announcement, page-34

MANAGEMENT RESTRUCTURING
Harmony Gold output falls, costs rise, profits down

Harmony’s gold output was down in the fourth quarter largely due to the 44-day closure of its Elandsrand mine after the non-fatal shaft accident. But new CEO says company is now evolving into a producer with high quality mines.
Author: James Macharia
Posted: Friday , 15 Feb 2008

JOHANNESBURG (Reuters) -

Harmony Gold , the world's fifth-biggest gold producer, posted a wider second-quarter loss per share on Friday after an accident closed a mine and warned South Africa's power crisis was now hitting output.

New Chief Executive Officer Graham Briggs said he estimated the firm had lost some 800 kg (25,720 ounces) of gold during a five-day stoppage of South Africa's mines last month owing to the power shortage.

"This is the amount we believe we may have lost during the stoppage caused by the power shortage," Briggs said.

"Management is restructuring operating processes in order to gain the most effective and efficient use of the electricity allotted," Briggs said in a statement.

Mines in Africa's biggest economy have been hit by a lack of enough power after state utility Eskom [ESCJ.UL] asked the mining sector to cut consumption to 90 percent of their normal needs.

There is a nationwide shortage as electricity generation has failed to match economic growth and Harmony's bigger rivals have warned of output declines.

For the three months to December 31, Harmony lost 43 cents per share, widening from a loss of 30 cents in the previous quarter. The key profit measure in South Africa, headline earnings per share strip out capital, non-trading and certain extraordinary items.

Production fell by 8.3 percent to 398,764 ounces, hit mainly by the closure of its Elandsrand mine for repairs for 44 days after an accident, costing the firm 37,840.55 lost ounces.

Cash operating costs went up 2 percent to 138,531 rand per kg, which analysts said was controlled, while Harmony received a gold price of 169,502 rand per kg -- 8.5 percent higher than the previous quarter.

Gold analyst Nick Goodwin of T Sec said the company had either not done its sums or was underestimating the likely impact of the power shortage on its planned output of 17 tonnes of gold for the current quarter.

"They will take a hit. I estimate about a 10 percent loss in production," Goodwin said.

AngloGold Ashanti sees losses of 400,000 ounces in 2008, while Gold Fields expects output at its South African mines to fall 20-25 percent in the quarter to end-March.

Eskom has said power shortages could be expected for the next five years until new generation capacity comes on stream.

FOCUS

Goodwin was more positive on the company's outlook, and said: "There's a focus on the right kind of projects and selling off of some weaker assets. I see a better plan for the future."

Investors also cheered Harmony's future plans, and pushed its shares 5.33 percent up against a 0.59 percent gain in the gold index . The Top-40 index <.JTOPI> fell one percent.

Harmony, which is reviewing its operations and selling some marginal assets to cut costs, said it was focused on owning higher quality mines and constructing new ones.

The Hidden Valley project in Papua New Guinea will start production of its first gold output early next year, while the Elandsrand mine in South Africa is being expanded, among others.

"All of these mines will have higher grades. These long life mines, together with those already in production, will be the core of Harmony in the future," Harmony's CEO Briggs said.

"They have done well under the circumstances," Mark Madeyeski, an analyst at Afrifocus Securities said.

"They have been battling like anything with costs, they really haven't got good quality mines, most are low grade, and only do well when the gold price is high." (Reporting by James Macharia; Editing by Jason Neely)