| Tue 29 Apr 2003, 15:10 | | HARMONY REVIEW for the quarter ended 31 March 2003 |
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HARMONY REVIEW for the quarter ended 31 March 2003
Harmony Gold Mining Company Limited
Trading Symbols
Ordinary Shares
JSE Securities Exchange HAR
NYSE HMY
London Stock Exchange HRM
Euronext Paris HG
Euronext Brussels HMY
Berlin Stock Exchange HAM1
Warrants
JSE Securities Exchange HARW
NYSE HMYWS
Options
Chicago Board
Options Exchange QHG
ISIN
ZAE000015228
Registration number
1950/038232/06
HARMONY REVIEW for the quarter ended 31 March 2003
This review includes certain information that is based on management"s
reasonable expectations and assumptions. These "forward-looking statements"
include, but are not limited to, statements regarding estimates, intentions and
beliefs, as well as anticipated future production, mine life, market conditions
and costs. While management has prepared this information using the best of
their experience and judgment, and in all good faith, there are risks and
uncertainties involved which could cause results to differ from projections.
Cautionary Note to US Investors - The United States Securities and Exchange
Commission (the "SEC") permits mining companies, in their filings with the SEC,
to disclose only those mineral deposits that a company can economically and
legally extract or produce. We may use certain terms in this quarterly review,
such as "resources", that the SEC guidelines strictly prohibit us from including
in our filings with the SEC.
Key indicators
* Operations well geared for strong South African Rand
* Strengthening of local currency has a R125 million adverse impact on cash
operating profit
* Impact of public holidays contributes R142 million to decline in profitability
* Good cost control results in actual working costs decreasing for 2nd quarter
in a row
* Close out of 614 000 ounces of Australian hedging contracts
Financial highlights
31 March 2003 31 December 2002
Cash operating profit
- Rand 478 million 763 million
- US$ 57 million 79 million
Earnings
- Rand 235 million 457 million
- US$ 28 million 48 million
Earnings per share
- SA cents per share 130 262
- US cents per share 16 27
31 March 2003 31 December 2002
Gold produced
- kg 22 211 24 078
- oz 714 096 774 121
Cash costs
- R/kg 73 150 68 500
- $/oz 272 222
Chief executive"s review March 2003
"Whilst the current gold price environment is becoming more challenging with the
unexpected strengthening of the South African currency, this is the environment
which is similar to that in which Harmony grew substantially. It was during this
time, with South African producers" margins under pressure that the company grew
its production base from 580 000 ounces per annum in 1995 to the plus 3,0
million ounces for the current financial year."
SAFETY REPORT
The previous quarter"s safety performance indicates a delicate balance between
ensuring good production practices and long holiday disruptions. To this effect,
a risk assessment performed after the holiday season indicates a high
correlation between long closure periods and the occurrence of incidents both
naturally and behavioural.
Incidents
We regretfully report that during the past quarter, eight employees lost their
lives.
The following tabulation reflects the quarter on quarter performance in terms of
the key safety indicators:
Indicator/
Frequency rate Objective Mar 2003 Dec 2002 % Change
Total injury/accident - 55.8 55.7 (0.01)
frequency rate*
Lost time incidents* 20.0 25.4 23.5 (7.5)
Shifts lost* 340 401 406 1.1
Fall of ground incidents* 6.0 3.4 9.2 63.5
Fatalities* 0.0 0.4 0.3 (28.9)
* Measured in per million man hours worked.
Some highlights:
* Merriespruit 1 achieved 750 000 fatality free shifts on 6 January 2003.
* Masimong mine achieved 250 000 fatality free shifts on 5 March 2003.
* Mt Magnet Gold Mill, Admin and Geology departments achieved over 1 100 days
LTI free during the quarter.
STRATEGIC OVERVIEW
The past quarter has been a challenging period with cash operating profit
decreasing by 37% or R285 million from R762,6 million to R478,4 million. The
company"s performance was severely influenced by the;
* continued strengthening of the SA Rand, increasing from R9,61 to the US
Dollar, to R8,37 per US Dollar for the past quarter. This 13% improvement
contributed significantly (R125 million) to cash operating profit decreasing
quarter on quarter. The SA Rand has subsequently strengthened to below R7,60 to
the US Dollar, which, if it continues at these levels, will impact further on
the profitability of the company in the June 2003 quarter,
* the number of public holidays over the Christmas and New Year period. Although
the operations managed to maintain recovery grades at similar levels as the
previous quarter, the loss of six working days (8%) resulted in an 8% reduction
in tonnages from underground. This translates into a direct loss of 1 500 kg
from underground and an impact of R142 million on revenue. Although the current
quarter also has a significant number of holidays, we anticipate the effect to
be not so severe,
* in US Dollar per ounce terms, the gold price was higher at US$352/oz compared
to the US$324 for the December 2002 quarter. The strength of our local currency
more than negated the benefits from a higher US Dollar gold price.
