Harmony cuts SA gold output to a quarter during lockdown
SA’s largest source of domestic gold shuts its nine underground mines and reduces output during the three-week Covid-19 lockdown
Harmony Gold, the largest source of the metal in SA, has shut nine mines, reducing output from the country by three quarters for the three-week lockdown ordered by the state to curb the spread of the Covid-19 virus.
SA entered the shutdown on March 27 with all but essential businesses closed for the period. In SA, three people are confirmed dead and 1,326 infected by the coronavirus wreaking havoc on the global economy.
Harmony — which is cementing its position as SA’s largest domestic gold miner with the $300m purchase of AngloGold Ashanti’s Mponeng mine and other SA assets — said it has shut nine underground mines and put them on care and maintenance.
It will keep its surface operations running, as well as limited output at its opencast Kalgold mine, which employ far smaller workforces that can be kept safe distances apart and more effectively managed when it comes to sanitising and monitoring, compared to the labour-intensive underground operations.
Harmony said it will produce between 650kg and 700kg of gold during the lockdown, which is about a quarter of the company’s normal production in SA during a 21-day period.
The rand gold price is R930,700/kg, meaning the value of that production would be in a range of R605m and R652m.
Harmony will send its partially refined gold to Rand Refinery in Germiston for purification. It takes two days from delivery to get payment for gold, said spokesperson Marian van der Walt. “Rand Refinery is viewed as an essential service and we will continue providing our gold to them for onward selling.”
Harmony has kept its Hidden Valley gold and silver mine in Papua New Guinea in production.
“The health and safety of all of our employees — and in particular those who continue to work on the care and maintenance of our mines, as well as at Hidden Valley — remain our highest priorities,” said Harmony CEO Peter Steenkamp. “Cash preservation is key and, as such, all exploration and capital projects have been suspended.”
Harmony employs 38,000 people at its SA operations, including contractors. Of those 7,000 will remain at work, maintaining essential services such as water pumping, security and health services, said Van der Walt.
Harmony has issued notices of force majeure to its suppliers, service providers and contractors. Companies trigger this clause in contracts when events beyond their control change the way they do business. There are no contracted sales of gold, so there is no force majeure on gold supplies.
Mineral resources and energy minister Gwede Mantashe said on the eve of the lockdown that mining companies could continue to operate smelters and refineries, as well as mines, providing essential minerals, such as platinum group metals (PGMs) used in medical products.
He stressed, however, that underground mines, in which workers are crowed together in lifts and gathering places before going underground or being hauled back to the surface, would have to close.
SA’s PGM mines, which are nearly all underground and labour-intensive, have shut, with Anglo American Platinum saying it would keep its opencast Mogalakwena and mechanised Mototolo underground mines running.
These companies have declared force majeure, which is a clause in contracts with customers, contractors and suppliers, citing unexpected reasons for business disruptions that prevent contracts being honoured.
SA is the world’s largest source of PGMs, which are primarily used to make anti-pollution devices in diesel and petrol engines, industrial applications and, in the case of platinum, jewellery.
Carmakers in Europe and the US have stopped production, while China is restarting these businesses. Impala Platinum said on Monday that it has met its March deliveries and hopes to fill its April contracts if the lockdown lasts 21 days and isn’t extended.
Iron ore mines, which are open pits, are operating on a scaled-down basis and continuing to rail and ship ore. Coal mines supplying state-owned power monopoly Eskom remain in operation. The coal export channel through Richards Bay Coal Terminal, one of the largest in the world, has suspended movement of coal until there’s clarity on movements of the mineral to and from the port.
Update: March 31 2020
This article has been updated with comment by Harmony Gold.