JOHANNESBURG (miningweekly.com) – South Africa’s third-largest gold producer Harmony Gold has posted flat quarter-on-quarter production of 305 913 oz for the three months ended December 31, while marginally narrowing its all-in sustaining costs for the period to $1 222/oz from $1 264/oz in the September quarter.

“These costs are lower than the R400 000/kg on which our strategic planning for the 2014 financial year is based and, by the end of this financial year in June, we plan to reduce our costs to a sustainable average of between $1 100/oz and $1 150/oz,” CEO Graham Briggs said on Monday.

Underground recovered grade improved by 7% to 4.85 g/t for a third consecutive quarter, despite production at the Kusasalethu mine, in Gauteng, being adversely affected by the spillage and flooding of the return ventilation shaft and sub-shaft bottoms, which hampered rock hoisting during the quarter.

This narrowed quarter-on-quarter production at the operation to 36 652 oz.

“During the March 2014 quarter, management will focus on increasing the availability of the engineering equipment to reduce production downtime at this operation,” Briggs noted.

Some 30 km west of Johannesburg, the single-shaft Doornkop mine had a “good” quarter, with a 14% increase in production to 28 035 oz, owing mainly to a 13% increase in grade.

Cash operating costs for the operation improved by 14% to $985/oz, while the all-in sustaining costs improved by 8% to $1 281/oz.

A 6% increase in recovered grade quarter-on-quarter to 5.15 g/t at the Free State-based Phakisa mine partly countered the effect of a 12% decrease in tons milled to 137 000 t, resulting in gold production of 22 698 oz during the quarter.

All-in sustaining costs remained stable at $1 546/oz.

“During the March 2014 quarter, ongoing rehabilitation work [at] Phakisa’s Freddies 3 ventilation shaft will continue,” noted Briggs.

Meanwhile, production at Papua New Guinea’s Hidden Valley mine showed a “marked” improvement, following restructuring at the mine over recent months, as the recovered grade of 1.53 g/t was in line with the previous quarter and resulted in gold production of 24 820 oz.

Further, the closing of the Kimberley Reef at Doornkop, in Gauteng, resulted in a 13% increase in recovered grade, with Target 1, Bambanani and Unisel, all in the Free State, performing “very well”, said Briggs.

At Bambanani, gold production increased by 12% quarter-on-quarter to 22 409 oz, owing to a 6% increase in both volumes and recovered grade at 12.91 g/t.

“Bambanani has the lowest all-in sustaining cost in the company at $742/oz as well as the best cash operating cost at $614/oz. During the March 2014 quarter, it will continue its good performance through a further increase in volume,” asserted Briggs.

Further, Unisel had a “good” production quarter, owing to a 9% increase in recovered grade from 4.41 g/t to 4.79 g/t quarter-on-quarter, resulting in a 8% increase in gold production to 16 461 oz.

In contrast, gold production at the nearby Tshepong mine, decreased owing to a Section 54 stoppage after a fatality occurred, while a decrease of 12% in tons milled, offset by a 4% increase in recovered grade, at 4.39 g/t, resulted in an 8% decrease in gold production to 30 929 oz.

Masimong, also in the Free State, had another challenging quarter, with gold production narrowing by 10% to 21 991 oz, owing to a 15% decrease in volumes quarter-on-quarter, while Target 1 had “another excellent” quarter, with a 14% increase in recovered grade and a 15% increase in gold production to 39 899 oz.

December stoppages at the Joel mine resulted in a 6% decrease in tons milled, while recovered grade increased by 3% to 4.52 g/t, resulting in a 3% decrease in gold output to 21 670 oz.

FINANCIAL OVERVIEW

Operating profit for the 63-year-old company over the quarter was 5% lower than in the previous quarter at R986-million, owing to a 3% decrease in the gold price received as well as underperformance in production, primarily at Kusasalethu.

The gold price received decreased by 5% from $1 342/oz in the September quarter to US$1 277/oz in the period under review.

The JSE-listed producer posted a net loss for the quarter of R91-million, compared with a net profit of R13-million in the September quarter, which it attributed to the foreign exchange translation loss recorded on a dollar-denominated loan, as well as a gold stock adjustment, which was the result of more gold being sold than produced over the three months.

“Harmony is sustainable, thriving with gold at the current price, and will continue to finance capital expenditure from working profit. Five of our mines are very profitable at an all-in cost of below $1 000/oz, namely Target 1 at $854/oz, Bambanani at $742/oz, Joel at $921/oz, Steyn 2 at $811/oz and Phoenix at $861/oz,” Briggs outlined.

He added that the company’s focus this quarter would be to drive down costs at Doornkop, Kusasalethu, Masimong, Phakisa, Target 3 and Tshepong to below $1 250/oz.

“At Doornkop, we have eliminated the unprofitable lowest-grade reserves and we are already seeing improvements in grade and all-in costs. In addition, management changes were made at Kusasalethu, Masimong and Tshepong, while infrastructure spending at Phakisa and Target 3 will build up production,” Briggs said.

Capital expenditure for the quarter remained fairly constant at R640-million, with the South African operations increasing expenditure by 8% or R48-million.

EXPLORATION PROSPECTS

Meanwhile, Harmony reported on Monday that it and joint venture partner Newcrest Mining planned to undertake a feasibility study to evaluate an underground exploration programme for the company’s 50%-owned Wafi-Golpu project, in Papua New Guinea.

The programme was proposed to include an exploration shaft to facilitate deep
drilling and bulk sampling of the orebody to generate essential orebody knowledge required to support a future development decision.

Geotechnical drilling to identify a suitable exploration shaft location was
currently in progress.

“A final investment decision for the proposed underground exploration programme is expected during the second half of the year, subject
to the receipt of the necessary government and regulatory approvals,” added Briggs.

In the interim, work was continuing on a “substantially lower” capital expenditure development option for Wafi-Golpu and drilling activity had been scaled down from four rigs to one.

Studies on underground access, as well as a scalable and modular approach to the project, were under way, while exploration drilling continued to refine the company’s knowledge of the Golpu resource.

“Harmony's strength has always been its ability to adjust quickly and efficiently to adverse conditions. We have placed the company to remain sustainable for many years to come, managing costs and production to ensure profitability at all gold prices.

“We have positioned ourselves to thrive at current gold prices and provide investors with handsome returns when market conditions improve,” Briggs concluded.