 10% lower at 10366kg than the previous quarter due to shaft closures and work stoppages, with 6% attributable to the closure of operations.

Harmony’s closure last month of unprofitable shafts during the quarter resulted in operating costs declining 7% to R1,96bn from R2,1bn.

The fall in output and weaker earnings were in line with other industry leaders Gold Fields , which last week reported an 11,8% decrease in output in the same quarter, and AngloGold Ashanti , which posted a 9% decline. Gold Fields and AngloGold attributed the decrease largely to the Christmas seasonal shutdown and work stoppages.

Harmony CEO Graham Briggs raised concerns about the number of stoppages ordered by the mines inspectorate, saying some had not been necessary.

Last month Harmony announced a second round of closures of Harmony 2 shaft and Merriespruit 1 and Merriespruit 3 shafts planned for the fourth quarter, which will result in jobs being lost.

This follows Harmony’s closure in the previous quarter of Evander 2, 5 and 7 and Brand 3.

Briggs said the company would continue to focus on growing output, diversifying its geographic footprint and closing loss-making shafts.

“We continued the difficult but necessary process of restructuring to eliminate unprofitable production, our end game being the best asset mix, generating quality ounces.

“There is not one of our current operations that can or will escape our vigilance in terms of volume and grade optimisation, cost control, and productivity enhancement. Turnaround through improved profitability and getting to the right asset mix remain priorities for us.

“Added to this, we will progress our developmental projects — our key growth drivers — and pursue further, longer-term growth through acquisition and exploration, all in line with our stated strategy.”

Briggs was upbeat yesterday about the outcome of exploration drilling at the Wafi- Golpu prospect of the company’s Morobe joint venture in Papua New Guinea.

He said the Wafi -Golpu area of focus was now more than double what was previously reported. A significant resource upgrade was expected to be declared in June, Briggs said.

“This will have a profound effect on options for exploitation of the resource, setting a new baseline for what the mine could look like.”

Earlier this year, Briggs said Harmony had to look overseas for more opportunities because of high cash costs and declining grades in SA.

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Investor brief

Harmony Investor brief, Sep 2017
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Harmony Investor brief

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