The performance of the operations is highlighted in the following table:
%
March 2003 Dec 2002 Variance
Production - kg 22 211 24 078 (8)
Production - oz 714 096 774 121 (8)
Revenue - R/kg 94 687 100 171 (5)
Revenue - US$/oz 352 324 9
Cash cost - R/kg 73 150 68 500 (7)
Cash cost - US$/oz 272 222 (23)
Exchange rate R/US$ 8,37 9,61 .13
The company achieved a US$80/oz or 23% cash operating profit margin with cash
costs of US$272/oz. A profit margin of US$102/oz or 32%, was achieved during the
December 2002 quarter. Over the past 3 quarters, the gold price received in SA
Rand terms decreased by 11% from R106 463/kg to R94 687/kg.
In R/kg terms costs increased by 7% from R68 500/kg to R73 150/kg. This cost
increase can directly be related to the decrease in tonnage from underground, as
the overall recovery grade from the combined operations were slightly lower at
3,14g/t.
Actual working costs were a very pleasing 2% lower at R1 625 million compared to
the R1 649 million reported previously. Despite the lower tonnage from
underground, unit costs in Rand/tonne were lower at R230/tonne, compared to the
R235/tonne for December 2002. This is the main short-term measure we have to
counter the lower R/kg gold price.
When measured in R/kg terms, the gold price received was 5,5% lower at R94
687/kg to the R100 171/kg received previously.
After lower taxation in South Africa and the mark to market movement of the
hedge positions in Australia, net earnings at R234,7 million was 49% lower than
the R456,6 million reported previously. Earnings per share decreased from 262 SA
cents to 130 SA cents. Earnings per share for the financial year to date totals
639 SA cents. This compares with the 646 SA cents per share for the same nine
month period of the previous year.
The higher US Dollar gold price levels created an opportunity to further
restructure the Australian hedge books. As at 31 December 2002, the company"s
total commitments within the Australian portfolio totalled 1 608 675 ounces. The
outstanding commitments have decreased to 995 000 ounces as at 31 March 2003.
The decrease of 613 675 ounces of hedge commitments was achieved with a
combination of hedge close-outs and deliveries into existing positions.
Our growth strategy continues
Whilst the current gold price environment is becoming more challenging with the
unexpected strengthening of the South African currency, this is the environment
which is similar to that in which the company grew substantially. It was during
this time, with South African producers" margins under pressure that the company
grew its production base from 580 000 ounces per annum in 1995 to the plus 3,0
million ounces for the current financial year.
Progress on optimising our returns on our company-building acquisitions to date
are:
Return on investments as at march 2003
Acquisition Cash operating
cost profit to date Payback
Project/Operation (R"m) (R"m) Achieved
Evander - June `98 R415 R1 235 10 quarters
Randfontein R750 R1 695 8 quarters
- Jan `00
Elandskraal R988 R695 -
- Mar `01
Free Gold (50%) R1 350 R1 057 -/+ 8 quarters
- Dec `01
Our strategy of growth through acquisitions has left the company in an extremely
robust situation, as we have a range of assets in our portfolio. The bulk of our
production growth will come from our "steady state" and "under construction"
assets. Production growth of 16% is anticipated from the 2,7 million ounces for
the past financial year to 3,1 million ounces for the 2002/03 financial year.
Even if we did not do any further acquisitions, the production profile from
"steady state" and "under construction" assets will allow for further production
growth, peaking at approximately 3,5 million ounces per annum in the 2005/06
financial year.
We are however confident that the projects currently in "feasibility" and
"exploration" stages, will also allow for future growth in production. Work on
proving up the resource base at Bendigo is progressing according to plan.
Preparation of feasibility studies on Joel and Phakisa Shaft (Tshepong South
Shaft), both part of the 50/50 Free Gold Joint Venture, continues.
From a production perspective, Harmony remains a South African producer with the
bulk of its production coming from this country thereby exposing investors to
the volatility of the SA Rand. As much as we now experience the effect of a
strengthening SA Rand, investors in Harmony have leveraged exposure to a
weakening Rand as well as a rising US Dollar gold price.
