ARM holds a 16 percent interest in Harmony Gold Mining Company Limited (Harmony), which is the fifth largest gold producer in the world. Harmony's operations and projects are located in the major gold-producing areas of South Africa (Carletonville, Orkney, Welkom, Evander and Virginia), Australia and Papua New Guinea. These are outlined below.
In addition, there are several surface operations, including Kalgold.
The 2007 financial year was a challenging one for Harmony. Key board and management changes were effected post year end and ARM is confident that the new management in place at Harmony is focused on implementing effective cost cutting and control measures and, at the same time, focusing on the basic principles of ore reserve management and mining that has made Harmony the successful company that it has been in the past.
Operating performance was disappointing both in respect of production and cost control. On the production front, gold produced declined to 72 602 kilograms. A significant increase in cash operating costs was also reported for the F2007, rising by 26.8% year-on-year from R6.6 billion to R8.2 billion.
Cost under-reporting in the third quarter owing to a system implementation error had a significant impact on results of the fourth quarter.
Harmony’s performance in F2007 exceeded that of F2006, albeit largely as a result of the rising gold price. The financial performance was much improved, with the group posting net profit of R341 million, the first time that the group registered a profit in three years.
Pleasingly, cash operating profit increased to R2 556 million (F2006: R1 459 million) while operating profit improved to R1 228 million from R255 million in F2006. This follows a rise in revenue for the year of 34% to R9 148 million (F2006: R6 823 billion).
The gold price received for the year was 21% higher, at US$638/oz (F2006: US$529/oz), while the Rand/US Dollar exchange rate was marginally weaker at R7.20, and also played a role in raising rand-based revenue.
Basic headline earnings per share improved substantially to 43 SA cents from a loss of 269 SA cents per share recorded in FY06.
|Gold produced continued ops||kg||61 879||62 975|
|Gold produced discontinued ops||kg||10 723||11 267|
|Gold produced total||kg||72 602||74 242|
|Average gold price achieved continued ops||R/kg||147 839||108 345|
|Average gold price achieved discontinued ops||R/kg||146 321||107 926|
|Average gold price achieved total||R/kg||147 580||108 268|
|Revenue continued ops||R million||9 148||6 823|
|Revenue discontinued ops||R million||1 569||1 216|
|Revenue total||R million||10 717||8 039|
|Cash costs continued ops||R/kg||110 958||88 638|
|Cash costs discontinued ops||R/kg||120 768||88 577|
|Cash costs total||R/kg||112 407||88 629|
|Cash operating profit||R million||2 282||1 241|
|Cash operating profit discont. ops||R million||274||218|
|Cash operating profit total||R million||2556||1 459|
|Headline earnings/(loss) per share cont. ops||SA cps||129||(275)|
|Headline earnings/(loss) per share discont. ops||SA cps||(85)||6|
|Headline earnings/(loss) per share total||SA cps||43||(269)|
|Fully diluted earnings/(loss) per share cont. ops||SA cps||235||(139)|
|Fully diluted earnings/(loss) per share - discont. ops||SA cps||(150)||4|
|Fully diluted earnings/(loss) per share||SA cps||85||(133)|
|Average exchange rate||Rand/US$||7.20||6.36|
In April 2007, Harmony announced the sale of the Orkney shafts to Pamodzi Gold in a transaction valued at R550 million. The transaction agreement, which was signed on 31 August, provides for a royalty for Harmony and the sale should be concluded by the end of calendar 2007.
On 31 July 2007, Harmony reached agreement to sell South Kal Mines to Dioro Exploration NL in Australia. Dioro will pay to Harmony A$25 million (R150 million) in cash and will issue shares to the value of A$20 million (R120 million). The transaction is expected to close in October 2007.
Good progress continued to be made at Harmony’s five growth projects during F2007 – four in South Africa and one in PNG. Together these projects will add some 1.4 million ounces to production over the next four years and substantially improve the quality of Harmony’s operations going forward.
Attributable capital expenditure incurred for these five growth projects during F2007 amounted to R1 174 million, with Hidden Valley in PNG accounting for around 45% of this. Given the company’s current cash position, planned capital expenditure is being re-evaluated, together with project timelines.
The company spent R194 million on exploration in F2007, which is an increase of 173% on the exploration expenditure incurred in F2006. In July 2007, Harmony completed the pre-feasibility studies for the Wafi-Golpu gold copper deposit located at the Wafi site in the Morobe province of PNG. A pre-feasibility study for the Wafi gold deposit study is currently under way and due for completion in November 2007. The Golpu study identified a technically and economically viable project plan, with the definition of a probable ore reserve of 70.8 million tonnes, grading 1.1% copper, 0.61g/t gold, and 121ppm molybdenum.
A key priority for F2008 is ensuring that Harmony turns its current operations to optimal account. The company’s back to basics approach and focus on disciplined mining should have management and the workforce concentrating on reversing the downward trend in its production and the upward trend in costs.
© 2007 African Rainbow Minerals Limited