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Harmony focuses on long term value

Johannesburg - Harmony Gold [JSE:HAR] said on Monday gold production dropped 10% in its second quarter due to maintenance and repairs breaks at two operations.

The bullion producer also reported a headline loss of R496m due to lower production and restructuring.

Harmony Gold said in a statement it is pleased that its South African operations reported a fatal-free quarter. The majority of its operations performed in line with their production plans and underground grade remained consistent quarter-on-quarter.
 
“In the current environment of volatile gold prices and possible deflationary trends, we are focused – more than ever – on cost control and cash generation at existing operations. In addition, shareholder value is created through investing in Golpu, securing a sustainable, profitable future for Harmony,” said CEO Graham Briggs.

The results of the updated Golpu prefeasibility study (PFS) were announced on December 15 2014. The updated PFS supports the company’s view that Golpu is a spectacular ore body with a large copper component, affordable and mineable.

Harmony said its emphasis in preparing the PFS was to create flexibility to allow the size of the project to adapt to different levels of gold and copper prices, allowing Golpu to grow over time.

“Key objectives of the study have been achieved by reducing the capital of the project, lowering operating costs and improving the rate of return. Harmony intends to fund the earlier stages of the project from internal cash flows, and reviewing other funding options for the latter stages," said Briggs.

"The Golpu project is a significant value accretive game-changer for Harmony.”

Revenue decreased by R716m (16%) to R3 715m as a result of the 14% decrease in gold sold to 8 580kg and a 2% decrease in the rand gold price received to R432 963/kg in the December 2014 quarter.

Lower gold production quarter-on-quarter and a lower gold price resulted in a decrease in production profit to R618m in the December 2014 quarter, compared to R913m in the previous quarter.

Harmony embarked on a life-of-mine optimisation process which was completed during the December 2014 quarter. The optimisation resulted in a greater focus on mining profitable and higher grade areas at its South African operations.

It also resulted in removing lower grade and unprofitable areas from the mine plan for most of the operations. The optimisation resulted in the abandonment of levels and areas with a carrying value at Kusasalethu (R214m) and Masimong (R216m) and such areas were accordingly identified for scrapping.

The decision to restructure and optimise its operations, will contribute to a more profitable Harmony in the future.

Cash operating cost for the December 2014 quarter improved (decreased) by 10% when compared to the previous quarter. The decrease is due to lower electricity tariffs for the summer months, amounting to R200m.

Labour cost also decreased by R63m in the December 2014 quarter. A headline loss of R496m was recorded, due to lower production and restructuring costs.

Gold production during the March 2015 quarter is expected to be higher once Kusasalethu’s restructuring is finalised and Hidden Valley returns to full production, positioning our operations to benefit from higher gold prices.

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