Harmony Gold stuck to its full-year production after a slow start to its 2019 financial year in which costs ballooned because of higher winter electricity prices and labour costs.
Harmony reported production and cost data for its mines in SA and Papua New Guinea for the September quarter, which showed a 2% fall in gold output to 378,510oz compared with that of the previous three months and an 8% increase in all-in sustaining costs to R526,747/kg.
These two quarters include the Moab Khotsong mining complex near Orkney in the Free State, which was added to the Harmony portfolio in March in a $300m deal with AngloGold Ashanti. It is the largest gold mine in Harmony’s stable.
Year on year, Harmony’s September quarter production grew 30% because of the inclusion of Moab Khotsong as well as the Hidden Valley gold and silver mine in Papua New Guinea reaching commercial levels of production from June.
Nedbank analysts Arnold van Graan and Leon Esterhuizen said in a note that Hidden Valley had reported free cash flow for the first time since it was restarted after Harmony bought out its equal partner, Australia’s Newcrest Mining, and invested $180m in redeveloping the mothballed operation.
In the SA region, production fell to 300,963oz from 310,255oz in the June quarter, mainly because of sizeable falls in grade at the Moab Khotsong and Kusasalethu mines.
“This is not a great operational performance, but it is still early in the year, so we do not expect a material market reaction to these results — especially as guidance is maintained,” the Nedbank analysts said.
Harmony stuck to its full-year guidance of 1.45-million ounces.
“We are confident that we will achieve our annual production and cost guidance as we continue to focus on safety, production and cost management,” said Harmony CEO Peter Steenkamp.
Moab is expected to reach grades of 10g a ton in coming months as Harmony completes safety work in higher grade areas. During the September quarter, Moab’s grade fell to 8.44g a tonne from 9.85g a tonne in the June quarter.
Harmony received R570,545/kg of gold sold during the quarter, a number largely unchanged from the previous quarter and from a year earlier. It reported an average group all-in sustaining cost of R526,747/kg, which was 8% higher than the costs of the previous quarter and the matching period a year earlier.
The increase in costs came from items beyond Harmony’s control, including winter tariffs on electricity and higher labour costs, which were adjusted upwards to cater for a wage agreement reached in October and backdated.
“We expect cash costs to recede in quarters two to four, but quarter one costs are indicative of high SA inflation eroding the benefits of significantly weaker FX [rand against the dollar],” said JP Morgan Cazenove in a note.