Harmony Gold Mining Co. (HAR), Africa’s third-largest producer of the metal, said first-quarter profit jumped almost fivefold as output climbed to the highest level in 10 quarters and prices for the metal increased.
Net income rose to 522 million rand ($61 million), or 1.21 rand a share, in the three months through Sept. 30, from 107 million rand, or 25 cents, in the prior three months, the Johannesburg-based company said in a statement today.
Along with AngloGold Ashanti Ltd. (ANG) and Gold Fields Ltd. (GFI), Harmony is trying to boost output to mitigate labor-cost and electricity-price increases and to benefit from increasing gold prices. Chief Executive Officer Graham Briggs plans to raise production to 1.7 million ounces in fiscal 2016 from an estimated 1.3 million ounces this fiscal year.
Harmony increased 6 percent, the most since May 24, to 72.31 rand by the close in Johannesburg, making it the best performer on the city’s stock exchange after Grand Parade Investments Ltd. (GPL)
Production grew 8 percent to 321,924 ounces in the quarter from three months earlier. That’s the highest in ten quarters, finance director Frank Abbott told reporters on a call today.
Gold gained 2.5 percent to an average $1,653 an ounce during the quarter from $1,612.73 in the prior quarter. It wouldn’t be surprising if gold rose to $1,800 by the end of this year, Briggs told reporters on a call. In local-currency terms, it may increase to about 470,000 rand to 490,000 rand a kilogram, he said. The metal traded at $1,714.03 an ounce as of 5:17 p.m. in London.
Second-quarter production will probably be similar to the first, excluding an estimated 25,000-ounce loss from a strike at Kusasalethu, which will affect this year’s target, Briggs said. The cost of the strike that lasted from Oct. 2 to Oct. 25 is estimated at about 325 million rand, Harmony said.
Pay strikes spread from South African platinum mines to gold, coal, iron-ore, chrome and diamond operations in the past three months. The Association of Mining and Construction Union has a “strong” presence at Kusasalethu mine, where union representation is being verified, Harmony said. AMCU has challenged the dominance of the National Union of Mineworkers in the platinum industry.
The NUM will likely remain a significant entity, Briggs said on the media call today. The NUM is an affiliate of the Congress of Trade Unions of South Africa, an alliance partner of the ruling African National Congress.
Wage increases are costing the company about 10 million rand a month more than before, Briggs said on the call. Harmony mines about 90 percent of its metal in South Africa and is investing in existing and new projects in Papua New Guinea. Labor represents about half of Harmony’s costs while electricity accounts for an average 16 percent, Briggs said.
Harmony was least affected by strikes at South Africa’s largest producers also because the company has a different pay structure, Briggs told investors on a call. Harmony’s basic pay is typically lower and variables higher, so employees benefited in the past quarter as production rose, he said.
Larger rivals AngloGold and Gold Fields had all of their South Africa mines idled by labor stoppages last month. Most of the operations have resumed. Only one Harmony mine had a strike.
There is a “new era” in human resources management, Briggs told investors on a call today. “It’s not going to be maybe as predictable as it has been in the past,” he said of labor engagement. “Maybe having another union in the board room isn’t necessarily a bad thing,” he said.
Earnings excluding one-time items of 1.23 rand a share compared with a loss of 6 cents in the previous quarter. The median estimate of five analysts surveyed by Bloomberg was for profit of 1.22 rand a share on this basis.
Harmony’s first-quarter earnings also improved after a higher tax payment wasn’t repeated, Abbott said. Analysts who cover South African gold producers measure quarter-on-quarter performance on an earnings excluding one-time items basis.
A crusher upgrade at Hidden Valley mine in Papua New Guinea should be completed next month and throughput could be normalized by March, Briggs said.
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