Harmony proves its operational resilience by returning a solid performance
Harmony Gold Mining Company Limited (NYSE: HMY JSE: HAR) today announced that although the South African Rand continued its strong trend against the US Dollar, the company again proved its operational resilience by returning a solid performance for a second quarter in a row. The South African Rand has during the past quarter reached levels last seen pre-March 2000, nearly four years ago.
The company reported decreased cash operating profits down by 19% from R332,9 million to R271,0 million.
The impact of the strong Rand is evident and despite a 9% increase in the US Dollar gold price, the company received a R/kg gold price which was 1% lower at R85 139/kg. Actual cash working costs were well controlled, decreasing by 2% or R47,4 million. In R/kg terms, cash working costs increased marginally from R75 319 to R75 888/kg. In US Dollar terms Harmony’s cash operating profit margin decreased slightly from US$46/oz (13%) to US$43/oz (11%).
“Although agreement was reached with the labour unions on the introduction of CONOPS (continuous operations) at the Free Gold and Deelkraal operations, these benefits are only expected to start contributing to the operational performance of the company in three to six months’ time. However, costs associated with the introduction of CONOPS have already been incurred. Increased labour charges and underground development to establish additional working places, are reflected in the reported working costs. All stakeholders stand to benefit significantly from the successful introduction of CONOPS,” commented Bernard Swanepoel, Chief Executive.
The company continues to generate good cash earnings, returning 105 cents per share for the December 2003 quarter compared to 130 cents per share reported previously. Fully diluted earnings per share for the first half of the financial year totals 76 cents per share and a 40-cent per share interim dividend was declared.
“Work on our range of growth projects which will result in the upgrade of our production base, is on schedule and within budget. Excellent development results are being achieved at the Elandsrand New Mine Project, which bodes well for their operational performance in the future. The Masimong Expansion Project continues to achieve its targets as is evident from the Free State’s results,” said Bernard.
Harmony is making good progress finalising the agreements announced on 7 November 2003. The Boards of Avmin, Harmony and ARMI announced that they had reached agreement in principle regarding a range of indivisible transactions which, on implementation thereof, will create South Africa’s largest Black controlled mineral resources company under the leadership of the current Harmony Chairman, Patrice Motsepe.
On the same date, Harmony announced that it had reached an in principle agreement regarding the acquisition of Avmin’s 42,2% interest in Avgold Limited for a purchase price of R2 894 million. In the event of the acquisition of the Avgold shares becoming unconditional, the company will own approximately 54% of Avgold, and a mandatory offer will be made to the minority shareholders. Avgold owns the Target Mine in the Free State. The mine is expected to produce in excess of 300 000 ounces per annum at a cash cost of US$230,00 per ounce, even at the current strong South African Rand levels. The operation has a life of mine of 18 years. Avgold also owns the prospective Target North Project area which has a resource of 59,6 million ounces.
Commenting on the company’s activities in Australia, Harmony reported that preliminary results of the feasibility study on the Hidden Valley (Morobe) deposit conducted by Abelle were announced at the end of December 2003. The studies have confirmed earlier projections that the optimal development route would encompass a project that will produce 300 000 ounces of gold and 4,5 million ounces of silver per annum (total gold equivalent of 360 000 oz/annum) from an initial open pittable reserve of 2,04 million ounces of gold and 27,5 million ounces of silver. Harmony is currently reviewing the technical and financial parameters of the study. Drilling at the Link Zone of the highly prospective Wafi gold project, also managed by Abelle, continued during the quarter. The results have confirmed and extended the mineralisation previously discovered.
“Subsequent to quarter end the South African Rand has weakened to levels above R7,00 to the US Dollar following a correction in the US Dollar. The South African Rand could stabilise at these levels. If we receive an average gold price of R90 000/kg (+6%) for the coming quarter, our cash operating profits could increase by as much as 52%,” concluded Bernard.
Supporting financial information:
| DEC 2003 | SEPT 2003 | % Variance | ||
|---|---|---|---|---|
| Production | – kg | 29 294 | 30 145 | (3) |
| Production | – oz | 941 820 | 969 179 | (3) |
| Revenue | – R/kg | 85 139 | 86 364 | (1) |
| Cash cost | – R/kg | 75 888 | 75 319 | (1) |
| Revenue | – US$/oz | 393 | 362 | 9 |
| Cash cost | – US$/oz | 350 | 316 | (11) |
| Exchange rate | – R/US$ | 6,75 | 7,42 | (9) |
| Cash operating profit – September 2003 | R332,9 million | |
| – volume decrease (tonnes) | (5%) | (R124,5 million) |
| – working cost decrease (%) | 2% | R47,4 million |
| – recovery grade increase (g/t) | 2% | R50,9 million |
| – Rand gold price reduction (R/kg) | (1%) | (R35,7 million) |
| – net variance | (R61,9 million) | |
| Cash operating profit – December 2003 | R271,0 million |
| Earnings in cents per share | ||
|---|---|---|
| Quarter ended Dec 2003 |
Quarter ended Sep 2003 |
|
| Basic earnings | 92 | (24) |
| Less profit on sale of mining assets | 1 | 4 |
| Less profit on disposal of Russian investments net of tax | 173 | – |
| Add amortisation on ARMgold goodwill | 16 | – |
| (66) | (28) | |
For more details contact:
Bernard Swanepoel
on +27(0)83 303 9922
or
Ferdi Dippenaar
on +27(0)82 807 3684
Investor Relations Officer
Corné Bobbert
Tel +27 11 684 0146
Mobile +27(0)83 380 6614
Disclaimer
This document includes certain information that is based on management’s reasonable expectations and assumptions. These “forward-looking statements” include, but are not limited to, statements regarding estimates, intentions and beliefs, as well as anticipated future production, mine life, market conditions and costs. While management has prepared this information using the best of their experience and judgment, and in all good faith, there are risks and uncertainties involved which could cause results to differ from projections.
Cautionary Note to US Investors – The United States Securities and Exchange Commission (the “SEC”) permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. We may use certain terms in this document, such as “resources”, that the SEC guidelines strictly prohibit us from including in our filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our public filings with the SEC available from us at Harmony Gold Mining Company Limited, Suite Nr. 1, Private Bag X 1, Melrose Arch, 2076 South Africa, for the attention of: Mr. Ferdi Dippenaar, Commercial Director. You can also obtain these filings from the SEC by calling 1-800-SEC-0330.