Impairment, labour strife cut Harmony earnings
HARMONY Gold is cutting costs after being hit by financial losses in the year to June after a writedown at Hidden Valley mine in Papua New Guinea and strife at Kusasalethu near Carletonville.
Harmony said yesterday it would cut down on services, corporate costs and exploration plans after posting a net loss of R2.4 billion compared with a net profit of R2.6bn in the previous financial year.
The JSE-listed firm revised its capital guidance for the coming year to R2.1bn, representing a R650 million reduction year on year.
It will also cut corporate and services costs for the next financial year by R450m.
Harmony’s financial losses are mainly due to the impairment at its Hidden Valley mine, the labour unrest at its Kusasalethu mine and its consequent temporary closure in December last year.
The company reported headline earnings a share of 47c for the year to June, compared with R5.65 in the previous year.
The decline in earnings follows the reversal of the Hidden Valley deferred tax asset of R547m, losses related to the temporary closure at Kusasalethu and retrenchment costs.
Last month Harmony said the carrying value of its 50 percent holding in Hidden Valley would be written down to its net recoverable value.
Chief executive Graham Briggs said yesterday that the company had cut 1 200 jobs so far this year at its operations as part of the cost cutting drive.
“We are looking at supply agreements and we will target Papua New Guinea. We have to continue looking at the way we do business to ensure that operations are profitable.”
The company decided not to pay a final dividend in light of the losses. Harmony’s decision to withhold the dividend payment was in line with its peers, including AngloGold Ashanti and Sibanye Gold.
Shares fell 4.34 percent to R37 yesterday after the disappointing results, but rallied to close 1.01 percent up at R39.07.
An analyst who spoke on condition of anonymity said Harmony’s decision to suspend the dividend was one of the reasons for the initial decline in the share price.
“Their stopping dividend payments, even though they just received R1.3bn for the sale of Evander, is one of the rea- sons for the drop in the share price. That money belongs to shareholders.”
Year on year, Harmony’s underground grade increased by 7 percent while gold production decreased by 2 percent to 1.1 million ounces.
Gold production for the June quarter increased by 12 percent to 276 109 ounces compared with the third quarter to March, mainly due to the build-up in production at Kusasalethu, after the labour unrest during the second to fourth quarters of the financial year.
Operating profit for the June quarter was 22 percent lower due to a 9 percent decrease in the gold price received and an 8 percent increase in cash operating cost, the company said.
Harmony’s labour dynamics had changed after it signed a recognition agreement with the Association of Mineworkers and Construction Union (Amcu) for its Masimong mine in July. Amcu represents a third of Masimong’s total workforce and 74 percent of Kusasalethu’s.