During a period when South Africa’s mining industry consolidated to a handful of companies from 37 producers,
Although most of its production base is in South Africa, Harmony has a small presence in Canada through its wholly owned Bissett gold mine, in Manitoba. In mid-1998, for $14.3 million, the company bought Bissett from the receivers handling the bankruptcy of Rea Gold.
Rea had spent US$59 million to bring the former underground mine back into production at a planned rate of 80,000 oz. per year. The mine reopened in the summer of 1997, but the party was short-lived. Rea filed for bankruptcy and closed Bissett in December 1997 after failing to reach an agreement with NM Rothschild & Sons with regards to US$23 million in outstanding debt.
Upon taking possession of Bissett, Harmony completed an extensive drilling and development program on the lower portion of the mine (below 32 level) to confirm reserve estimates and increase stoping flexibility in the higher-grade D shaft area.
The 1,000-ton-per-day milling plant was commissioned in October 1998, and, eight months later, the company launched a $6-million program aimed at expanding production to 27,000 from 19,000 tonnes per month.
During the financial year ended June 30, 2000, Bissett produced 38,131 oz. at an average cash cost of US$339 per oz. In the last quarter of that fiscal year, the mine produced 11,960 oz. at a cash cost of US$311 per oz.
For the 3-month period ended Sept. 30, a regional power failure contributed to a 6.3% decrease in milled tonnage to 59,000 tonnes. This was partially offset by a higher recovery grade of 5.98 grams, resulting in the production of 11,349 oz. at a cash cost of US$307 per oz.
The mine returned a cash operating profit of just US$4,000 for the September 2000 quarter, compared with an operating loss of US$124,000 in the previous 3-month period.
Despite representing only 2% of Harmony’s total production, Bissett is seen by management as a proving ground for their ability to improve operations outside of South Africa.
Minable reserves at Bissett were last estimated at 2.1 million tonnes grading 6.67 grams gold per tonne, equivalent to 450,000 contained ounces, based on a gold price of US$275 per oz. Total resources stand at 2.9 million tonnes grading 8.63 grams.
For the year ended June 30, Harmony produced 1.6 million oz. gold at a cash operating cost of US$246 per oz., generating a cash operating profit of US$73 million and earnings of US$57 million (or US68 per share). By comparison, the previous fiscal year saw the company crank out 1.3 million oz. at US$240 per oz., for a cash operating profit of US$65 million and earnings of US$28 million (US42 per share).
In January of this year, Harmony made an unsolicited R913-million bid for Randfontein Estates, an 800,000-oz.-per-year producer in the West Rand goldfields, southwest of Johannesburg. Randfontein is the company’s 14th acquisition since the introduction of new management in 1995. The Randfontein acquisition is expected to boost Harmony’s production level to 2.2 million oz. for 2001.
At the time of the acquisition, Randfontein had operating costs of US$260 per oz., with 11 years of underground life remaining, plus five years of surface life. It is a mature mine, having produced for more than 100 years. Its main operations include Cooke shafts 1, 2 and 3, the North shaft (or Cooke 4, formerly Western Areas), and the open-pit operations of Lindum Reefs.
The company has generally acquired high-cost, marginal or loss-making operations with turnaround potential.
In the first six months of managing the Randfontein mines, Harmony achieved a cash operating profit of US$23 million for these operations, representing 32% of the company’s cash operating profit for fiscal 2000.
At June 30 (fiscal year-end), Harmony more than doubled Randfontein’s proven and probable ore reserves to 50.5 million tonnes grading 5.13 grams, equivalent to 8.3 million oz.
Among development projects at Randfontein is Doornkop South Reef, which Harmony says contains a total mineral resource of some 107 million oz.
This project underwent two phases of development in the 1990s. A total of R$303 million was spent sinking a sub-vertical ventilation shaft and partially sinking the main shaft to a depth of 1,336 metres. Reserves were last estimated at 18.5 million tonnes grading 10.15 grams, equal to 6 million oz.
Harmony expects to complete a prefeasibility study of Doornkop South Reef by June 2001
For the 3-month period ended Sept 30 (the first quarter of fiscal 2001), the company announced weaker operating results, largely on the back of lower grades at its Free State operations.
Cash operating profits of US$20.5 million came in 21.5% lower than those of the previous quarter, while net earnings of US$11.5 million (US12 per share) were off by 27.9%.
Harmony produced 534,956 oz. at a cash cost of US$245 per oz. in the September quarter, versus 544,936 oz. in the previous quarter at US$234 per oz.
“I suppose that’s not bad for a company that, three years ago, was barely making money,” says Chief Executive Officer Bernard Swanepoel. “But my frustration is that the company is capable of more.”
Swanepoel attributes the quarter’s soft results to lower grades at the Free State operations: “If grades were what they should have been, we could have made as much as R$65 million more.”
The Free State underground mines contributed 190,654 oz. of the September total. Despite a 7% increase in milled tonnage, a lower recovery grade of 4 grams resulted in a 4,115-oz. shortfall from the previous quarter, as well as a 9% rise in cash costs to US$277 per oz.
Harmony believes that the cash operating profit of US$1.3 million reported for the current quarter (down US$6.1 million from the previous quarter) is far below the potential of this region. The underperformance in grade, which has carried over from the previous quarter, is a concern that is being addressed by management.
“We do see the Free State as an operation that can recover and average some R$50 million operating profit per quarter,” says Swanepoel. Minable reserves there stand at 45.5 million tonnes grading 5.33 grams, equal to 7.8 million oz.
Randfontein contributed 187,053 oz. from its underground mines and 28,550 oz. from surface operations during the September quarter, at an average cash cost of US$211 per oz., down from US$218 per oz. in the June quarter. The operating profit was US$13.3 million, down US$1.3 million.
Results from Shaft 4 continue to have a negative impact on Randfontein. The shaft again experienced disappointing variances in tonnage and grade, which caused the loss to deteriorate to R$17.5 million, from R$9.8 million in the previous quarter. A final decision regarding the shaft’s future will be made by December 2000.
“Randfontein continues to do well,” says Swanepoel. “It is just the one loss-making shaft that we need to sort out.”
The Evander operations were acquired from Gold Fields in July 1998 for a consideration of R$545 million in cash and shares. These operations continue to contribute to the company’s overall performance. In the September quarter, Evander churned out 103,429 oz. at US$227 per oz.
The company’s open-pit operation at Kalgold was affected by the discontinuation of heap leaching, as the return from the A-zone oxidized ore was insufficient. Kalgold produced 13,921 oz. during the quarter at a cash cost of US$273 per oz., versus 14,757 oz. at US$241 per oz. in the last quarter. The Kalgold operation now centres on a single open-pit with a metallurgical plant.
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