JOHANNESBURG (Business Day) -- Harmony Gold Mining [NYSE:HMY] reported a net loss for the March quarter on Friday as the effects of the Christmas break and changes in grade offset an 8% lift in the gold price to R110,399/kg ($18,212/kg) from R102,333/kg ($16,884/kg) in the December quarter.
JPMorgan analyst Steve Shepherd said that the market had been told repeatedly that costs were coming down, but the variability in Harmony's performance had made profit difficult to forecast.
Barnard Jacobs Mellet analyst Peter Townsend questioned whether Harmony's introduction of continuous operations (conops) two years ago, which means miners work seven days a week, had delivered expected results.
Harmony's stated target last year was to achieve operating costs of R75,000/kg ($12,371/kg). However, in the March quarter, the group produced 14% less gold, at 17,464kg, than it did in December (20,316kg), while cash costs rose to R92,914/kg ($15,326/kg) from R83,154/kg ($13.716/kg).
Harmony's quarterly net loss was R182 million ($30 million), down from a profit of R22 million ($3.6 million) in the previous quarter, which translates into a headline loss of 50 cents (75-cent loss) a share.
Harmony CE Bernard Swanepoel said the commitment to a specific target on operating costs had damaged credibility as these targets could not be met with the kind of assets Harmony operated.
Costs were not an issue at Harmony as, with a ratio of fixed to variable costs of about 50/50, it had one of the best cost structures in the industry, Swanepoel said.
Costs were a consequence of volumes and grades, and Harmony expected that volumes would bounce back in the June quarter and grades would recover to about 5.5g-6g/tonne, the CE said.
Swanepoel said at the shafts where conops had been introduced more recently, there had been a volume improvement of 16% to 17%, while at the operations where it had been in place longer, such as Bambanani and Tshepong, it had improved the contribution about 20%.
Of the 14% decline in gold Harmony produced in the quarter, loss of production as a result of the Christmas break accounted for about 7% and another 3% reflected lower grades at Evander and problems at Kalgold, the CE said.
The remaining 4% was explained by flexibility problems at some Harmony shafts.
Within the Australian operations, there was a seismic event at Mount Magnet mine, which meant it was out of production for 38 days.
Swanepoel said Harmony's mines had been suffering from a lack of flexibility, which is the availability of alternative mineable areas, and this could be addressed over time only as new areas opened up.
Harmony had spent R257 million ($42.4 million) on operational capex at its South African and Australian operations in March and would spend another R228 million ($36.6 million) in the June quarter, the company said.
Another R199 million ($32.8 million) would be spent in the June quarter on developing projects such as Doornkop South Reef, Elandsrand New Mine, Tshepong North Decline and the shafts at Phakisa and Target.
Harmony would look for acquisitions of quality assets, which was why it had recently bought 29% of Western Areas [JSE:WAR], Swanepoel said.
