World number six gold-miner Harmony Gold sees little need for renewing its irrevocable undertaking with Russian mining group Norilsk Nickel beyond May 20, when the agreement expires, Harmony CEO Bernard Swanepoel said on Monday at an investor presentation.
Harmony will also, on Monday, be filing for leave to appeal a court ruling that upheld a directive issued by the Department of Water Affairs and Forestry that the cost of pumping underground water from DRDGold’s former Buffelsfontein mines — which are in liquidation — will now be shared equally between Harmony, AngloGold Ashanti and DRDGold.
It was important that there is a clear ruling about the pumping of underground water and that such decisions aren’t left to the discretion of an official at the Department of Water Affairs and Forestry, Swanepoel said.
There is also a need for clarity on the issue of who takes responsibility for the pumping of underground water, he added.
The issue of underground water has direct ramifications on the profitability of Harmony’s shafts, Swanepoel stated.
South Africa’s three major gold miners AngloGold Ashanti, Gold Fields and Harmony, are set to start wage negotiations with the National Union of Mineworkers (NUM), with the wage increase to be effective from July 1 this year.
Given the state of South Africa’s gold industry, the industry cannot afford unrealistic wage increases, and too high a wage increase will result in a loss of jobs, Swanepoel said.
However, the NUM is a strong union and it will be an interesting set of wage negotiations, he added.
Harmony continues to look at the possibility of reintroducing continuous operations at its Free State gold mines, and if this does not come to fruition, more jobs will be lost, said Swanepoel.
The competent persons report (CPR), which is currently being compiled by Steffen, Robertson and Kirsten (SRK) Consulting, will be released soon, Swanepoel added, without specifying the date.
When Harmony unveiled its bid for Gold Fields on October 18 last year, Swanepoel promised to release the group’s independently verified CPR, or its reserves and resources statement, by early December.
Almost five months later, no SRK CPR has been released.
The group also disclosed on Monday that the CPR will cost the group R3,5-million.
Harmony previously said it would look to cut its cash costs to R75 000 per kilogram during its June 2005 quarter, but due to the protracted nature of its restructuring, Harmony will only reduce its cash costs to R75 000/kg by June rather than by the start of the June quarter, Swanepoel said.
“We believe we are on track to get our cash costs below R75 000 per kilogram,” Swanepoel said.
Harmony’s cash costs rose sharply in the March 2005 quarter to R85 863 per kilogram from R77 415 per kilogram in the December 2004 quarter, due to various events such as fires, a strike and the slow post-Christmas period.
The NUM is set to approach the Labour Court on Tuesday to interdict Harmony and stop the group from retrenching workers at five of its operations, and that could further delay the restructuring, according to Swanepoel.
He continued to argue the merits of consolidation in the South African gold-mining industry.
“Any master of business administration student would say that consolidation would be the remedy for an industry like ours,” he added.
Earlier in April, the Chamber of Mines announced that South Africa’s gold production fell by 8,8% to 342,7 tonnes, or 11,019-million troy ounces, in 2004, the lowest level of gold production since 1931, from 375,8 tonnes or 12,081-million oz in 2003.
Regarding the bid for Gold Fields, Swanepoel said that with Gold Fields’ share price trading at about 1,5 times Harmony’s, Harmony doesn’t intend to overpay for Gold Fields stock and that last Friday’s closing ratio level, which saw Gold Fields’ shares closing 1,516 times Harmony’s, was ridiculous.
The group is currently offering 1,275 Harmony shares for every Gold Fields security held.
Harmony remains keen to take control of Gold Fields, Swanepoel said.
Thus far, Harmony has secured 11,6% of Gold Fields’ shares.
The total cost of Harmony’s bid for Gold Fields has so far totalled R150,5-million, from R101-million at the end of December last year.
Harmony has sold 17,5% of its stake in African Rainbow Minerals (ARM) and still has a 2,41% stake in ARM, which it intends to sell on the market.
The disposal of Harmony’s 20% stake has so far realised the group about R1,030-billion, Swanepoel said.
The group will also realise a “paper loss” of about R444-million on the stake.
Harmony ended the March quarter with a negative cash position of R233-million, compared with a positive cash balance of R2,337-billion at the end of the March 2004 quarter.
Swanepoel said he is very confident that Harmony will be able to meet its cash needs over the next six months.
The Competition Tribunal will be holding a public hearing into the proposed merger of Harmony and Gold Fields from May 3 to 6.
Swanepoel said tribunal approval is an “open-and-shut case”, and he expects the watchdog to approve the merger, even if it is conditional approval. — I-Net Bridge