JOHANNESBURG (miningweeky.com) – South Africa’s third-largest gold-mining company Harmony Gold cut R450-million in corporate and services costs in the year to June 30 and will lower capital expenditure (capex) by R650-million in the new financial year to position itself for the future.

“We’re making good progress with our cost-cutting,” said Harmony CEO Graham Briggs of the JSE-listed 37 000-employee company, which produced 2% less gold – 35 374 kg or 1.14-million ounces  – than the 1.27-million ounces last year, owing mainly to strikes at Kusasalethu, but also as a result of less gold from Tsepong and Phakisa, in South Africa's Free State province, Hidden Valley, in Papua New Guinea, and the company’s dump retreatment operations.

Harmony will not declare a final dividend as it has failed to record a profit for the last six months. An interim dividend of 50c a share was paid last year.

Strike-hit Kusasalethu produced 51% less gold, which cost the company R1.2-billion and contributed to Harmony’s total basic loss a share for the year of 548c, compared with earnings of 614c a share last year.

Total headline earnings a share plummeted from 565c ($0.074) a share to 47c ($0.05) a share.

However, Briggs said safety initiatives, improved productivity, correct capex, improved grade and cut costs were securing a sustainable business for Harmony.

He described the weaker rand as a huge advantage for a predominately South African producer, which had been receiving far higher rand prices than the R400 000/kg that was sufficient to keep the company going.

Harmony received R470 030/kg in the March quarter and R427 534/kg in the June quarter, which Briggs calculated was considerably more than the R400 000/kg needed to sustain the company.

The rand gold price received for every kilogram produced in the year was up 8%. 

The June quarter showed improvement, with cash operating costs falling 3% to R351 109/kg ($1 156/oz) and an operating profit of R639-million ($68-million) being recorded.

Capex for the 2014 financial year is now a guided R3-billion – a R650-million saving on last year, which impacts mainly Papua New Guinea, where the Golpu project is being de-risked through a modular, expandable development approach that departs from the 2012 prefeasibility study.

Moreover, the net loss of R3 499-million spilled over into the June quarter, on top of the R124-million in the March quarter, caused mainly by problems at Hidden Valley, which has seen a R2 675-million asset impairment and a derecognition of R547-million worth of deferred tax.

The deaths of Phakisa scraper winch operator Potso Peter Kotjomela and Kusasalethu development team leader Michael Chake in the June quarter have marred the company’s best-ever annual injury safety record.

While labour unrest more than halved Kusasalethu gold output in the year to June 30, several Free State mines, and also the Doornkop mine, in Gauteng, lifted their games significantly.

The Free State’s Bambanani produced 54% more gold to 556 kg on the back of a 49% grade improvement to 9.79 g/t; and Free State’s Joel mine came in with much higher production at 565 kg, also by lifting the grade to 5.28 g/t and milling 10% more tons.

Doornkop produced 18% more gold to 556 kg, also from 9% better recovery, to 3.60 g/t, and 9% more tons milled.

With Kusasalethu coming back in June, quarterly gold production rose 12% to 8 588 kg (276 109 oz), only to be snagged by a 9%-lower gold price and an 8% rise in cash operating costs.

The carrying value of Harmony’s 50% holding in Hidden Valley, where production performance has been disappointing, is being written down to its net recoverable value and Harmony's South African assets have also been hit by a R58-million impairment.

Harmony's contribution to Golpu drilling and project expenditure for the next two financial years will be funded from cash flow.

The labour relations climate remained volatile, with the National Union of Mineworkers at Doornkop and Tshepong forcing two work stoppages on issues now resolved or which are in the process of being addressed through the existing mine-based structures.

At Masimong, a recognition agreement with the Association of Mineworkers and Construction Union (AMCU) has been signed, with AMCU now representing a third of Masimong's total workforce.

At Kusasalethu, AMCU is representing 74% of the employees in the gold sector wage negotiations now under way at the Chamber of Mines.

In the wake of labour disruptions at Kusasalethu costing Harmony R1.2-billion, the company has joined the industry in attempting to contain labour unrest through the signing of codes of conduct with unions, the holding of mass meetings by general managers, communication campaigns and reintroducing productivity bonuses.

Harmony is selling 30% of the Phoenix tailings business in the Free State to broad-based black economic-empowerment shareholders, which include Sikhuliso Resources, Kopano Resources, Masincazelane Investments, the Malibongwe Women's Development Trust and a community trust the company has created. 

New employee share ownership plan (Esop) awards were made last year and all employees other than management are awarded shares in terms of the Esop rules.