Harmony Gold Drops to 8-Year Low After Loss: Johannesburg Mover

Harmony Gold Mining Co. dropped to an eight-year low after Africa’s third-largest producer of the metal reported a loss following the temporary closure of its largest mine because of labor unrest.

The shares fell 9.2 percent, the most since April 2009, to 39 rand at the close in Johannesburg, the lowest price since May 2005.

Harmony’s loss excluding one-time items was 47 South African cents (5 cents) a share in the third quarter through March compared with a profit of 1.85 a share in the previous three months, it said today in a statement. The median estimate of five analysts by Bloomberg was for profit of 53 cents a share. Output fell 15 percent to 247,529 ounces.

The company plans to cut corporate costs in South Africa by 400 million rand and reduce capital spending by 1.4 billion rand in fiscal 2014, lowering expenditure to 3.6 billion rand, Chief Executive Officer Graham Briggs said on a conference call today. Harmony on Feb. 15 began a phased reopening of Kusasalethu, its biggest mine, after an agreement with unions. Ninety percent of workers have returned, Briggs said. It closed the operation Dec. 20 after weeks of strikes and violence, and began talks amid a threat to as many as 6,000 jobs at the mine.

“This has been a difficult quarter; Kusasalethu has obviously dominated,” Briggs said. “We’ve got resolution on that and a good way of looking forward so everything has been set up on that mine to produce safely and comfortably in the future.”

Gold Decline

Gold miners are studying operations and asset sales after average gold prices slid 5 percent from the prior quarter. The National Union of Mineworkers in April said it will seek higher pay in talks with the Chamber of Mines this month, after Lonmin Plc last year agreed to 11 percent to 22 percent raises.

“The sudden drop in the gold price requires us to look more carefully at our costs,” Briggs said.

Harmony restarted operations yesterday at its Phakisa and Tshepong mines, which last year together contributed 18 percent of the Johannesburg-based company’s output, after suspending work because of a fire on April 23 that left one employee dead. Phakisa, where the blaze is still smoldering, will return to steady output by December after ventilation shaft repairs, Harmony said in a presentation on its website.

The company is doing an optimization study of its Wafi Golpu project in Papua New Guinea and plans to remove 20 percent of costs at the Hidden Valley mine to return it to profitability by 2014, Briggs said. It’s also looking to save 10 percent on services, including contractors and suppliers.

Wage Talks

“Harmony has still really been focused on being able to fund its own capital exploration and fund dividends and that’s our intent,” Briggs said.

Gold, coal and most of platinum producers’ wage agreements will expire at the end of June, and the National Union of Mineworkers will ask for double-digit increases when talks at the Chamber of Mines start this month, the union said on April 28.

“It’s going to be an interesting, difficult process,” Briggs said. While basic wage increases probably won’t reach double digits, total compensation might, he said.

Membership of the Association of Mineworkers and Construction Union, or AMCU, makes up 60 percent of employees at the Kusasalethu mine and 10 percent of Harmony’s total workforce, according to the company presentation. The National Union of Mineworkers is losing support to organizations including AMCU.

Job losses shouldn’t exceed 500 as Harmony looks to cut service costs, Briggs said.