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Harmony Gold to fall short of 2012 production target

Publication: Mining Weekly
Journalist: Idéle Esterhuizen

South Africa’s third-largest gold miner Harmony Gold would miss its 1.35-million-ounce production target for 2012, as it would not be able to recover the 70 000 oz it lost in the third quarter, CEO Graham Briggs said on Wednesday.

The Johannesburg-based Harmony had already reduced its full-year production guidance in February, from an initial 1.55-million ounces.

The company attributed the loss in production mainly to Section 54 safety stoppages and operational difficulties. Although no such stoppages occurred over the past two months, financial director Frank Abbott said an external safety audit was carried out and an improved safety framework would be completed in the June quarter. A high-level internal safety audit team had also been established.

Speaking at Harmony’s third-quarter results presentation in Johannesburg, Briggs said the company was not “obsessive” about production targets and that it rather focused on running its operations in a sustainable manner.

“Take Doornkop for instance, the reality is when we have to stop the shafts in preparation of the ramp up, this will impact the company’s production targets, but it will be the right thing to do for the sustainable future of Doornkop, as well as in terms of safety,” he said.

The Doornkop mine, west of Johannesburg, was currently being ramped up and was producing just under half of its planned output. The miner expected the South Reef project to reach full production by 2015, adding between 190 000 oz and 220 000 oz to the group’s yearly output.

Also part of its strategy to achieve sustainability was the removal this year of 2.5 t of gold from production at the Bambanani mine, near Welkom, to reduce financial risks.

“The mine’s cost was R250-million a quarter and by removing the tonnages, it now stands at about R85-million to R86-million a quarter. We will continue to do what is best for the sustainable future of the company,” Briggs said.

Further, the sale of Harmony's Evander gold mine, which had a recovery grade of between 6.8 g/t and 7 g/t of gold, to juniors Pan African Resources and Wits Gold for R1.7-billion, would reduce the group's to between 4.5 g/t and 4.8 g/t.

Harmony’s third-quarter production fell 18% to 281 415 oz (8 753 kg), from 344 592 oz (10 718 kg) in the December quarter, resulting in an 18% increase in the rand-a-kilogram unit cost.

“The March 2012 quarter has been a difficult quarter and we have to ensure we continue to improve on all fronts including safety, production and returns,” Briggs said.

The company posted net profit of R1-billion for the quarter. This was a 3% quarter-on-quarter decrease, with the 62% gross profit decline being offset by a deferred tax credit of R652-million.

Headline earnings a share dropped from R2.42 a share to R2.34 a share. For the nine-month period to March, headline earnings a share amounted to R5.71 a share compared with R1.92 a share for the corresponding period in the previous year.

Net profit for the nine months increased to R2.5-billion, from R659-million in the previous corresponding nine months on the back of the gold price climbing to $1 703/oz, from $1 324/oz in the previous corresponding period.

Harmony reported that the strong cash generated by operating activates for the nine months ended March amounted to R3.2-billion, which paid for capital expenditure of R2.2-billion and reduced the company’s net debt significantly to R170-million.

The company remained bullish on the gold price for the remainder of the calendar year, saying that it expected gold to reach $1 850/oz by the end of 2012.

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