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Harmony hit by impairments, costs

Publication: Business Day
Journalist: Allan Seccombe

Full-year production less than forecast due in part to 132000oz of reduced production at closed shafts

HARMONY Gold was hit by impairments and higher costs in the June quarter, driving the company into a loss, while production for its full financial year came in nearly 25% below what it had advised the market to expect because of closures of unprofitable shafts.

A year ago, Harmony forecast gold output of 1,7-million ounces, but it generated 1,3-million ounces for the full year to end-June this year , which was 9% less than a year earlier. Closed shafts accounted for almost 132000oz of reduced production.

Harmony will release a forecast for financial 2012 at its investor day on August 24.

The company posted strong annual financial results, with headline earnings per share up at 223c from 1c before, helped by a 16% higher rand gold price. Harmony declared a dividend of 60c, 20% higher than the 50c paid out a year ago.

Steve Shepherd, an analyst at JP Morgan Cazenove, questioned the wisdom of paying a dividend in the light of a capital bill of $1,5bn to build a mine at the Wafi-Golpu copper and gold porphyry asset in Papua New Guinea.

Harmony CEO Graham Briggs said: "Maybe you need to ask shareholders what they want."

A shareholder asked whether Harmony had plans to resume debt ratings any time soon, given that Harmony would need to raise capital towards Wafi Golpu, which Mr Briggs has said could come into production in 2017, an aggressive time line . Fitch Ratings said at the end of June that Harmony had stopped participating in the ratings process and so the agency had withdrawn its ratings of the company.

"We don’t plan to issue any corporate bonds in the next year or two," said chief financial officer Hannes Meyer. He said Harmony had started a four-year $300m revolving credit facility to fund three years of exploration and feasibility work at Wafi-Golpu. "The big funding for Wafi-Golpu is about three or four years away. So we will look at that in the future and evaluate our options ."

Harmony will not mine the Steyn 1 shaft, and it has changed its plans for 2 shaft, saying it was too difficult to extract more of the ore body after years of neglect at the mine by previous owners, including Pamodzi Gold , which is now in liquidation. "We will just focus on the shaft pillar and we’ll start mining that from September," said Mr Briggs.

He said it could give up to three years of mining.

Harmony estimates gold production for the year ahead to be about 1,7-million ounces, total costs including capital to be at R260000/kg, and total cash costs to be about R195000/kg.

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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