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Harmony to cut costs as Kusasalethu closure takes toll

Harmony Gold reported March quarter results reflecting the impact of the closure and slow resumption of work at its Kusasalethu mine, and it is looking at cutting R1.8bn out of costs.

Harmony posted a headline loss per share for the quarter of 47c, compared with earnings of 158c in the December quarter. Its gold output slipped 15% from the previous quarter to 247,529oz.

Publication: Business Day Live
Journalist: Allan Seccombe

It posted a net loss for the March quarter of R124m versus a net profit of R731m in the December quarter because of a 22% reduction in gold sales and a 2% fall in the rand gold price. The fall in sales was due to a 15% contraction in gold output and higher gold inventories within Harmony.

"We knew that the March 2013 quarter may be difficult and our results reaffirmed that we need to do more to meet expectations," CEO Graham Briggs said.

As part of that strategy Harmony is planning a "substantial reduction" in services and corporate costs as well as reduced capital expenditure.

The gold price has fallen to just above the $1,400 level and the profit margin has narrowed considerably, prompting this action.

Harmony envisages making R1.8bn in cost savings, with R1bn of that coming from its business in Papua New Guinea and the remaining R800m split evenly between reduced capital spending in South Africa, and services and contracts.

Harmony would not close mines or lay people off, Mr Briggs said. Harmony had planned to spend R5.1bn in 2014 and this number has now come down to about R3.5bn.

He described Harmony as a high-cost producer with the total all-in cost for the first six months of its 2013 financial year coming in at R393,354/kg, or about $1,446/oz, excluding exploration and corporate costs.

"We have therefore initiated action to reduce costs and capital using a planned gold price of R400,000/kg," Mr Briggs said.

Harmony and its Australian partner, Newcrest Mining, are revising the scope of the Wafi Golpu copper and gold mining project in Papua New Guinea, looking at a smaller project that could be built up rather than adopting a "big bang", heavy capital expenditure approach, Mr Briggs said.

"In the current gold market climate, the project team was given a revised project development brief, which is aimed at optimising capital cost and improving the risk profile to align with owner and investor expectations, prior to starting with the feasibility study phase," Mr Briggs said.

The Kusasalethu mine produced "very little gold" during the quarter after Harmony signed an agreement with workers on February 14 to return to work peacefully after a violent, unprotected strike brought the mine to a halt last year.

Kusasalethu would produce 50% of a normal quarter’s gold production in the June quarter — which is the final quarter in Harmony’s 2013 financial year — and by June the mine would be back at full production, Mr Briggs said.

Harmony’s cash holdings grew by R588m to R3.099bn by the end of the quarter. Its borrowings increased by R152m to R2.5bn and the group has net cash of R574m.

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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