Harmony Gold CEO Peter Steenkamp says that if load shedding continues, the company will have to cut back on production at its high-cost operations. Photo: Simphiwe Mbokazi/African News Agency (ANA)

JOHANNESBURG – Harmony Gold said on Tuesday that it aimed to address its R4.2 billion debt burden in the next two years after it swung to a R1.3bn net profit in the six months to the end of December last year, on the rally of the gold price, compared with the R19 million loss a year earlier.

The group said it was riding the wave of the strong bullion price, which rose 19 percent on average to R683 158 a kilogram in December last year from R572 898 a kilogram in December 2018.

It said the resurgent bullion price resulted in a 12 percent surge in revenue to R1.7bn during the period.  

The US-China trade war has seen investors dumping risky assets for safe havens, including gold, which has resulted in a spike in prices.

Harmony Gold’s chief financial officer, Frank Abbott, said debt reduction would be prioritised.

“The first thing is to deleverage the balance sheet. Then, of course, if there are growth opportunities, we will consider that, and lastly we will consider declaring dividends,” Abbott said.

Harmony’s debt follows the acquisition of AngloGold Ashanti’s Moab Khotsong mine and recapitalising the Hidden Valley in Papua New Guinea in 2017.

Asked whether Harmony had been picked to acquire AngloGold Ashanti’s Mponeng mine, Harmony chief executive Peter Steenkamp said the group was continuously on the look out for any growth opportunities in South Africa and the rest of Africa.

“If it makes sense for us to invest, we will invest. We do not want to mention any specific opportunity until we get to the point where we have certainty. I will stop there,” Steenkamp said. 

Production, however, was disappointing, with the group announcing an 8 percent decline in lower grades at the Kusasalethu mine. 

It said the production guidance for 2020 had been revised downwards to 1.4 million ounces as a result.

Steenkamp said the group was recovering the cost of the impact of Eskom’s stage 6 load shedding.

“Stage 6 load shedding did not help us at all,” Steenkamp said, adding that the impact had been the loss of a full shift and a night shift.

“We lost between 80 kilograms and 90 kilograms of gold at the time,” he said, adding that the lost production could not be recouped. 

“Going forward, what worries us is that we have continuous stage 1 load or 2 load shedding. That means we have to cut 10 percent of power. That is not a good outcome for us as the mining industry,” he said, adding that the company was in talks with Eskom to find a solution.

Steenkamp said that if load shedding continued, the company would have to cut back on production at its high-cost operations, including the Masimong mine. 

Steenkamp said it also had the option of cutting down its waste retreatment in a bid to cushion the blow of load shedding.

He said Harmony planned to build a solar plant in the Free State that would generate 30MW of power, and another 40MW power project was on the table in the long term. 

“We are very thankful for the minister giving us the go-ahead to continue. We believe all the regulatory hurdles will probably be overcome in a month or two from now. We already went out on provisional tenders to build. What we are looking for is someone who can build the project on a to take or pay basis,” said Steenkamp.

Harmony shares closed 7.67 percent lower at R41.80 on the JSE on Tuesday.