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Gold price buoys Harmony as output falls


Publication: Mining Weekly
Journalist: Jade Davenport

JOHANNESBURG (Miningweekly.com) - South African gold-miner Harmony reported a doubling in second-quarter headline earnings of 69c a share, from 33c a share in the previous quarter, mainly owing to an improved price for the precious metal during the period. However, the group also reported a quarter-on quarter fall in production.

Operating profit for the quarter ended December 31, 2010, increased by R215-million to R867-million, compared with R652-million in the September 2010 quarter, an increase of 33%.

However, total gold production decreased by 4%, quarter-on-quarter, from 10 471 kg to 10 055 kg, owing, in part, to the closure of Merriespruit shaft at its Virginia Mine in the Free State. But the dip in production was also attributed to safety stoppages at the Bambanani and Kusaslethu (formerly Elandsrand) operations in the Free State.

Harmony CEO Graham Briggs said that the ventilation shaft accident, which occurred in October last year at Kusasalethu, restricted hoisting and was the main contributor to the group's overall lower production. He said that the shaft was now back to hoisting capacity and that the underground accumulations of the December 2010 quarter would be rectified.

"We faced operational challenges during the quarter, such as the unplanned production stoppages at Kusasalethu, but the necessary measures to rectify this have been implemented and I am confident the operation will meet its targets next quarter," Briggs said.

Harmony's growth projects, including Doornkop, Phakisa and Hidden Valley, were also starting to deliver results with higher production and lower costs. "We have seen continued progress from numerous management initiatives at these three operations, " explained Briggs.

Quarter-on-quarter gold production at Doornkop increased by 19% to 20 673 oz, production at Phakisa increased by 34% to 16 236 oz, and production at Hidden Valley, in Papua New Guinea (PNG), increased by 23% to 53 169 oz.

Briggs described the PNG operations as star performers, following some commissioning problems.

Both Tshepong and Masimong mines showed a steady production performance, with Masimong still the lowest-cost producer at R168 907/kg. Target 3 was back on track, with a 57% improvement in tons mined, while Joel was also back in production.

Offsetting these production improvements was Evander 8, which experienced a drop in face grade causing gold production to decrease by 6%.

Kalgold's grade and volume was also lower quarter-on-quarter and gold production decreased by 8%. Bambanani's volume declined by 19%, as grade rose by 3%.

The Steyn 2 production plan was revised and the major focus would now be to get the shaft pillar into production by August 2011.

The rand a kilogram unit cost for the December 2010 quarter decreased by 5%, quarter-on-quarter, to R216 595/kg from R228 658/kg.

This was mainly attributable to the decrease in cash operating costs, which declined by R225-million (10%). The primary factors for the decrease were the lower electricity and lower labour costs, as a result of Harmony's restructuring efforts.

Capital expenditure increased by R88-million to R835-million in the quarter under review compared with R747 million in the September 2010 quarter, in line with the company's mine plans.

Briggs added that with the closure of some shafts and unplanned production setbacks during the first six months of the 2011 financial year, production for the financial year would most likely be between 1,45-million ounces and 1,5-million ounces.

Briggs concluded that the company had turned the corner, closing its unprofitable operations and ensuring that the longer-life, lower-cost operations were profitable and sustainable.

"We remain confident that we will reach our long-term targets and our focus is to increase production to two-million ounces of gold by the 2013 financial year, with costs per ton milled in the lowest quartile of South African producers."

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