The loss excluding one-time items was $10 million in the three months ended Dec. 31, compared with a $2 million profit the previous quarter, the Randfontein-based company said in a statement today. The stock dropped 3.7 percent, the most since Dec. 19, to 31.36 rand by the close in Johannesburg.
Gold’s 28 percent plunge last year, the biggest annual drop since 1981, caused Harmony to suspend its dividend and write down its 50 percent stake in the Hidden Valley venture with Newcrest Mining Ltd. (NCM) in Papua New Guinea by $268 million. The company is responding by mining higher-grade ore, cutting costs and implementing more productive shift patterns.
“They’ve got to turn around laggard shafts pretty rapidly,” said David Davis, a Johannesburg-based analyst at Standard Bank Group Ltd.’s securities unit with a sell rating on the stock.
Production dropped 1 percent to 305,913 ounces in the quarter from the previous three-month period and the average gold price received declined 4.8 percent to $1,277 an ounce. The lower production is partly due to the Christmas holiday period, Davis said. Gold advanced 1.7 percent to $1,265.41 an ounce at 6:12 p.m. in Johannesburg. The metal has climbed 5.2 percent this year.
“We are confident that we can continue to manage our operations so as to remain profitable even should the gold price come under further pressure,” Chief Executive Officer Graham Briggs said in the statement.
Harmony’s all-in sustaining costs dropped 3.3 percent to $1,222 an ounce in the period. That included wage increases for employees of about 8 percent, Briggs said on a call with reporters.
The Association of Mineworkers and Construction Union, which represents about 19 percent of employees in South Africa’s gold mining industry, was blocked temporarily from striking over pay on Jan. 30 by a labor court in Johannesburg. Harmony and fellow gold mining companies argued a wage agreement signed by majority union the National Union of Mineworkers in September should apply to all employees.
The AMCU can argue against the ruling on March 14. “We believe we have a very strong case,” Briggs said.
Harmony replaced a 850 million-rand ($76 million) credit facility with a three-year 1.3 billion-rand credit facility from Nedbank Group Ltd. (NED), it said in the statement. The interest rate paid is 3.5 percentage points above the Johannesburg Interbank Agreed Rate, which is currently at 5.7 percent, Finance Director Frank Abbott said on the call.
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