The expectation of lower costs and higher production in the upcoming quarter sent the share price of Harmony Gold up 3% last week.

Harmony Gold CEO Graham Briggs told Mining Weekly that the company was confident of better production and lower costs in the December quarter, despite the strong rand, which was proving particularly challenging at some Virginia operations in the Free State.

“The rand continuing to be so strong is a concern, because it does affect some of our operations and we might have to do some 
restructuring on the lowest-grade, highest-cost operations. In the Virginia assets, there are several short-life assets that haven’t been profitable in this quarter,” Briggs told Mining Weekly.

By and large, however, the company was managing to remain profitable at the rand gold price of R240 000/kg and, going forward, would plan its business at the gold price of R225 000/kg

The roll-out of the Phakisa, Doornkop and Elandsrand growth projects was adding to output and there would be 
additional lower-cost ounces from the Tshepong decline and the Bambanani shaft pillar.

Higher grades were expected 
at the Evander 8 decline and production would rise at Hidden Valley, in Papua New Guinea, Harmony Gold’s only operation outside South Africa.

Briggs was aiming for the 
unhedged gold company to maintain a positive cash flow and a buoyant balance sheet during the tough period of the low rand gold price, while looking to a strong upside in the medium to longer term.

“It’s been a fairly tough costs quarter because of the Eskom increase and the Eskom winter tariffs, on top of rand strength,” Briggs said, adding, however, that the company had scope to 
improve on the 4% September quarter production uplift and was also able to look forward to lower costs because of the falling away of the winter electricity tariffs of R120-million and the one-off leave-pay liability cost 
of R35-million.

“Next quarter’s costs will be R150-million less than the total cost for this quarter,” Briggs told Mining Weekly.

The company’s 13 mining operations paid R240-million for electricity in the September quarter, three of the 13 – including Virginia –producing less gold than in the June quarter.

While capital expenditure 
declined by 12%, the cost of producing a kilogram of gold in local currency rose by between 9% and 12%.

“We are fortunate in that all five of our projects are building up, so there is a demand for more labour at Doornkop and Phakisa and, therefore, there are transfer opportunities, so we are able to work around job losses, even if restructuring does take place at Virginia,” Briggs said.

The Virginia operations were collectively breaking even at 
R240 000/kg, but there were nonprofitable assets among the Virginia operations.

“We have to be profitable. We are looking realistically at the rand gold price remaining at the R240 000/kg and we are having to make decisions around that price,” he added.

Although the transfer of the President Steyn mining licence from the liquidated Pamodzi Gold to Harmony was awaited from the Department of Mineral Resources (DMR), planning had already begun at President Steyn and a GM and an engineer were in place to carry out forward planning.

“There are four different transactions, each with different conditions precedent. The one we think will take the longest is approval by the DMR, but we are planning so that, as soon as the DMR gives the go-ahead, we can get stuck in,” Briggs said, adding that President Steyn would add improved grades of 4,5 g/t to 5,5g/t to the com-
pany’s Free State mix.

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