Harmony to ramp up capacity
• SA’s largest gold producer pushes back 191,000oz of gold hedges after a three-week stoppage at its mines
Harmony Gold has delayed contracted gold sales for prices far below the metal’s prevailing price because of SA’s national lockdown that curtailed its mining operations for the past three weeks. Harmony said on Monday it will ramp up its mines up to 50% capacity over five days as regulations governing mining during the five-week lockdown to the end of April were eased for the broad sector after the first 21 days brought SA’s mines to a standstill.
Harmony Gold has delayed contracted gold sales for prices far below the metal’s prevailing price because of SA’s national lockdown that has curtailed its mining operations for the past three weeks.
Harmony said on Monday it would ramp up its mines to a maximum of 50% capacity over five days after regulations governing mining during the lockdown were eased for the broad sector. This came after after the first 21 days had brought SA’s mines to a standstill.
Harmony said it had accessed rand and dollar debt facilities to give it the financial muscle to restart its mines.
One of the main concerns for investors has been Harmony’s forward gold sales at pre-agreed prices. The rand gold price has risen to more than R1m/kg, leaving those contracts in a lossmaking position.
By midafternoon on Monday, the price was R1.02m/kg, which is one few SA mines have been able to realise, particularly those with underground mines.
For the March and June quarters of 2020, Harmony had agreed to sell 95,000oz and 96,000oz for R648,000/kg and R661,000/kg respectively.
As one analyst noted, its hedges are “deep in the red given the spot prices”.
Harmony said it had agreed with its hedging counterparties to roll these contracts into the first three quarters of its 2021 financial year starting in July this year.
“This was also done to better match the gold production,” Harmony said.
The company must deliver a total of 298,000oz of gold during the 2021 financial year at an average price of R695,250/kg. In the March quarter a year ago, it produced 331,603oz, which gives a sense of the size and importance of its forward sales.
On April 16, mineral resources & energy minister Gwede Mantashe told the industry that in line with amendments to government regulations governing the lockdown that was extended by two weeks to end-April, mining operations were deemed to be essential and companies could resume operations up to 50% of capacity.
STRICT CONDITIONS
These restrictions would be further eased and he said he expected mines to be back to full production towards the end of May. However, the return to work of the 450,000 people employed by the sector would be under strict conditions, with the onus lying squarely on companies to ensure their employees remain healthy.
Harmony said production was 8% lower than the December quarter. But it did not give a number and neither is it readily available on its website.
A higher gold price in the
March quarter of 2020 boosted the operating free cash flow margin by 55% when compared with the December quarter, Harmony said.
When the government announced the initial 21-day lockdown starting on March 27, all mining operations had to cease, but companies with surface assets such as tailings treatment plants, opencast mines, smelters and refineries were given special permission for limited operations.
Harmony was one of those companies. It has reprocessed tailings and operated its opencast Kalgold mine on a limited basis, warning shareholders that production for the 21-day period would be three quarters below normal levels.
Once Harmony has completed the R300m purchase of AngloGold Ashanti’s Mponeng mine — the world’s deepest at 4km below ground — and associated tailings and mothballed mines, the company indisputably will be SA’s largest domestic gold producer.
Harmony said on Monday it would take five days to restart its underground mines, which have been under care and maintenance programmes, and that it would not operate at more than half its capacity during the extended lockdown period.
Harmony has secured the agreement of its largest union, the National Union of Mineworkers, on a standard operating procedure around protection, screening, and quarantine methods to deal with the coronavirus at its mines.
A pre-lockdown risk assessment and mitigation action “allows the company to reduce or eliminate the probability of an employee contracting Covid-19 and to limit the severity should an employee be infected,” Harmony
said.
Harmony’s measures and protocols have been drawn from the guidelines of the department, the National Council for Infectious Diseases and the World Health Organisation as well as the Minerals Council SA, it said.
“We have also agreed with our trade unions that they may conduct similar safety audits in conjunction with our management teams, to provide them with the assurance that our employees’ safety and health are protected,” it said.
Harmony will use two hostels in Welkom and Klerksdorp, with a total of 350 rooms, as quarantine sites for those employees found to have been infected with the coronavirus.
While Harmony will transport SA-based staff back to the mines from rural areas, it has to wait for cross-border restrictions to be lifted for employees in neighbouring countries to be able to return.
LOGISTICAL EXERCISE
The movement of thousands of mineworkers is a difficult logistical exercise.
In an interview with Business Day, Graham Herbert, MD of mineworker recruitment and services company TEBA, said the century-old organisation with about 100 offices around the country will play an integral role in assisting 350,000 mineworkers on gold and platinum mines to return to work.
A PRE-LOCKDOWN RISK ASSESSMENT AND MITIGATION ACTION ALLOWS THE COMPANY TO REDUCE OR ELIMINATE COVID19 PROBABILITY