Good morning connor, It's prolly a good idea to steer clear of the So African miners for a while as they are getting caught in a currency exchange bind and there is no telling when those conditions will reverse.
Couple the above factor with the proposed black empowerment movement and the SA Gov't plans to charge their indigenous gold producers a 3% royalty and you've got an unfriendly climate for bottom line watchers.
In my view, North American producers are the place to be if one wants to be a goldbug. =============================================================
Harmony in for tough time 29/04/2003 17:40 - (SA) Justin Brown
Johannesburg - After a 50% plunge in earnings in the March quarter, South African gold miner Harmony (HAR) is facing another "tough" quarter for the three months ending June 30 due to the strong rand, analysts said on Tuesday.
Harmony chief executive Barnard Swanepoel said at an investor presentation he expected the company's gold output and grades to improve in the June quarter from the March quarter.
However, the key swing factor that would determine Harmony's earnings would be the rand, which is currently hovering at 30-month best levels against the US dollar, he added.
The average rand exchange rate to the US dollar in the March 2003 quarter was R8.37 and the current spot rate is R7.22 per dollar.
"The South African gold mining industry faces the prospect of retrenching miners if the rand remains at current levels," an analyst told I-Net Bridge.
During the June quarter, Harmony also faces the prospect of cost pressure as well as difficult wage negotiations.
"The wage negotiations are going to be tough. This year is going to be a challenge due to the perception by the unions of an inflation loss. We will argue for conservative wage increases," Swanepoel said.
One particular threat Swanepoel identified was a "host of relationship issues" at Harmony's Evander operations.
Swanepoel said the unions at Evander have engaged in irresponsible behavior and so far this had been met with court interdicts from management, which had prevented major disruptions.
However, he indicated that there was the prospect of further disruption at the mine.
Strong rand, money bill to destroy jobs
Swanepoel said the draft Money Bill, which deals with mining royalties, would destroy jobs in South Africa's mining sector.
The draft Bill proposes that gold mining companies be taxed 3% of their gross revenue.
Harmony has four gold mining projects under construction - Doornkop South Reef, the Tshepong Decline, Nyala Shaft and Elandsrand Shaft Deepening, all of which will see a decline in their net present value (NPV) and internal rate of return (IRR) if the draft royalty was to be implemented currently, Swanepoel said.
For instance, the Doornkop South Reef project would have a NPV of R802m after the proposed royalty's implementation from R876m before, while its IRR would decline to 44% from 48%.
"As the custodian of (Harmony's) shareholder value, I truly believe that the government is missing the point regarding the revenue based royalty," Swanepoel said.
The South African mining sector also faces significant job losses if the rand remains at about 7.20 to the US dollar, Swanepoel said.
Harmony is currently working on a rand/US dollar exchange rate of R8.50 to the US dollar and the rand gold price of R85 000/kg.
"There is the prospect of significant downscaling. The rand could destroy more jobs in the long term," Swanepoel said.
Despite the prevailing hardships of the strong rand and the prospect of mining royalties, Swanepoel said Harmony remained committed to South Africa.
Outside South Africa, Harmony has interests in gold mines in Russia and Australia.
"I can't see Harmony undoing its 'South Africanness'," he added.
However, given the "tough environment", Harmony would look to do acquisitions and deals, Swanepoel said, raising the spectre of further consolidation in South Africa's mining industry.
Money bill to slow conversion
As a result of the draft Money Bill, Swanepoel said the company would most likely hold off converting the company's mineral rights to the new order.
In January, Harmony was looking to convert its mineral rights to new order rights within 12 months, but this ambitious aim is likely to be put on ice due to the prospect of a 3% penalty on revenue.
Harmony has made very good progress, relative to its South African mining peers, in meeting the prerequisites for conversion to new order rights.
In particular Harmony has been involved in supporting the beneficiation of gold into gold jewellery, it has established a social plan and it has concluded empowerment deals.
"Our conversion to the new order is frustrated by the Money Bill, which will be a disincentive to convert," Swanepoel said.
However, he emphasised that Harmony was "very ready" to convert its old order rights to new order rights.
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