Harmony Gold lowers debts and looks forward to making acquisitions

10 November 2008 | 03:53 Code : 18317 Geoscience events
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Harmony Gold (JSE: HAR, NYSE, NASDAQ:HMY) views its now declining debt as a....

Harmony Gold (JSE: HAR, NYSE, NASDAQ:HMY) views its now declining debt as a "major advantage" and says the company will be in a position to make acquisitions in June next year. Chief executive officer Graham Briggs said during a teleconference today the company would look "more seriously" at opportunities to grow through acquisition when its debt reaches a "very low level" in June. This would come on the back of the company’s "recovery phase" that saw it focusing on organic growth since December 2007. Briggs said that South Africa was a good location to operate in, but the company would not buy assets that were close to the end of their lives and had declining grades. Harmony would instead focus on better quality assets that had long lives and high gold grades. "However, we can’t isolate ourselves to South Africa, so we would internationally for potential acquisitions."Harmony’s debt was at R2.3bn ($229m) at the end of the September quarter, down from R3.8bn ($379m) in June 2008 and will be at R224m ($22m) in June 2009 as the company continues to receive proceeds from disposals. Briggs said Harmony’s high capex rate would decrease from next year, while the developing rate was picking up at all operations. The company spent R5.5bn ($549m) on project capex over the last two quarters and expected to again spend above R600m ($59m) in the next quarter. Harmony would see payback on its high capex spend over the next years as gold grades will increase from 4.5g/-4.8g/t to 6g/t and production will reach the target of 2.2m ounces by 2012.Briggs said there would not be a "magic sweet moment" but rather an improvement over the next years as they were developing the business into a sustainable one. Harmony said the next six months were critical in deciding the future of its Target mine, which performed badly in the last quarter with a 12% drop in production to 588kg and a 17% drop in grade to 3.52g/t.New management has been appointed at the mine and this team has been bolstered with professional planning people that have been involved with the mine for four weeks. Its other distressed underground operation, Elandsrand, would be restored from its current "intensive care" state over the next six to twelve months by instilling discipline in the area of safety and improving grades.Briggs said the problems at Elandsrand were "people-related" as was the success achieved at Masimong mine. Elandsrand saw a 1% drop in production to 1,530kg in the last quarter and a 19% increase in cash costs to R160,152/kg ($15,977/kg). Harmony was very pleased with the performance of its Masimong mine that showed a 23% improvement in cash costs to R132, 616/kg ($13,224/kg) a 44% increase in gold produced to 1,272kg and a 25% increase in grade to 5.41g/t. Harmony Gold reported a 19% drop in cash operating profit to R808m (US$80.66m), a 9% increase in cash costs to R151,827/kg ($15,117/kg) and a 6% increase in production to 12,342kg for the September quarter 2008. The company said an increase in operating costs and decrease in the gold price received resulted in the lower cash operating profit and said tight control of costs was still critical going forward.


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