Harmony returns to the red

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Harmony, South Africa’s third-largest producer of gold, reported its second loss in three quarters yesterday as the price of bullion declined and output fell.

The loss excluding one-time items was R91 million in the three months to December, compared with a R20m profit in the previous quarter.

Harmony shares dropped 3.72 percent to end at R31.36 in Johannesburg after earlier touching a low of R29.50.

Gold’s price plunge last year caused Harmony to suspend its dividend. The company is responding by mining higher-grade ore, cutting costs and implementing more productive shift patterns.

“They have got to turn around laggard shafts pretty rapidly,” said David Davis, an analyst at Standard Bank’s securities unit.

Production dropped 1 percent to 305 913 ounces from the previous quarter and the average gold price received declined 4.8 percent to $1 277 an ounce. The lower production was partly due to the Christmas holiday period, Davis said.

Chief executive Graham Briggs said: “We are confident that we can continue to manage our operations so as to remain profitable even should the gold price come under further pressure.”

Harmony’s all-in sustaining costs dropped 3.3 percent to $1 222 an ounce, which included wage increases for employees of about 8 percent, Briggs said.

On January 30 the labour court temporarily blocked the Association of Mineworkers and Construction Union from striking at gold mines. The union can argue against the ruling on March 14. “We believe we have a very strong case,” Briggs said.

Harmony had replaced a R850m credit facility with a three-year R1.3 billion credit facility from Nedbank. Harmony finance director Frank Abbott said the interest rate paid was 3.5 percentage points above the Johannesburg interbank agreed rate, currently at 5.7 percent. – Bloomberg


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