Company announces silicosis class action will dip earnings up to 70%

HARMONY Gold shares retreated nearly 4 percent on the JSE yesterday after the mining company announced that it anticipated that a R1.7 billion impairment and a provision for possible silicosis class action would result in its earnings dipping by up to 70 percent for the year to June.

Harmony, which operates mines in South Africa and Papua New Guinea, said the impairment would follow its annual life of mine planning process .

The shares eventually closed 3.19 percent lower at R23.67 as the miner said it had also raised a provision for a possible silicosis class action settlement of R917 million.

It said that impairments had been recorded on its Target 1 operation, following the reduction in the life of the mine from ten years to seven years, and a lower recoverable amount for the Kusasalethu Mine following a reduction in declared resources as a result of the decision to not develop another decline during the 2017 financial year. The company also said that additional capital expenditure on improving environmental conditions at the Tshepong mine had also contributed to the impairment.

Diversified mining house Anglo American reportedly set aside $101m (R1.36bn) in preparation of a potential settlement while Gold Fields, the world’s seventh biggest gold producer, said it expected $30m to end the class action.

The mining houses, which included AngloGold Ashanti, Sibanye Gold and Harmony Gold were among 32 respondents named in the suit, which was billed as biggest class action the country had ever seen.

Harmony said that the impairment and silicosis provision would reduce the net profit of the company, but would not have an impact on reported cash balances and free cash flow.

Earnings would decline to between 65 cents a share and 109c or between 70 percent and 50 percent lower than the 218c a share reported for the previous comparable period.

It said headline earnings a share were expected to increase to between 276c and 320c a share, which was between 25 percent and 45 percent higher than the headline earnings of 221c a share reported for the previous comparable period.

The company is expecting to release its results on Thursday.