JOHANNESBURG (I-Net Bridge) -- Harmony Gold [NYSE:HMY; JSE:HAR], the third largest producer of South African gold, generated headline earnings per share (HEPS) for the quarter to end December of 44 cents compared to 66 cents on JSE in the June quarter as costs increased and less gold was produced.
The company produced 18,724/kg in the quarter compared with 19,472/kg previously and sold its gold for R144,467/kg ($20,171/kg) compared to R143,283/kg ($20,004/kg) on average in the three months to September.
The company milled 3.56% more tonnes than the previous quarter although grades per tonne decreased by 7%.
Total cash costs increased by 6.8% quarter on quarter to R104,132/kg ($14,535/kg) compared to R97,538/kg ($13,613/kg) before.
"The Group's higher unit costs this quarter are a result of lower yields on most of our quality mines and are frustrating at a time when we are harnessing all efforts to reduce costs," said chief executive, Bernard Swanepoel in a statement.
He added that over the next half year, the company would continue its higher development rate, which would access more gold and therefore increase grades by 10-15%.
It "will also put us in a position where we will have more consistent production results," said Swanepoel, "This should enable us to have reduced unit costs and improved performance."
Development metres on the company's South African mines were up 11.6% quarter on quarter.
Leon Esterhuizen, analyst at Investec in Johannesburg, described the results as disappointing. He also referred to Swanepoel's forecast for the coming six months as: "A new quarter, a new promise," alluding to Harmony's recent underperformance to guidance given.
Harmony's operations generated R487 million ($67.97 million) in cash during the quarter, and the company spent R512 million ($71.55 million) on investing activities. The company generated a net 36 million rand in the quarter, leaving cash balance of R904 million ($126.17 million) by the end of December.
In South Africa, the company's underground grades decreased by 4.4% to 4.78g/t from 5g/t previously.
Portfolio Moves
In other news, Harmony, which is building the Hidden Valley gold mine in Papa New Guinea, said it is in discussions with mining giant Rio Tinto [NYSE:RTP] to remove the royalty on the asset, thereby increasing the mine's rating due to its lower cash costs.
Swanepoel believes that by paying the amount - cash costs at the open pit gold and silver mine - will be more than $10/oz lower than if the royalty had stayed in place.
According to the company's annual report to end-June 2006, the mine will produce 285,000 ounces per year at an average cash cost of $225/oz after silver credits.
By lowering the cash cost, Swanepoel says that the mine will receive a higher market rating than a similar mine with higher costs.
Hidden Valley is expected to be complete in November 2008 at a capital expenditure cost of $278.3 million, according to the annual report.
Concerning the Papa New Guinea-based Porgera gold mine, Harmony said Barrick [NYSE:ABX; TSX:ABX] is logical buyer of Emperor's [ASX:EMP] 20% stake, although he would "at the right price" be interested. Barrick owns 80% of the Porgera gold mine.
Swanepoel told media at the company's December quarter results announcement on Friday that outbidding the majority owner of the mine would not make sense as this would be considered as overpaying for the asset.
He compared this to his resistance to make a counter offer to the Gold Fields' [NYSE:GFI] bid for Western Areas last year, saying that any price offered higher than Gold Fields' offer, with the efficiency gains from its neighbouring Kloof mine, would have been overpaying for the asset.
On Thursday, DRDGold [Nasdaq:DROOY] said that its troubled Australian subsidiary, Emperor, had decided following a strategic review to either sell key assets, or merge with another gold company to help pay down its long term debt. Emperor closed its Vatukoula mine in Fiji late last year after it became economically unfeasible to mine.
Financing Concerns
In a last bit of news today, Swanepoel said he has had discussions with Rand Merchant Bank (RMB) to extend the mid-March payback date on a R1 billion ($139.1 million) loan, taken out a year ago to purchase the company's stake in Western Areas.
"We have had constructive discussions about rolling it," Swanepoel told the media.
This waylays ideas of pressure on Harmony, with R904 million ($126.17 million) in cash in the bank as at end-December, to sell its shares in Gold Fields at a loss in order to pay back the loan.
Gold Fields purchased its stake in Western Areas last September by using cash and its own shares to close the deal. A large overhang of shares became available when Barrick, Harmony and JCI became large shareholders, while Gold Fields itself was expected to sell its own shares to pay down debt.
On Wednesday Gold Fields completed a $1.2 billion share sale, leaving Barrick (with a lockup until April) Harmony and JCI as the remaining large potential sellers.
Selling any of its Gold Fields shares now, when the shares are trading at a R120.50 a share price, would be at a loss to the R135 a share that they were recorded at when Harmony tendered its shares on December 1.
Harmony owns about 15.745 million Gold Fields shares.
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