The strong rand had contributed to a 50% drop in cash operating profits for the quarter ended March, gold mining company Harmony reported on Wednesday.
Profits had dropped from R271,0-million to R134,2-million, chief executive Bernard Swanepoel said.
”The past quarter has been one of the most challenging that we have experienced over the last three years,” said Swanepoel.
”The company’s operating environment has been severely influenced by the current cycle of a low rand per kilogram gold price received, which has impacted on our short term profitability.”
The company managed to soften the impact of the reduced working days in South Africa over Christmas.
This was evident from the only five percent reduction in tonnage.
Cash working costs were well controlled, decreasing by eight percent or R174,0-illion to R2 049-million.
This was well in line with the reduction in working days during the quarter.
In R/kg terms, cash working costs increased from R75,888/kg to R82,852/kg, which was mainly due to the 16% reduction in gold produced.
A three percent increase in the US Dollar gold price resulted in a R/kg gold price which was higher at R88 277/kg. In US Dollar terms, the cash operating profit margin decreased from $43/oz (12%) to $25/oz (7%).
A closer analysis of a breakdown of quarterly production shows that at the gold price of R88 278/kg achieved during the quarter, 66% or 16 359kg were mined from profitable shafts.
These kilograms contributed R198,5-million in cash operating profits. The remaining 34% or 8 376kg were mined from shafts making a loss of R64,3 million.
The impact of a lower gold price and higher costs was more severe at the older mature shafts which saw more of their ore reserves becoming uneconomical.
This necessitated fairly drastic action which culminated in an announcement on 2 April 2004 in which shareholders were informed of plans on how to structurally adjust to a changed environment.
Four shafts, Welkom 1, Orkney 6, Eland (which is part of Free Gold) and Merriespruit 3 are nearing the end of their economic life and have been earmarked for closure. Two shafts, Masimong and Nyala were also given notice of a 60-day statutory review period.
”We are in consultations with the respective unions on the restructuring plans and at a meeting held on 16 April 2004, Harmony and the various unions agreed to support the establishment of a multi-party process.
”This joint task team has subsequently met to evaluate the financial situation of the shafts and will report back early in May 2004,” said Swanepoel. – Sapa