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Harmony defends hostel system as profit rises despite strike

Publication: Mining Weekly
Journalist: Martin Creamer


Johannesburg – Harmony Gold CEO Graham Briggs put up a strong defence of hostel accommodation and the migrant labour system at question time after the company presented an excellent set of September quarter results, which saw its gold production rise 8% to 321 924 oz and operating profit rise 9% to R1.4-billion despite the strike at the Kusasalethu mine.

“A lot has been said about hostels without actually understanding what hostels are about,” said Briggs in response to Mining Weekly Online, which had sought his reaction to growing calls for the elimination of migrant labour and the hostel accommodation that goes with it.

Briggs reported that 38% of Harmony Gold’s employees continued to reside in hostels, for which a one-person-a-room target was under way.

Harmony Gold, which employs employs 34 200 people, excluding 6 000 contractors, saw its headline earnings a share soar to 123c a share in the latest quarter from 15c a share in the previous quarter, the collective R325-million loss from the Kusasalethu strike notwithstanding.

“There are many people who are suddenly very knowledgeable about what is happening in housing and hostels. To some of us, if it wasn’t so sad, it would be amusing.

“Hostels aren’t all bad and Harmony has spent a lot of money on improving the look of hostels, their amenities and also dedensifying them,” Briggs told Mining Weekly Online.

He said that those who were calling for the elimination of the migrant labour system offered no suggestions on what should become of the company’s current migrant labourers, whose average age was 48 to 49 years and who had in the main been working for the company for many years.

“You can’t just get rid of migrant labour. Where are they going to stay? As time goes on, we will have less and less recruitment from far away places and more and more recruitment in the local communities,” Briggs added.

Sixty per cent of the employees at Harmony’s Joel gold mine in the Free State were not accommodated in hostels but lived in normal residential villages in surrounding towns including Virginia and Theunissen.

“That’s what we are encouraging. This is not cheap accommodation, but it’s serviced with electricity and water by municipalities. We don’t have a squatter camp mentality at Harmony.

“There’s nothing wrong with migrant labour,” said Briggs, who believed that many of the migrant labourers were likely to continue to work for the company until they retired.

“What we are focusing on, of course, is on local recruitment and one person a room. We’re achieving our Mining Charter targets, which give us until 2014,” he added.

Asked by Mining Weekly Online whether the company was considering the adoption of migrant-labour global best practice, including a possible shortening of the work cycles, Briggs said that was easier said than done.

“We have people who work together as a team and if you are missing team members, you don’t operate as well. We do have people who have normal leave cycles and they get a Christmas break.

“People who do live far away obviously don’t see their families a lot, but if we are talking about people in the Free State, where most of our migrant labour is, most of that migrant labour comes from Lesotho, which is a couple of hours away.

“We encourage better family living. We don’t see negatives in what we are doing. We would like people to look at the positives instead of the negatives and they would see that there are other sides to the story.”

Harmony is promoting home ownership by providing first homeowners with an enhanced housing allowance.

A further five hostels will be converted into 1 000 family units by 2014 and mining communities are being integrated into local structures.

“The rental market is not good in South Africa and we’re improving it. We have been dedensifying our hostels to achieve a one-person-one-room target. We are achieving that on several mines,” Briggs said.

The Masimong 4 hostel project was completed to create available rental housing stock and dedensification had been completed at Tshepong and was under way at Doornkop, Kusasalethu and Phakisa.

Joel, Evander and Bambanani were already compliant to one person a room.

Employees who did not reside in company hostels earned a living-out or housing allowance.

Close to 50% of the workforce had elected to receive the housing allowance, while 38% continued to reside in hostels.

“We’re making fantastic progress with living conditions,” Briggs added.

For most developments, Harmony donated the land and the old buildings, funded the construction of infrastructure such as power and water, managed the projects and monitored their quality to ensure that proper rental units became available.

The company’s non-management-level remuneration packages are described as competitive.

They are made up of basic pay, benefits, a monthly production bonus and a 1% quarterly profit share after capital expenditure at the South African operations, plus shares in Harmony.

Forty four per cent of managers are now from the previously disadvantaged group, up from 43% in the previous quarter.

Harmony’s October 2012 wage adjustment resulted in the company paying out an additional R10-million a month.

“We’ve got a few things that make us a little bit different. If you speak to our employees, they will know that this quarter was profitable because they are sharing in the profits. Even our lowest employee will know that we had a good quarter,” Briggs said.

The bonus schemes have a safety element to them: “Whether you’re right down in the team or the CEO, you have a safety element to your bonus. We’ve been improving our safety statistics and that already improves the bonus levels and we’re achieving our quarterly plan, which lifts bonus levels still further.

“Our rock-drill operators get an additional bonus and on top of that, the profit share of 1% on the South African operations after capital is split among those in the pool, and not on ranking.”

Some R6 500 would be the least gross pay a worker not earning a bonus would take home, but on average, salaries were a lot higher, with rock-drill operators receiving R12 000 to R12 500 a month.

“We’re paying very competitive salaries and if you compare that to other industries, the mining companies do pay good salaries,” Briggs commented to Mining Weekly Online.

Harmony was achieving a margin on the gold price of R69 801/kg ($263/oz) on total costs and R146 464/kg ($553/oz) on cash costs.

Both the injury frequency rates and fatality frequency rate improved in the quarter.

During the three months of strikes in South Africa all Harmony’s operations, except Kusasalethu, which is surrounded by other striking mines in the Carletonville area, continued to work

During the October strike, Harmony lost 35 days, including 12 days of safety start-up days when workplace assessments, medicals and training took place, and 25 000 oz of gold.

The strike cost R200-million and loss of profit R125-million with the total opportunity loss totalling R325-million.

The union representation at the Kusasalethu mine, which is currently under verification, indicates the presence of an Association of Mineworkers and Construction Union affiliation.

Harmony's ore reserves have increased by 27% and its dividends by 50%, net debt fell in the quarter and capital expenditure was funded entirely by operations.

The margin of 35% for the 2012 financial year (FY12) is up on the 26% of FY11.

The comany has 10 underground mines, one openpit operation and several surface sources in South Africa and a 50% joint venture in Papua New Guinea (PNG) with Newcrest Mining, where it has the Hidden Valley openpit mine, the Wafi-Golpu exploration project and also exploration areas in PNG that are fully Harmony owned.

It has 431 564 236 shares in issue, a market capitalisation of R33-billion and is listed on the Johannesburg and New York stock exchanges.

The September 2012 quarter results show a solid start to FY13 with gold production from underground operations 9% higher than the prior quarter, mainly driven by improved grade.

Cash operating costs increased 6% to R294 404/kg ($1 110/oz) on the June 2012 quarter, owing mainly to two months of winter electricity tariffs and labour increases implemented on July 1.

The rand gold price received during the quarter increased by 5% from R421 565/kg in the June 2012 quarter to R440 868/kg in the September 2012 quarter.

“The company continues to generate strong cash flows, with low debt and undrawn lending facilities. Our first-quarter results reaffirm that Harmony is guided by a clear strategy and expert management teams delivering sustainable and competitive results,” said Briggs.

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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