While South African gold producer Harmony Gold plans to cut its service and corporate costs in South Africa by R400-million and its overall capital expenditure (capex) in South Africa and Papua New Guinea by R1.4-billion in the 2014 financial year, no shaft closures or major job cuts are expected, says Harmony Gold CEO Graham Briggs.

He points out that the measures will include reducing service and corporate costs and renewing or renegotiating all external consultant and supply contracts, which will lead to some job losses.

“While we will not follow a Section 189 retrenchment process, employee numbers will be reduced through a voluntary process. “However, the total number of jobs cut should not exceed 500,” he assures.

Briggs tells Mining Weekly that the cost reductions are aimed at keeping the company profitable, should the gold price remain at levels of about $1 400/oz. “Should the price fall to levels of about $1 200/oz, we would have to do dramatically more to remain profitable.

“We cannot influence or predict the future price of gold. For the past year, the high gold price has assisted us in producing strong margins, but with the gold price that fluctuated and decreased to levels close to $1 400/oz, immediate actions to reduce costs were implemented during April,” he states.

Harmony released its results for the third quarter of the 2013 financial year earlier this month and recorded an operating profit of R821-million for the March 2013 quarter, following a 15% quarter-on-quarter drop in gold output to 7 699 kg.

The decrease in production was mainly as a result of the temporary closure of the Kusasalethu mine, near Carltonville, owing to safety and security reasons; the damage to the ventilation shaft at the Phakisa gold project, in the Free State; and a slow start-up at the other operations after the festive season, the company stated in a media release.

The rand per kilogram unit cost for the March 2013 quarter increased by 17% to R362 491/kg. The costs were, however, skewed, as Kusasalethu was not in production during the quarter under review.

Capex for the quarter amounted to R677-million, which was R189-million less than the December 2012 quarter, the company stated.

“This quarter was a poor quar- ter with regard to gold production, but this was not unexpected. “Kusasalethu not producing gold during this period had a massive influence on the results. “During the last two quarters, 2.5 t of gold production was lost as a result of disruptions at Kusasalethu.

“This reflects on the year’s results from Kusasalethu, highlighting the cost of that type of industrial action. “If you multiply 2.5 t of gold by the current gold price, it amounts to R1.2-billion in revenue,” Briggs tells Mining Weekly.

During the third quarter, Harmony still had most of the costs relating to Kusasalethu to deal with, without any revenue coming from the project, which accounted for a big swing in the company’s results, he adds.

“The results for the March quarter have reaffirmed that we need to do more to meet expectations,” Briggs states.

“We are focusing on getting assets such as Kusasalethu and Phakisa into full production. The damage to the ventilation shaft at Phakisa was a blow that affected us in that we have not been able to ramp up. Kusasalethu was another blow.

“We, the whole of Harmony – management and employees – have to work harder to pro- duce the gold we said we were going to pro- duce. “We have had the advantage of a favour- able gold price and we must not squander that opportunity,” he says.

Meanwhile, highlights for the quarter include a quarterly lost-time-injury frequency rate of 5.15 – the lowest in company history; the signing of a watershed agreement with Kusasa- lethu labour; and achieving the best drill production of 14 664 m at its Wafi-Golpu pro-ject, in Papua New Guinea.