Death threats, shootings threaten Harmony Gold mine’s future

South Africa's third-largest gold producer said last week it would delay the post-holiday restart of the mine 65km west of Johannesburg as it was undertaking a review of its financial and operational status.

Kusasalethu's woes mark a rocky start to 2013 for South Africa's mining industry, after a year in which it was rattled by violent wildcat strikes that lead to the death of over 50 miners and severely damaged the country's investment image.

Harmony's problems may prove a harbinger for the platinum sector as Anglo American finalises a review expected this month of its unit Anglo American Platinum, the world's top producer of the precious metal, which may lead to shaft closures.

"There is an extremely high risk something could go wrong at Kusasalethu in its current state. We are drawing a line in the sand," Harmony chief executive Graham Briggs told a briefing on Monday. He said managers had received death threats and shots had been fired at police at the mine.

The company said it had launched a legal process that could result in the mine being placed on "care and maintenance", meaning production would cease but its infrastructure would be kept in working order by a small number of staff.

This would lead to lay-offs that could further stoke social tensions and have a huge impact on the bottom line of Harmony at a time when it needs cash to fund its huge Wafi-Golpu project in Papua New Guinea, analysts say.

"This would be a blow to Harmony: Kusasalethu produced around 18% of Harmony's production profit in the September quarter. If they do put it on care and maintenance it will certainly disrupt their cash flow regarding Wafi-Golpu," said David Davis, mining investment analyst at SBG Securities.

Shares down
Harmony shares fell almost 3% in morning trade, underperforming the Johannesburg bourse's All-share index, which was down 0.1%.

Briggs said placing the mine under care and maintenance would be a short-term option but shareholders would not want to fund an operation for long that was not producing.

"In the longer term shareholders are likely to ask about why we keep spending money on care and maintenance," he said.

Briggs said about 6 000 workers could be affected and the costs of mothballing the mine and laying workers off could be 400 million rand.

Kusasalethu is one of a handful of South African gold mines where production was actually seen rising. The country's bullion industry has been in steep decline as the ore gets deeper and more costly to get at and grades become poorer.

Briggs said 62% of Kusasalethu's workforce now belonged to the Association of Mineworkers and Construction Union (AMCU), a militant union whose turf war for members with the National Union of Mineworkers has been at the root of much of the violence in the mining sector.

A brief underground sit-in was staged at Kusasalethu just before Christmas, when 1 700 workers refused to surface in protest against the suspension of colleagues who had taken part in an illegal strike.

The suspensions also sparked violence on December 20 when several miners were injured by police who fired rubber bullets to disperse a demonstration. In November, two miners were killed in clashes between the rival unions.

Union-linked violence last year led to the closure of the Everest mine run by Aquarius Platinum. – Reuters

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