South Africa’s third-largest gold miner, Harmony Gold, on Monday posted its ninth consecutive headline loss but forecast a recovery in the coming months and quarters.
Harmony reported a headline loss of 86 cents per share for the September quarter, from a restated 94-cent loss in the June quarter.
Harmony was expected to report a headline loss per share of 58 cents, based on the median of analysts’ forecasts, for the September quarter, from a previous headline loss of 102 cents in the June quarter.
Analyst forecasts ranged from a loss of 36 cents to a loss of 65 cents.
During the September quarter, Harmony was hit by a strike at its South African operations that saw the group lose an estimated R60,5-million. A wage increase then added R52-million to the group’s costs, Harmony chief executive Bernard Swanepoel said.
On the positive side, Harmony’s earnings were boosted by a higher gold price and a change in accounting policy regarding the capitalisation of mine-development costs, which reduced Harmony’s operating costs by R136-million, he added.
“I’m more positive about Harmony’s September quarter results than earlier in the day and a turnaround seems to be coming. Without the strike in August, the quarter would have been better,” an analyst said.
“There was a big improvement and I’m impressed,” he added.
At 2.45pm, Harmony’s share price on the JSE was quoted at R71,95, up 3,5% or R2,45 from its previous close.
“Operationally, Harmony’s results were better than expected, but on the costs side, it was a shocker,” another analyst said.
“It was a little disappointing that the restructuring didn’t show through quicker,” a market player said.
The group saw a cash operating profit of R119-million in the September quarter, from R185-million, and an operating loss of R184-million for the September quarter, from a R135-million loss in the June quarter.
From April 2004 to August 2005, 13 000 jobs were lost at Harmony’s operations in South Africa as the group restructured its operations. Swanepoel said the job loss was probably the biggest in South Africa’s recent history.
“We bottomed out in July and in September our efforts over the past year started to pay off,” Swanepoel stated.
The group will aim to get its cash operating costs down to between R68 000 per kilogram and R69 000 per kilogram based on the new accounting policy for development capital during the December quarter, he added.
Cash operating costs for the September quarter were R85 718 per kilogram, from R80 444 per kilogram in the June quarter.
If Harmony gets its cash costs down to between R70 000 and R72 000 per kilogram, this would be a very good achievement, an analyst said.
A move below R70 000 per kilogram might put Harmony on a par with rival Gold Fields, which saw total cash costs of R72 768 per kilogram in the September quarter, but usually has total cash costs between R65 000 a kilogram and R70 000 per kilogram.
“The target of R68 000 per kilogram is going to be very hard for Harmony, given the group’s ore bodies,” a market player said.
Harmony’s costs are a reflection of the company’s ore bodies and the group might be able to restructure its operations and get its mines down to R75 000 per kilogram for a quarter or two, but keeping it at that level would be very difficult, he added.
None of Harmony’s operations during the September quarter achieved a cash operating cost below R75 000 per kilogram. The group’s “quality ounces” saw cash operating costs of R76 896 per kilogram, “growth” projects R91 253 per kilogram and “leveraged ounces” R100 158 per kilogram.
‘No hope in hell’
There is “no hope in hell” that Harmony will get its cash costs down to between R68 000 and R69 000 per kilogram, a market player said.
Harmony does not have sufficient quality assets or management to achieve the reduction in costs to its latest cost target, he added.
The restructuring process has resulted in a loss of people and as part of this process, people within Harmony have been redeployed and part of the redeployment saw people being reskilled and placed into new teams, Harmony operations director Philip Kotze said.
He added that the group’s target is R68 000 to R69 000 per kilogram in the long term.
Turning to the December quarter, an analyst said he sees improved results from Harmony due to a received gold price — which could be higher by between 8% and 10% than it was in the September quarter — as well as lower costs.
Harmony is on course for a major recovery, he added.
The higher rand and dollar gold prices are making Harmony’s current projects and others on the drawing board more attractive, Swanepoel said.
During the December quarter, Harmony is likely to see an ore volume increase of 5% to 10%, Swanepoel stated. He also hinted at the chance of Harmony turning a profit in the December quarter as well as a 20% margin for the quarter.
However, Swanepoel cautioned that Harmony’s corporate bond and the currency hedge at the Target mine in the Free State will result in outflows during the December quarter.
During the September quarter, the Target hedge saw an outflow of R58,1-million. In the December quarter, Swanepoel said that the hedge and bond outflows could be R50-million or so each.
He would not be drawn by questions about the company’s performance during October.
He said he is not aware of any major problems with the implementation of continuous operations at much of the group’s South African mines.
Continuous operations sees Harmony’s mines work round the clock, excluding South Africa’s 12 public holidays, or 353 days a year.
Harmony continues to hold its 5,4% in Gold Fields for “strategic intent”, Swanepoel added.
The group received regular proposals from investment bankers regarding Harmony’s stake in Gold Fields, but no direct approach from gold-mining groupings, Swanepoel said. — I-Net Bridge