HomeGoldHarmony's forward thinking pays dividends

Harmony’s forward thinking pays dividends

Shaft headgear
at Harmony’s
Doornkop mine
Johannesburg, South Africa — 29 November 2012 – South African gold producer Harmony Gold has gone through the restructuring and investment process to line its mines up for growth over the next five years, says CEO Graham Briggs, brushing aside comments from Gold Fields that the sector could be in serious trouble in five years’ time if changes are not made to the way mines are operated in South Africa.

Miningmx quotes BDlive as reporting that Gold Fields executives, including CEO Nick Holland, pointed out that production levels in the South African had halved in five years, and warned that if the way mines were operated was not changed, the industry would not be sustainable in another five years. Gold Fields has come under pressure from some shareholders to separate its international assets from those in South Africa.

South Africa’s gold producers are losing the benefit of record high rand gold prices, hovering around R500,000/kg, as they ramp up their mines after lengthy illegal strikes that have shaved billions in revenue from their books.

Harmony will grow its production in South Africa to 1.7Moz by 2016 from just below 1.3Moz as its major growth projects at Doornkop, Phakisa and Kusasalethu come into full production, avoiding the downturn Gold Fields foresees, Briggs said in an interview after Harmony’s annual general meeting.

“Harmony is in a different situation,” he said. “What we’ve been doing over the past five years is a lot of reviewing of our assets, restructuring and spending a lot of capital. We don’t suddenly need to start that process because the industry is in a bit of turmoil,” he added.

“We are not talking about retrenchments and restructuring now. We’ve done it. Our intention is to build up production and our plan is to get to 1.7Moz,” Briggs said.

Harmony has also built production incentives into its wage structures, meaning it is not as reliant on production agreements with unions at two-year wage talks that start early next year. Holland stressed productivity agreements must be linked to wage hikes that will start in July next year.

“We are one of the few companies to pay more variable wages. We paid a profit share to our employees. They only get that if there’s productivity. We’ve been trying for a while to gear more variable wages to productivity, like bonuses or profit share,” Briggs said. “It’s been difficult to put in place because unions generally don’t like highly variable salaries, but our employees have done well out of our approach.”

He is expecting the wage talks, which will start early next year, to be “extremely difficult” with the emergence of the Association of Mineworkers and Construction Union (AMCU) on gold mines near Carletonville. Not only will the National Union of Mineworkers (NUM) be more demanding to secure their support base, but AMCU will have to be accommodated in some way, he added.

Gold Fields is coming under pressure to split the South African mines from the international assets, which are earmarked to deliver 3Moz of gold in production or development in 2015.

Gold Fields has just completed a strategic portfolio review, which recommends a “critical review of declining and/or low-margin assets”. The two such mines in South Africa are Beatrix and shafts at the Kloof Driefontein Complex near Carletonville.

The market is expecting Gold Fields to announce something soon on its assets, citing the clear warnings coming from the company.

Source: Miningmx. For more information, click here.