John Fraser
20 July 2004
Johannesburg — MORE than 60% of recent production at Harmony Gold, SA's largest gold producer, came from loss-making mines, says new research from Merrill Lynch.
The research, by analysts David Hall and Ria Papier, was completed last week and comes as another South African gold miner, Durban Roodepoort Deep, confirmed a new review of operations at its Blyvooruitzicht mine.
The research shows several South African mines are operating at a loss, mainly due to the strong rand.
National Union of Mineworkers (NUM) general secretary Gwede Mantashe said at the weekend that Durban Deep had given trade unions statutory notice of a 60-day review.
When a company wants to restructure an operation it is required to give unions notice of a 60-day review so that the company and the unions can engage in a negotiation process.
"We did the same at our North-West province operations last year and now we are looking at the Blyvooruitzicht mine. We are already two weeks into the 60 day review," said Durban Deep investor relations executive Ilja Graulich.
Graulich said the company had looked at productivity initiatives at Blyvooruitzicht, but the rand's move to R5,93 to the dollar on Friday means the review remained in order, said Graulich.
In 2003, Durban Deep retrenched close to 3000 workers from its Buffelfontein and Hartebeestfontein mines in North West province.
The Merrill Lynch report says that Harmony has had "the most dramatic response to the firmer rand".
Of Harmony's production, 88% is SAbased and its mines are generally more marginal than its two South African competitors, Gold Fields and AngloGold Ashanti , says the research.
The report said the first quarter of this year "was a tough one" for the South African gold industry, but "negative macro factors contributing to last quarter's gloomy results have since deteriorated" with a fall in the rand gold price.
The research focused on the three largest South African gold producers Harmony, Gold Fields and AngloGold Ashanti. It said that in the first quarter, 40% of Harmony's production was in the red at its Free State, Evander, Elandskraal and Kalgold mines.
When more recent cash costs and the lower rand gold price were taken into account, "Orkney/Welkom and Randfontein are pulled into red territory, increasing the amount of loss-making mines to 61,3% of group production".
The report said that of Gold Fields' mines, "Beatrix is at the most risk of being under water in the current environment". Kloof had "little margin for error".
Of AngloGold Ashan ti's mines, there was "concern" for Savuka and Freda- Rebecca, both loss making in the first quarter. More recently Tau Lekoa and Ergo had been "forced into red territory". This meant 11,5% of AngloGold Ashanti's group production was unprofitable.
Durban Deep will release its financial results for the year to June on the 5th of next month. The I-Net Bridge consensus of analysts has the company reporting a headline loss per share of 13 cents, from a headline profit per share of 211 cents in the 2003 financial year. With I-Net Bridge
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