Bidding for Abelle Limited - increasing our Australasian production base
On 26 February 2003 Harmony announced that we had agreed to subscribe for new
shares and intended to make a public takeover offer for Australian listed gold
producer Abelle Limited. Harmony"s offer of A$0,75 cents for the ordinary shares
and A$0,45 cents per option, values the company at A$155 million or US$90
million on a fully diluted basis. 35 000 000 new shares are to be placed with
Harmony at a price of A$75 cents per share. This placement, which is subject to
Abelle shareholder approval, represents approximately 18% of the company"s share
capital. With the inclusion of the 19,95% acquired from the Guinness Peat Group,
Harmony had a relevant interest of 34% in Abelle"s issued share capital on the
date of announcement.
As at 24 April 2003, Harmony"s total interest in Abelle was 115 915 732 (71,8%)
ordinary shares and 33 014 410 (43,5%) listed options. The offer is now
scheduled to close on 30 April 2003.
Harmony has, through this and other investments over the past few years,
established access and exposure to world class deposits. The Harmony bid values
the Morobe and Wafi assets, which are two of the largest undeveloped gold
deposits in the world, at a cost of US$8,00 per resource ounce.
The acquisition of Abelle Limited is in line with our strategy of creating a
significant gold production base in Australasia. In addition to our current
producing assets, we now have significant interests in three high quality,
prospective growth projects in Bendigo, Morobe and Wafi.
Morobe Project Area
Identified Mineral Resources (IMR) estimates of the Morobe Project total 73,9
million tonnes at 2,2 g/t gold and 30 g/t silver for a combined 5,2 million
ounces of gold and 71 million ounces of silver.
A feasibility study completed by Lycopodium of Australia in October 2002,
estimates a single open pit mine containing 2,8 million ounces of gold and 48
million ounces of silver. Morobe is capable of producing 300 000 ounces of gold
and 4,5 million ounces of silver per annum from a 5 million tonne per annum
processing plant for a period of approximately eight years
The Morobe ore is free milling and cash operating costs are estimated at
US$175/oz.
Although the feasibility study indicated that capital expenditure of A$275
million would be required to complete the project, we are confident that by
applying the "Harmony Way" this estimate will be adjusted downwards
substantially.
Wafi Project Area
Abelle also owns the Wafi Project situated 60 km to the east of Morobe. The
project is in an advanced exploration stage, with a further phase of 5 000 m of
diamond drilling underway.
Wafi consists of two large orebodies, approximately 1 km apart. One is a
substantial porphyry copper-gold deposit with a total identified IMR estimate of
100 million tonnes at 1,3% copper and 0,6 g/t gold. The other is a significant
gold discovery which contains an IMR estimate of 26 million tonnes at 3,5 g/t
gold (3 million gold ounces), open on strike and dip.
Papua New Guinea (PNG) has in the recent past been a challenging environment in
which to operate. However this area of excellent geological endowment hosts some
of the world"s largest and most profitable operating mines such as Porgera
(Placer Dome) and Lihir (Rio Tinto). We are enthusiastic about the fiscal and
political developments in PNG and believe that the region will continue to hold
its place as one of the world"s most important gold mining regions.
ROYALTY BILL
On 20 March 2003, the South African Government released the draft Mineral and
Petroleum Royalty Bill.
The Royalty Bill proposes to impose a royalty charge of 3% on revenue to holders
of gold mineral rights in South Africa. The purpose of the Bill being that the
country is entitled to a consideration/royalty for the extraction of its non-
renewable mineral resources. The Bill has been submitted for public comment
until 30 April 2003, whereafter it will be referred back to parliament.
We are of the opinion that any royalty imposed will impact significantly on our
financial results and the cost of mining in South Africa.
In our submission to the Treasury Department we have highlighted the following
points:-
* the current proposed royalty is too high and it will significantly impact on
Harmony"s profitability,
* it unfairly penalises lower grade and lower margin operations (most of
Harmony"s operations fall into these categories),
* it will result in an increase in costs,
* it will have a negative impact on the pay limits and cut-off"s, thus impacting
on the mineable reserves resulting in the reduction of the life of the
operations, which in turn will lead to the loss of jobs,
* it will dampen the drive in organic growth, greenfield and brownfield
projects, and will have a significant impact on the viability of new projects.
It will severely affect the cash flows, which will make a significant impact
especially in the early stages of the project.
