Stewart Bailey
Harmony Gold, South Africa’s third-largest gold producer, is to shed more than 10% about 300 000 ounces of unprofitable annual gold production.
The move hints at a turbulent round of March quarter production and financial results for South Africa’s gold miners. The largely unhedged Harmony Gold is renowned for making ends meet in any gold price environment.
Hundreds of jobs will be lost in a move that is unlikely to please the government but has received the thumbs up from the investment community. “We’re happy [Harmony] has announced the closures,” says one analyst. The closures are not before their time: “They had to give their operations time to turn around.”
Bernard Swanepoel, the group CEO, said it is closing its troubled Randfontein 4 shaft and is considering the mothballing of its Canadian Bissett mine. The group will also shut down its number nine shaft at Evander and various surface operations.
Harmony’s management has come under fire for the operations, which have performed consistently badly in the past. Bissett, in particular, has endured heavy criticism after being labelled the company’s testing ground ahead of other international acquisitions.
But Swanepoel says it would be irresponsible of Harmony to continue mining the ore body at costs above the prevailing spot price.
Keeping Bissett operating at cash operating costs of $384 an ounce would be the blatant exercise of double standards for the company as it has shown little compunction in taking the scalpel to underperforming assets in South Africa.For the March quarter Bissett turned in a $770 000 (about R6,3-million) loss. Most of the indicators for the mine’s operational performance ran the wrong way, with yield and production decreasing and costs on the rise.
But despite the litany of poor performances by Bissett, Swanepoel is reluctant to characterise the misadventure as an outright failure. Instead he says it was a strategic investment and is still an ore body worth having, albeit only at a $300 an ounce bullion price. “It was a bit of research and development,” he says, to see if the famed Harmony Way was viable in the North American market.
Swanepoel says Bissett did not disprove the viability of the company’s expertise and strategy offshore. It would have been a different story in a different gold price scenario. The lack of currency protection also did little to aid the company’s cause.
But these difficulties, and the recent freezing of the ventilation shaft at Bissett, are a fact of life in the North American gold sector, and Harmony will have to tweak its approach if it is to make a successful foray into the region.
Randfontein 4 shaft’s fate was sealed when it delivered a $3,18-million (about R26-million) loss for the quarter. With its closure go 1 500 of its 3800 jobs, which will cost Harmony about R27-million.
Swanepoel says there is some merit in criticism that the shaft should have been axed six months ago, but the delay was necessary for the company to make a go of its turnaround.
Randfontein’s working profit took a R35,4-million hit for the quarter with working profit sliding to R55,4-million. Analysts said the closure of the high-cost production would aid Randfontein’s overall cost profile.
Swanepoel said other measures to be put in place to rescue Randfontein’s rising cost profile are the restructuring of the Doornkop operation, which will be restaffed with Harmony’s workforce, and the closure of its surface operations.