POWER cuts implemented by the state-owned utility Eskom cost Harmony Gold R95.5m in revenue, the company said today in its first (September) quarter report.
A total of 100 kilograms (3,215 ounces) in gold production was lost. The average rand gold price – which increased 1% quarter-on-quarter – came in at R954,916/kg.
But there was a double whammy effect as Eskom’s higher winter tariff showed up in the quarterly numbers contributing to a stiff 5% increase in costs quarter-on-quarter.
The strength of the dollar benefited Harmony which receives rands for its gold and helped offset costs. All-in sustaining costs totalled R907,864/kg in the quarter. The increase was also a consequence of lower production, especially at the firm’s Hidden Valley mine in Papua New Guinea where output fell 28%.
Harmony said Hidden Valley reported increased waste stripping as it sought out higher grade areas to mine. The operation struggled in Harmony’s 2022 financial year ended June largely owing to a breakage in its overland conveyor.
First quarter production totalled 366,390 oz, a 4% decline compared to the previous quarter. In addition to the poor production performance from Hidden Valley, Harmony closed its Bambanani mine which had contributed production previously.
Despite these headwinds Harmony had a decent quarter.
CEO Peter Steenkamp said the ‘disaggregation’ of the Tshepong mine into two operating sections – announced in August – delivered “outstanding results”. The mine, divided into a north and south section as a function of reallocated capital, generated operating free cash flow of R314m, equal to 37% of the group’s R857m for the quarter.
He said Harmony was on course for forecast gold production of between 1.4 to 1.5 million oz for the 2023 financial year.
There was no further information on Harmony’s proposed $230m acquisition of Eva Copper, an Australian copper prospect owned by Copper Mountain Mining Corp, announced in September. The project, situated in Queensland, is expected to yield 100 million pounds of copper a year and 14,000 ounces of gold annually over an expected mine life of 15 years.
The deal consideration would be funded from cash and Harmony’s revolving credit facility which has raised questions about the ability of Harmony to continue with dividends. “The dividend is always at the discretion of the board, but also – we’ve put a policy out there and we don’t want to change that as soon as we ‘go over’”, he said in October.
He added that Harmony had not abandoned ambitions to move into continental Africa, first raised shortly after he was appointed in 2015. “Four or five years from now we’ll have a totally different suite of assets,” he said.
Shares in Harmony have gained 72.5% in the last two months in line with a 6.1% improvement in the dollar gold price over the same period. Gold is currently trading at $1,765/oz which converts to a spot price received of R987,544/kg.