* it has a greater negative impact at lower gold prices (Rand/kilogram),
* the other great impact is that it will unfairly penalise the operations that
decide to commence immediately with the conversion of mineral rights, from old
order rights to new order rights, instead of waiting for 5 years to convert, and
* it will negatively impact on the financing of BEE participation in operations
and/or projects
Although the royalty in isolation is already high compared to other gold
producing countries in the world, any attempt to introduce a new cost without
changing the tax regime of the industry will result in higher costs to
companies. As a concerned custodian of our shareholders" investment, we have
submitted our comments to both the Treasury Department and the Department of
Minerals and Energy.
The impact of the proposed Royalty Bill on the previously announced mining
projects is as follows:-
Effect of 3% Royalty bill
Project Pre-royalty bill Post-royalty bill
Doornkop South Reef NPV R876m R802m
IRR 48% 44%
NPV R765m R716m
Tshepong Decline IRR 51% 47%
NPV R120m R100m
Nyala Shaft IRR 46% 44%
Elandsrand Shaft NPV R1 406m R1 304m
Deepening IRR 33% 32%
Due to the robustness of the Net Present Values (NPV"s) and Internal Rates of
Return (IRR"s), the future of none of the projects is threatened. The impact on
the returns to our shareholders is however severe with a reduction of R245
million in NPV. This can be translated into 134 SA cents per share value
reduction.
When adjudicating projects or acquisition opportunities, the company has always
assured a conservative approach in the evaluation thereof. Using a real discount
rate of between 7% and 10%, the projects will deliver returns way in excess of
our WACC of approximately 16%.
A gold price of R95 000/kg was used in the evaluation of the above projects. We
do not believe that we need to change the long-term gold price expectation to
below R95 000/kg. Work on the projects will continue and ensure the future
production growth of Harmony.
Both the Joel and Phakisa projects are severely impacted upon by the new
royalties and a decision to proceed or not will be postponed until the Royalty
Bill is finalised.
Strategic investments
i. Bendigo
The 32% stake which Harmony acquired on 14 December 2001, at a cash cost of A$50
million, is currently valued at A$61 million.
The major activities over the 2002/2003 evaluation programme includes the
development of a production size decline to access several ore bodies that had
previously been defined by drilling, and to mine and process approximately 60
000 tonnes of ore. The objective being to establish orebody shapes, grades and
to determine metallurgical processing parameters.
In a briefing on 25 February 2003, the management of Bendigo indicated that the
Swan Decline had reached a depth of 770 m below surface, and had accessed the
first four reefs in the 12,3 million ounce potential resource. A further 5 reefs
are to be evaluated in the next six months. The current on-reef development and
bulk sampling programme is designed to convert the Inferred Resources, which
were previously identified within these reefs, into Reserves.
Management is refining a conceptual plan which indicates a three stage build-up
to full production over four to five years. Subject to the successful
establishment of reserves during the bulk sampling and evaluation programme, the
plan envisages the following stages;
* Stage 1 - 300 000 tonnes per annum to produce approximately 100 000 ounces per
annum. Capital of A$30 to A$40 million is required to start-up the mine plan.
* Stage 2 - after a two to three year period, production is anticipated to
increase to 250 000 ounces for two years.
* Stage 3 - production increasing to 500 000 ounce per annum.
Total funding requirement is estimated to be approximately A$100 million. At a
production rate of 500 000 ounces per annum, and assuming confirmation of the
grades in the conceptual plan, cash costs of approximately A$200/oz is planned.
Maintenance operating capital costs are estimated at A$50/oz.
ii. Highland Gold Limited
The company"s investment of US$26,4 million for a 31% stake in Highland Gold is
currently valued at US$112 million.
For the 2002 financial year, Highland Gold produced 178 000 ounces at cash and
total costs of US$145/oz and US$179/oz respectively. For the quarter ending
March 2003, the company produced 41 000 ounces at cash and total costs of
US$188/oz and US$218/oz respectively.
Highland Gold is pursuing a strategy of acquiring new opportunities in Russia.
iii. High River Gold Mines Limited
The company"s 21% interest acquired on 21 November 2002, at a cash cost of
US$14,5 million, is currently valued at US$20,8 million.
Although being diluted through a placement of shares by High River Gold, we are
evaluating areas of possible co-operation with the current management.
iv. Crystallising our stake in Placer Dome
On 30 January 2003 the company announced that we had disposed of our 1,9%
shareholding or 7 586 424 shares in Placer Dome. This investment, which was
classified as non-core, was sold at an average price of US$11,52 per share,
realising some US$87 million.
