Labour and electricity knock Harmony Gold's profits

Finance

Harmony Gold Mining Co Ltd says increased labour and electricity costs have contributed to a 26% cut in cash operating profit to R552 million (US$72 million) in the September quarter when compared with the previous three month period.

A higher dollar gold price and a 6% increase in quarterly production to 373,431oz, helped total revenue increase by 3% to R2.7 billion, despite a much stronger rand when compared with the June quarter.

The company says it is reviewing certain assets as it contends with further currency strength. The rand has continued to rally into the current quarter, where it has average R7.42/$, about 4% stronger than the September quarter, according to Bloomberg data.

“We will have to contend with the likelihood of continuing rand strength for now, and the negative consequences of this on rand gold receipts. Indeed, we may have to consider some restructuring at our lowest- grade, highest-cost operations,” said the company in its quarterly statement.

At the cost level an 11% increase in cash operating costs to R2.2 billion as annual wage increases and increased electricity costs took effect.

The company also joined a group of South African corporations, including Gold Fields and Anglo American, that have raised concerns over 'excessive' energy charges proposed by state power utility, Eskom.

According to the results presentation, the proposed annual 45% increase in electricity tariffs for the next three years will indirectly increase wages by up to 10% and potentially raise cash costs by 10-15% annually.

“Our weapon in managing the strong rand and rising costs, must be improved productivity ­ in short, we need to work harder and smarter. Our focus remains producing more profitable ounces,” said the company.