Harmony Gold profit tumbles as costs pile up

NZINGA QUNTA: Harmony Gold profit has taken a tumble [in the year to end June].

Boipelo Lekubo, who is the financial director, joins me now. Thanks so much for your time this evening. A 2% increase in revenue – Boipelo, just talk to me about what happened there.

BOIPELO LEKUBO: Thanks Nzinga, and good evening to your viewers. Just on the increase in revenue, obviously our production was slightly down, so we were aided by the gold price. I think that also includes a gain from our hedging programme, which was just under R500 million included in revenue. The gold price we received was 5% up year on year, so that led to the 2% increase that you saw on overall revenue.

NZINGA QUNTA: It sounds like quite a challenging year. Just talk to me through the challenges that you faced as Harmony Gold when it comes to those results and the decrease, perhaps, in underground recovery, decrease in gold production, and in total mineral resources and reserves.

BOIPELO LEKUBO: I think what we experienced in the first half of the year was really two months of lost production from our Hidden Valley mine in Papua New Guinea. That was really just on the back of belt failure, as well as geotechnical issues that we had there. For two months there was no production coming from there, which had a huge impact in terms of the kilogrammes that we did produce.

Overall in terms of grade, as well, that came more or less in line. We were 3% down, coming in at 5.37g/tonne, as opposed to the 5.51g/tonne that we had last year.

So I think just in terms of the overall results as well, we did recognise an impairment, the bulk of which was on the back of the restructuring of our Tshepong operation. That also had an impact on the overall results, resulting in the negative earnings that we saw.

NZINGA QUNTA: All right. Just talk to me about the focus on safety by Harmony Gold, and what’s been happening for the last three consecutive quarters and the impact on your production.

BOIPELO LEKUBO: Overall on safety we didn’t have a strong performance, we must say.

Read: Harmony Gold reports four mine deaths

Obviously for us embedding a safe working culture is key, so there’s a continuous drive at improving safety and the health of our employees.

In terms of the impact that it had I don’t have a specific figure on that. However, we are working continuously to try and improve on that, especially with regard to loss of life.

NZINGA QUNTA: When it comes to your headline earnings per share, that figure stood out at 49%. I know we may be harping on it, but just give us more insight into what happened there.

BOIPELO LEKUBO: On the headline earnings per share, that was down compared to last year, predominantly due to the impairment loss that we recognised, as I mentioned earlier, the bulk of which was [due to] our Tshepong operations.

We also took impairments on Bambanani, Kusasalethu and Moab Khotsong [mines], but the bulk related to the Tshepong operation.

So the drop in headline earnings is really on the back of that non-cash once-off [impairment].

NZINGA QUNTA: And then a final dividend of 22 cents per ordinary share was declared. Talk me through the reasoning for declaring that dividend.

BOIPELO LEKUBO: The board overall felt very comfortable just in terms of our plans going forward. We do have a dividend policy of returning 20% of free cash to our shareholders.

In the first half of the year we had an interim dividend of 14 SA cents.

In the second half of the year we didn’t generate cash. However, given the strong balance sheet that we do have, and the adequate liquidity to demonstrate the sustainability of our dividend, it was important for us to do that.

So we felt comfortable in declaring a final dividend of 22 cents.

NZINGA QUNTA: Just talk me through your outlook as Harmony Gold. What do you see in the short and medium term?

BOIPELO LEKUBO: In the short to medium term, obviously [a real focus] on safety, ensuring that that our mines are safe. We are looking at redirecting capital towards our quality assets to ensure that we drive down our all-in sustaining costs, and really just grow our margins and increase returns.

NZINGA QUNTA: Boipelo Lekubo, financial director at Harmony Gold, thanks so much for your time on the SAfm Market Update with Moneyweb this evening.