The proceeds from the investment, originally made in Goldfields Limited of
Australia, at a cost of R225 million, has been used to strengthen the company"s
balance sheet as we continue with our strategy of growth.
v. Kalplats (Kalahari Platinum) - positive pilot plant tests
The pilot plant testwork on the Kalplats bulk sample has been completed. The 500
tonne sample was collected at a depth of 40m below surface across the 20m width
of the Main Reef in the Crater Deposit at a head grade of 3.0g/t PGM. Recoveries
of 73-75% with concentrate grades above 100 g/t PGM were achieved with the two-
stage mill float circuit.
Of particular significance is that a 60% recovery was achieved from the primary
mill-float. This is an exciting option for a lower risk phased start up with
significantly reduced capital and operating costs. Kalplats has advanced to the
full feasibility study stage which should be completed by the end of 2003. R4,0
million was spent on the project during the quarter.
Social Plan
On 19 March 2003, Harmony and the National Union of Mineworkers (NUM) signed an
agreement on the company"s Social Plan Framework. We are the first South African
mining company to sign an agreement of this nature. As soon as legislation is
finalised the company will establish a Social Plan Fund with a contribution of
R15 million, and an undertaking to contribute a further amount of R35 million
over a 10 year period.
The agreement calls for the establishment of Future Forums at all our
operations, which will liaise with both local and national government to
formulate and implement integrated development plans for the communities
surrounding our operations. Areas from which our labour is sourced will also be
included in the Future Forums.
Harmony has also pledged its commitment to the development of its workforce and
to the necessary skills transfer processes, as per the Social Plan Regulations.
The company also actively participates in a management/labour partnership which
incorporates strong community involvement.
COMPETITION COMMISSION COMPLAINT AGAINST ISCOR
The complaints against Iscor by mainly Harmony and other interested parties
refer to excessive pricing of steel products in South Africa and are based on
the argument that import parity amounts to excessive pricing.
The criteria for excessive pricing being that the company charging these prices
needs to be in a dominant position as supplier. We believe that Iscor is
dominant in South Africa and therefore is guilty of excessive pricing. They
claim, however that they are not dominant internationally and therefore cannot
be guilty of excessive pricing.
The whole pricing structure from Iscor and other steel suppliers is distorted by
the widespread use of tariffs and subsidies. Comparable pricing is therefor
difficult.
Import parity pricing is applicable where a company sells a product to a local
consumer at the price at which it would cost to import that product, including
all other expenses that would have been incurred, i.e. tariffs, transport costs,
etc. The situation is that the consumer gets charged costs which not even the
supplier has incurred which results in excessive pricing and in the case of the
supplier, excessive profits.
Although the SA Rand has appreciated more than 40% over the past year, prices
charged by Iscor have only been decreased by 0,8%.
We believe that the pricing structure is unfair and has resulted in unnecessary
cost increases in various areas of our industry. Most administrative costs in
South Africa are increasing at a rate significantly higher than the government"s
stated inflation target rate. Controlling working costs has always been our area
of expertise and we will continue to focus and highlight anomalies such as
these.
QUARTERLY OPERATIONAL REVIEW
A quarter on quarter cash operating profit analysis of the various operations is
as follows:
Total cash operating profit (R"million)
Variance
Operations Mar 2003 Dec 2002 (R"million)
Free State 53 117 (64)
Evander 45 87 (43)
Randfontein 105 180 (75)
Elandskraal 44 70 (26)
Kalgold 21 17 4
Australian Operations 69 92 (23)
Sub-total 337 564 (227)
Free Gold (50%) 141 199 (58)
Total 478 763 (285)
Free State Operations - steady operational performance
The Free State operations reported a 55% decrease in cash operating profits from
R117 million to R53 million. Underground tonnage was 3% lower at 1 025 000
tonnes. At a slightly lower recovery grade of 4,20 g/t compared to the 4,28 g/t
of the previous quarter, underground production was 4% lower at 4 306 kg.
Working cost expenditure of R367,4 million was well contained at R8,3 million or
2% lower. Due to the lower tonnage, costs in R/tonne and US$/oz terms increased
to R345/tonne and US$305/oz respectively.
These operations were also affected by the approximate R20 million per quarter
SA Rand hedge benefit which was put in place some 15 months ago and which came
to an end during the December 2002 quarter.
