Rand price of Gold
Rand may have turned - Swanepoel
By: Daniel Thole
Posted: 2004/01/27 Tue 18:02 ZE2 / © Mineweb 1997-2004
JOHANNESBURG – Harmony Gold chief executive Bernard Swanepoel believes the rand may have turned, but too late to rescue the ailing Deelkraal mine, which Harmony may be forced to close.
Deelkraal is part of the Elandskraal unit which, as a whole, produced 83,000 ounces of gold in the December quarter.
Swanepoel said he believed the rand was more likely to trade between R7 and R7,50 to the dollar in the coming months than between R6 and R6,50. “It is my honest belief that the same external factors that have made the last eight quarters so tough will make the next quarter easier,” Swanepoel said. He said it was his personal view that the rand may have turned, and that the group was not in retrenchment mode due to the strong rand.
The rand will again have loomed large for local producers in the December quarter – the rand gold price was 1% lower this past quarter at R85 139/kg, but is lower than rand per kilogram prices at the start of last year.
He said that although the strong rand had virtually negated the effects of the bull run in the dollar gold price on South African stocks, the country’s big four gold producers were tougher now than before the rand strengthened, with Harmony bolstered by its merger with ARMGold. South African stocks have consistently underperformed relative to their North American peers, as the rand has undermined their performance.
“In the next two years South Africa is a good place to be – the type of leverage Harmony has is significant, and that should be kept in mind,” Swanepoel said.
Investec Asset Management portfolio manager Daniel Sacks said Investec’s house view was that the rand would weaken gradually to end the year at R8 to the dollar, with a R7,50 average for the year. “Our average for the rand is basically the same as it was last year, with a slightly higher gold price,” Sacks said.
However, that turnaround in the rand’s fortunes may be too late for Deelkraal, which has seen its costs soar as the rand has weakened. “The type of losses we are seeing at Deelkraal are not defensible – the mine does not have huge upside or a great life,” he said.
Deelkraal contributed R17-m to the Elandskraal division’s R29,1-m loss, with what Harmony called “excessively high” underground cost of R115 000/kg. Although Harmony reached agreement with the National Union of Mineworkers on implementing continuous operations, the agreement may be too late for the mine.
Swanepoel said the workers affected would not be retrenched, as the group was intending to implement continuous operations across the company.
Swanepoel said the group was doing more than surviving, as it was currently building five new mines in South Africa. “We have actually done an excellent job operationally this quarter, we are continuing to adjust to the strong rand and the strong Australian dollar,” Swanepoel said.
December quarter:
Sacks said the market had had a diverse range of estimates on Harmony’s earnings, and had not been taken by surprise by the company’s results. He said although the outlook for the group’s shares would continue to be positive – Harmony has outperformed the JSE’s gold index in the year to date – it was hard to believe in a weak rand trading in parallel with a strong gold price.
Harmony deepened its headline loss a share to 66c, from a 28c loss in the September quarter. Revenue rose to $370-m from $351-m, despite production coming in just 3% lower at 941 826oz, from 969 179oz in September.
Swanepoel said Harmony was not expecting major cost increases in the next three quarters – group cash costs came in at R75 888/kg, from R75 319/kg in the September quarter. “The bulk of the cost savings came from South Africa – that is why we are happy with the numbers,” Swanepoel said.
Harmony declared an interim dividend of 40c.
Avgold, which Harmony hopes to have wrapped up by April, reported a decline in headline earnings a share to 8c from 41c, as revenue fell to R447 million from R502 million previously.
Cash costs rose 12 percent to R46 084/kg, from R41 018/kg.
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