10 May 2010 23:12

Harmony Gold interim results: Graham Briggs – CEO, Harmony Gold

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Alec Hogg is a writer and broadcaster. He founded Moneyweb

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    Some shafts closed, but excellent exploration results from Papua New Guinea.

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    ALEC HOGG: A regular visitor to our studio recently is Graham Briggs, the chief executive of Harmony Gold. I suppose, Graham, it is a time when you are going through such dramatic transformations at the company that you do need to communicate more with shareholders. But perhaps we could start off with the really important question that many of the analysts are asking. There's a consensus forecast for Harmony for this year that you are going to make earnings per share of 152c. You are sitting at the moment, after nine months, at 5c. It looks pretty optimistic.

    GRAHAM BRIGGS: Thanks, Alec, good evening. Yes, very optimistic and a few of the factors included in those numbers of course may have escaped other people - restructuring does cost you money. So the transformation of Harmony from where it was to where it is going to be does cost a bit of money, and we continue to spend some money where people probably haven't actually seen in those predictions. We've also been spending a fair amount on exploration as an example. So there are those costs which we haven't got into this quarter, and this ... in the year. And obviously when you look at the quarter, I think the consensus was negative 22, negative 33. But included in that of course is the restructuring cost. So if you normalise that it was about negative 6.

    ALEC HOGG: We didn't see much movement on the share price. It was only down by 1.5% today. I guess with the rest of the market going up it must be a little disappointing, or a reflection that there are some people who are a little concerned.

    GRAHAM BRIGGS: Alec, I'm not sure what the whole sort of gold market did, but there is some good news in Harmony, lots of good news. We're actually achieving what we set out to do as far as the strategy goes. We really are closing quite a few operations - those operations where the ore bodies are virtually sort of mined out. And we've got some excellent exploration results from Papua New Guinea. So I'm not sure what the market did, but I think if you look at the parts of Harmony then it's certainly quite a valuable company.

    ALEC HOGG: I suppose that's why you find that long-term investors like Regarding Capital Management and Allan Gray are big supporters of yours, and perhaps some of the traders might be losing patience.

    GRAHAM BRIGGS: Well, if you look at our sort of shareholding, Alec, I think the top ten shareholders own about 75% of the company. So the other 25% are very active traders. So I think we are actually satisfying two sets of shareholders.

    ALEC HOGG: Graham, the gold production was down - that was anticipated with the closures of the shafts. Something that did come out of your commentary to the results that was rather unusual - you make mention that there's great concern at the number of production stoppages ordered by the new principal inspector of mines in the Free State, and that this actually cost the company R46m or 170kg of gold. What gives?

    GRAHAM BRIGGS: Ja, I guess a lot of those stoppages weren't normally the stoppages that we experience that are serious safety infringements or accidents. A lot of these stoppages were actually administrative in nature and we've had some fairly robust discussions with the inspectorate.

    ALEC HOGG: But surely we're in a time where the message that I got at the Africa Economic Summit in Dar es Salaam from government ministers was that "we really want to work as team South Africa, business and government together". To hear this kind of comment coming out publicly in a set of financial results is rather concerning.

    GRAHAM BRIGGS: Ja, it is concerning, Alec, and the reason it's out in the public is obviously our shareholders need to know about this. This is quite a, I guess, significant amount of money to have lost through these sort of stoppages. We have to keep our shareholders informed and that's what we've done.

    ALEC HOGG: So red tape in other words,, nothing really wrong at the mine?
    GRAHAM BRIGGS: No, we had a very good safety quarter. We had 99 days fatality-free. We only had one fatal during the quarter. Of course, one fatal is one too many, but we had actually a good safety quarter and a lot of our graphs are trending in the right direction.

    ALEC HOGG: Graham, there were people who were very concerned about the royalty regime that has co me in. Interestingly enough in the quarter the cost to Harmony was only R4.7m. I guess when you make losses you don't pay too much on royalties. But is this an indication or any kind of illustration of the kind of royalties you'll be paying in future?

    GRAHAM BRIGGS: Alec, it's one month of royalties, so I guess you can multiply it by three. But there's a minimum royalty, so even if you are making a loss, it's 0.5% of revenue. And I guess the more profitable you are, then the more royalty you'll pay. So one can expect that the royalty that Harmony pays in future will increase because we will become more profitable.

    ALEC HOGG: Has the royalty had anything to do with the way that you are approaching Harmony now - closing off unprofitable ounces, closing down a lot of the shafts that need a much higher gold price to make profits from?

    GRAHAM BRIGGS: When we look at sort of closing operations there's quite an intensive review that we do about it, but we look at the total cost, Alec. So it's not only the operating costs, it's all the other costs that go to it - the social cost, including the royalty, because that is just a cost at the end of that, a tax. And therefore we look at the total cost, including some of the capital we spend on these things. If there is a lot of capital to be spent and we can see the advantage in future, then that's a different scenario. So if you look at Target, you have to look at it differently from one of the ore bodies that are virtually worked out, like a Virginia shaft.

    ALEC HOGG: Graham Briggs is the chief executive of Harmony Gold.

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