JOHANNESBURG (miningweekly.com) - Harmony Gold on Tuesday reported improved earnings, production, grade and costs in the six months to December 31, but regrettably also eight fatalities.
While Mining Weekly Online was engaged in the media conference, the transfer of ownership of Moab Khotsong assets to Harmony became official, with consent granted in terms of Section 11(2) of the Mineral and Petroleum Resources Development Act, 2002 to grant the Moab Khotsong mining right to Harmony, fulfilling one of the most important conditions precedent towards the completion of the Moab Khotsong transaction, for which $100-million equity is to be raised and the dividend passed.
Harmony is aspiring to become 1.5-million-ounce producer with the help of Moab, while gold price hedging is continuing as one of the shields against the potential cost blows induced by the strengthening rand.
Headline earnings per share rose 49% to 224c a share and an even bigger 55% in dollar terms to $0.17 a share, on 6% higher gold production in South Africa.
"It's with great regret that we report eight fatalities in four separate incidents," Harmony CEO Peter Steenkamp said in response to questioning by Creamer Media's Mining Weekly Online.
Steenkamp said that the increase of fall-of-ground related accidents across the mining industry had led to the investigation into new leading practices related to ledging and drilling and blasting by an industry safety task team.
Modernisation is also on the agenda of the JSE- and NYSE-listed company, which lifted underground recovered grade by 4% to 5.26 g/t and pushed down all-in sustaining costs in rands by 2% to R500 248/kg. All-in dollar costs rose 2%, however, to $1 161/oz.
Harmony said it was on track to achieve its group production guidance of 1.1-million ounces, after reporting output of 560 000 oz in the six months to December 31.
The expected increase in production at Hidden Valley in Papua New Guinea, where the plant upgrade has been completed ahead of schedule, will further boost yearly production, Steenkamp said.
The company said that the weaker rand per kilogram gold price served as a reminder to reassess any excess costs and to cut back on expenses that did not support the core business.
Harmony has begun its planning process for the next financial year, with shareholder returns informing every decision it makes.
"We had a seismic event at Kusasalethu, which ended up being five deaths in one incident. That was on the back of a very good safety performance in that particular mine, where we had over one-million fatality-free shifts," Steenkamp told Mining Weekly Online.
"We believe that our systems we have place in managing seismicity is fairly sound. In this particular case there were some failures in that system. We know what it is and in actual fact we've addressed all of that. But certainly this is something that we're not very proud of and certainly we don't want a repeat of that incident," he said.
An inquiry is still out, which constrains comment, but Harmony, he said, had put the right kind of checks and balances in place to prevent a repeat.
HEDGING AND THE RAND
Harmony FD Frank Abbott told Mining Weekly Online that a spot price of R513 000/kg, on top of which it has placed its current hedge, takes it close to R580 000/kg.
"So you can see that we're still getting a very good price for the remainder of this six months," Abbott explained to Mining Weekly Online.
In the final six months of this calendar year Harmony will be receiving about R540 000/kg, going down to R520 000/kg for first half of the 2019 calendar year.
"We've been able to top up our hedges. If the gold price and currency allow us, we'll top it up further. We do believe that that gives us some breathing space to make sure that we can reduce our costs so that we operate at the right level," Abbott explained.
The acquisition of Moab from AngloGold Ashanti and also the rebuild of Hidden Valley was aimed at achieving lower cost operations with higher margins to weather the lower gold price in rands.
Moab and the Great Noligwa life-of-mine extension adds a five-million-ounce resource when taking into account Harmony's capability in pillar mining.
The and price assumption for the Moab deal was R525 000/kg, which is seen as providing good value when juxtaposed against the purchase price of the assets.
An operation becoming more vulnerable as a result of the stronger rand is the depleting Unicel mine in the Free State, where mining is being reviewed and leader reef mining stopped.
"Unicel is now a much smaller mine… and crews have been transferred to other operations," Steenkamp said, adding that the next time Harmony reported would be the final production at Unicel.
"We're mining the high grade part of the Unicel and that will be it," he said.
At the Joel gold mine, also in the Free State, deepening was on track and Harmony was confident that Joel would return to low-cost operation as soon as the high-grade lower part of the mine was in production.
NO DIVIDEND DECLARED
After paying three dividends in a row, Harmony has decided to not pay a dividend this time around as it is planning to go to the market to raise $100-million in equity capital and is of the view that it does not make sense to pay a dividend while asking for money.
"So, we're not paying a dividend this six months," Abbot explained.
The company saw a decrease in unplanned safety stoppages and has improved the quality of its infrastructure and has not seen stoppages due to infrastructure failures.
Steenkamp reported that flexibility and crew predictability were helping crews to perform well.
"We have what we call the Iceberg Management System and all of the mines have improved in terms of their flexibility and availability of face length for their crews to perform, and on the back of that we've seen the good production improvement," he said.
Despite many of the Harmony mines having old infrastructure, modernisation is being advanced by implementing employee tracking and tracing technology and huge cuts in electricity consumption have been achieved over time with the help of power management technologies.
"But we have limited scope in our current mines. Anything we build going forward we'll certainly bring on board a lot the new techniques that we can do. We don't really have the opportunity to take our current mines into mechanisation.
"We're working flat out with the Chamber of Mines in the Phakisa process to find the technologies that can make mining a much safer environment for people to work. We're part of that process and we're also funding that process to ensure that we get there," he told Mining Weekly Online.
Harmony executive corporate and investor relations Marian van der Walt added that the chamber's Sietse van der Woude is running an initiative specifically focusing on mine modernisation and technology, to look at ways to get involved with government and the universities to modernise mining, and undertook to get involved with the chamber to request that Van der Woude provides updated information to Mining Weekly Online.