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How Harmony avoided strike disruption

Publication: Money Web
Journalist: Hilton Tarrant

Harmony warded off strike action, but has it shouldered too much in Indonesia?


HILTON TARRANT: Sporadic strike action continues in the mining sector. So far miners have lost hundreds of thousands of platinum and gold ounces in production. Minister of Finance Pravin Gordhan said disruptions in those two sectors have so far this year cost the economy R10bn. One major mining house, Harmony Gold, remains largely unaffected. Sure, there was some disruption at Kusasalethu, but that was contained. Earlier today Geoff Candy, my colleague at, spoke with Harmony Gold chief executive Graham Briggs and asked him how the company had managed to avoid strike disruptions and confrontation with its workers.

GRAHAM BRIGGS: What we have done in Harmony is really to open all the communication channels. Our HR people have really been working with a slightly different mandate than they have before. You know, speak to people, solve the problems, deal with the issues, and let’s move on. So don’t let things stew and boil and so on. We have arguably also had some real push on our values and that’s really happening quite well. And these values that have been selected by the worker force, as opposed to the chief executive. So there’s quite a good few things happening.

On the wage front, our wage structures have been different to other companies in that we have slightly lower basic but a higher variable, and when I say lower basic we actually have similar basics to other mining categories in the sort of lowest category of work, but we have a higher proportion of variables. So, you know, if you get results, if you have a good quarter, if you are safe and so on, you see the benefits. So certainly something slightly different, maybe, to other companies.

GEOFF CANDY: What was the mandate before? You said perhaps the framework is now a slightly different mandate to what it was. What was it before?

GRAHAM BRIGGS: Well, I think what we saw happening in the platinum sector was that a strategic group of people were chosen with an issue, I guess, and they sort of pinned all their arguments on that issue. And when we looked at it we said this could have been any of the issues that maybe there was some muttering about. So let’s try and deal with all issues, let’s not ignore a group of people who may have an issue, no matter how small it is, and let’s try and resolve that issue, whether they are working through the official channels or not. Let’s not use the recipe that we've been using for the last, I don’t know, 30 years, and let’s not hide behind the “this is the law” book, and “this is how it's done”. Let’s open those communication channels and talk to everybody and resolve the issues.

GEOFF CANDY: Graham, just on that front, in terms of union representation, clearly AMCU is a name that has been coming up more and more frequently when one talks about the strikes. Is there AMCU representation on the Harmony mines, and what is the kind of rivalry – if there is any – between AMCU and NUM at this stage within Harmony?

GRAHAM BRIGGS: The only area that we've seen AMCU have a presence is at Kusasalethu. We are going through a process of verification at the moment, so that’s going to take a while. But that’s the only operation where we've seen a significant presence of AMCU. But those are the realities that we are going to have to deal with in future. We are going to have to possibly have many I guess groupings in the room that we negotiate with – NUM plus AMCU plus maybe others I don’t know. But things have changed. So we need to take cognisance of that.

HILTON TARRANT: Graham Briggs. Peter Major of Cadiz Corporate Solutions joins us now. Peter, very interesting to hear what Graham was saying there around how the company has reacted to some of the murmurs that one hears from workers, some of the tension that exists, and really avoiding the strike disruptions that seem to have plagued almost every other major player.

PETER MAJOR: Look, he definitely gets brownie points for how he’s come through the last three months. His grades have gone up, his costs have gone up, he has the most full working schedule of all his competitors. David and I were just saying now that the poor share price, though, has never been lower relative to the all-share index; it's never been lower relative to the gold price. In fact, relative to the gold price I think in the last 10 years the gold price has gone up tenfold and Harmony has gone up zero.

We just say this isn't that kind of company. This isn't Telkom, this isn't South African Airways. It's got decent management, it's got decent assets, fabulous assets overseas. But overseas assets – I think we can talk about them a little more here. I don’t know if we want to do it right now.

HILTON TARRANT: The performance of Harmony you’ve mentioned relative to the gold price, relative to the all-share index. The performance of its peers, though – AngloGold Ashanti, Gold Fields – are those as poor?

PETER MAJOR: No, they are not. They’ve also taken a pounding relative to the Alsi, relative to the gold price. Harmony, I think unjustly, has taken more of a pounding than them and it's hard to say now that it no longer has the kind of assets they do. Obviously the South African assets are higher-cost, lower-grade, so therefore higher risk than AngloGold or Gold Fields, which have a more diversified overseas base.

But if you try and factor in the wonderful assets Harmony’s got in Indonesia, then that definitely raises…Harmony Gold South Africa by a quantum. But I think this is the key to Harmony – Dr David David of SBG Securities has been leading the charge on this. He’s done more work than anyone else I think, and a lot of people have done good work on Harmony’s Indonesian assets. But I agree with Davis. They’ve had it quite a while now, they’ve had it many, many years and you are putting in more and more money to prove how good these assets are. But this is serious money. Now we are talking $50m and $100m a year – and this is still prospecting. To build this is going to cost billions. And this is really an asset for big people, and I worry if Harmony thinks they are going to try and do this. I think it's too small. This can be a 10- or 15-year project and shareholders are not going to go for that. So I agree with Dr Davis – Harmony is almost past the point they should have been looking at selling this, I think. It's a fantastic asset, but look at Voisey’s Bay – when Frieland sold Voicey’s Bay he just put enough to drill and prove it…sold it for a fantastic price. Rod Still did the same with Corridor Sands, and I think Harmony has to consider that “We are much smaller than this project, this is going to take billions of dollars over 10 years. How can we get the best return on it?” And I don’t think it's going to be developing it. They’ve proven enough now.

HILTON TARRANT: Seeing then that the investors in the market are firstly marking down the South African assets tremendously, and also not including any of the blue sky potential from Papua New Guinea?

PETER MAJOR: That’s right. I think Harmony is getting no blue-sky rating at all, and it does deserve it. It's just going to have to make a few moves to show how that blue sky is going to be realised. There is blue sky there, but it's kind of in the closet, and they just have to open the door and show ushere is how that blue sky is going to translate into value – before it dilutes, before it dissipates.

HILTON TARRANT: Those results for the quarter from Harmony Gold – gold production for July to September up 8%, operating profit up 9%, managing to contain cash-operating costs up 6% quarter on quarter. Thanks to Peter Major, mining consultant at Cadiz Corporate Solutions.

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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