Harmony's reserves fall 13% after mines close

September 21, 2005
By Antony Sguazzin
 

Johannesburg - Reserves of gold contained in the ore at the deposits mined by Harmony Gold fell 13 percent in fiscal 2005 as it closed mine shafts, the company said yesterday.

The reserves, a measure of the metal it deems it can mine at a profit, declined to 54.1 million ounces, Harmony said in an annual report posted on its website. Of those, 9.7 million ounces were deeper than its current mines and would require more spending on infrastructure to be extracted.

Harmony, the country's third-biggest gold producer, has cut jobs as the rand's 88 percent gain against the dollar since the end of 2001 slashed its profit margins.

South African gold production fell to a 74-year low last year, and Harmony's output fell for the first year in 10.

"The most significant component of the decrease in our ore reserves arises from the restructuring and downscaling of certain of the South African operations," Harmony said. Closures accounted for 3.1 million ounces of the reduction.

Shares in Harmony fell 5.8 percent to R64.61 yesterday. The gold mining sector fell 2.43 percent.

The firm has a market value of about R25.9 billion. Total resources, a measure of all the gold contained in the ore, were 528.6 million ounces.

Harmony used a gold price of R92 000 a kilogram to determine the size of its reserves. The gold price is R95 890 a kilogram.

Harmony will spend R1.55 billion on expansion this year and a further R165 million on exploration in South Africa, Australia and Papua New Guinea in a bid to boost output, replace reserves and lessen its dependence on South Africa, where 90 percent of its output comes from.

It plans to start construction of the Hidden Valley mine in Papua New Guinea in December. The mine will produce 300 000 ounces of gold and 60 000 ounces of silver a year when completed.

Production costs were expected to stabilise at R75 000 a kilogram this month, the firm said. Output in fiscal 2006 would be about 2.9 million ounces, rising to 3.2 million ounces in fiscal 2007 and 3.5 million ounces the year after.
 

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