JOHANNESBURG (miningweekly.com) – Cost pressures and writing down the value of certain mining assets, saw the world’s fifth largest gold producer’s quarterly headline earnings fall by 67%.

Harmony Gold, which has operations and projects in South Africa and Papua New Guinea (PNG), said on Monday that headline earnings fell to R130-million in the June quarter, from R390-million in the previous quarter.

This was mainly as a result of higher operating costs, which in R/kg terms rose by 12%. The company said that cost increases related to higher electricity and stores costs, as well as the inclusion of Target 3, which came into commercial production during the quarter.

Speaking to Mining Weekly Online at the Harmony results presentation, CEO Graham Briggs explained that costs were “lumpy” during certain quarters of the year. Higher stores costs were as a result of additional maintenance performed during public holidays, while electricity costs were higher owing to a 25% tariff increase from April and the inclusion of one month's winter tariff.

However, the gold miner managed to increase production by 3% quarter-on-quarter, even though production for the full financial year was down 9% to about 1.3-mllion ounces.

Briggs said that he expected the upward trend in production to continue into the company’s next financial year, which would also result in better costs going forward.

Additional future production would come from the continued build-up of Harmony’s newer assets and expansion such as Doornkop, Kusasalethu and Phakisa in South Africa and the Hidden Valley in PNG. Production from the company’s growth projects grew by 22% in the past year.

Briggs also noted that the Wafi-Golpu resource in PNG had increased 57% to over one-billion tons during the year. Harmony planned to spend $3-billion to bring this asset into production by 2017.

“These excellent results validate our long-held belief that PNG is a game-changing region for Harmony,” he commented.

PNG currently constitutes 21% of the company’s total equivalent gold ounces production. The company has set up a $300-million credit facility, to back its dollar-assets in PNG with a dollar-based facility, which would run over four years.

Harmony expected to spend about R3.5-billion during its next financial year, mainly on the further development of ore bodies at its growth projects, as well as early works at Wafi Golpu and further exploration.

Further, Briggs noted that the JSE-listed miner was always on the lookout for merger and acquisition opportunities, but added that it was not aggressively looking for such activity, as the high gold price would mean a steep climb in asset prices.

He added that the strong gold price, which hit a record $1 813.79/oz last week, boded well for future margins.

“I expect that the gold price will roughly remain at the $1 750/oz level for the remainder of the year, increasing to $1 850/oz levels in 2012.

“This is a difficult time for global financial markets and that has had an effect on gold prices. Gold is now the ultimate currency, and we are still very bullish on gold.”

Briggs anticipated that stronger gold prices would eventually filter through to share prices of gold-mining companies.
 

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