The Masimong Expansion Project is progressing well. Although these operations
were also affected by the impact of the public holidays, increased efficiencies
resulted in only a 2% reduction in underground tonnage. Recovery grades were
higher at 5,48 g/t compared to the 5,06 g/t of the previous quarter. Resultant
gold recovered was 88 kg higher at 1 469 kg. Working costs decreased
spectacularly by 16% from R75 300/kg to R63 320/kg. We anticipate this shaft to
continue to deliver operational performance of this standard as they progress in
the delivery of this important growth project.
Evander Operations - grade recovery continues
Cash operating profits at Evander decreased by 49% from R87 million to R45
million.
The impact of the public holidays were most evident at Evander with underground
tonnage being 10% or 55 000 tonnes lower at 471 000 tonnes. At a higher
underground recovery grade of 5,5 g/t, gold recovery was 8% lower at 2 589 kg
compared to 2 804 kg for the December 2002 quarter.
Working costs were R3,8 million higher at R200,6 million which, due to the lower
tonnage, resulted in higher unit costs. In R/kg terms, working costs increased
by 11% from R69 289/kg to R76 878/kg.
The operational performance of Evander 8 Shaft continues to improve
satisfactorily when measured on a quarter on quarter basis. Underground tonnage
is returning back to levels of 60 000 tonnes per month whilst the grade is
showing similar improvement to recovery grades of 6,0 g/t. With Evander 8 Shaft
performing at these levels, the overall production results from Evander are
expected to return to the levels achieved before the seismic event of some nine
months ago.
Randfontein Operations - a tough quarter
The Randfontein operations reported a R75 million or 41% decrease in cash
operating profits. This was mainly due to a combination of lower tonnages from
underground and lower recovery grades. Underground tonnage decreased by 10% or
78 000 tonnes to 690 000 tonnes. Underground recovery grades were 0,38 g/t or 8%
lower at 4,68 g/t compared to the 5,06 g/t reported previously.
Although surface tonnages and grades increased quarter on quarter, total gold
recovered was 15% or 626 kg lower at 3 569 kg.
Total working costs of R229,2 million was R11,4 million lower than the R240,6
million for the December 2002 quarter. The benefit of a high variable cost
structure resulted in the operations reporting cost of R190/tonne, which is
similar to the unit costs achieved during the previous quarter. Due to lower
recovery grades, working costs in R/kg terms increased by 13% from R56 562/kg to
R65 112/kg.
As in the case of the Evander operations, these operations should report
increased tonnages at higher recovery grades for the June 2003 quarter.
Expenditure on the recently announced Doornkop South Reef Project started with
commitments to date totalling R16,6 million of which an amount of R12,7 million
is expected to be spent by June 2003.
Activities to date have been focussed on mobilising the contractors for shaft
sinking, procurement of major components to increase hoisting capacity in the
Sub Vertical Shaft and equipment required for development to open up the orebody
for mining.
Elandskraal Operations - improved infrastructure and flexibility
These operations experienced a R26 million or 37% decrease in cash operating
profits, decreasing from R70 million to R44 million. Over and above the effect
of the public holidays and strengthening of the SA Rand, these operations
experienced problems with the current shaft orepass system.
The sub shaft orepass system comprises two reef and one waste orepass from 73 to
98 levels. These orepasses were not lined previously, and as a result of the
depth they have scaled considerably with time.
The reef orepasses started to hang up regularly due to scaling in mid 2000 but
were temporarily rectified. Since October 2002 more serious delays started to
occur and a decision was taken to rehabilitate one of the orepasses at a cost of
R3.0 million. This is now in progress, hence one orepass is unavailable. The
rehabilitation of this orepass is expected to be completed by July 2003.
At the beginning of January 2003 the remaining reef orepass deteriorated further
with scaling causing severe obstructions in the orepass. This backed up all the
way into the stopes causing full stope boxes. Ore backed up in the 92 - 95 level
orepass totals approximately 6 000 tonnes.
At the end of February 2003 a decision was taken to stop using the remaining
reef orepass and to temporarily mix the reef and waste, as the scaling was not
as problematic in the waste orepass system. This is still the system in use and
it does not appear to have any scaling problems at present. However due to the
loading arrangements this orepass system could only deliver ore to one of the
two ore hoists only on the sub shaft, which severely affected the hoisting
capacity. Hoisting was done with one hoist for approximately two months, whilst
changes were being made on the belt level. Both hoists are now able to hoist
ore.
The orepass was originally a 3,0 m diameter raisebore hole but has now scaled to
an ellipse measuring 30 m x 19 m at the worst section.
Actual production loss experienced is estimated at approximately 15 000 tons for
the months of January and February and 6 000 for March 2003.
Underground tonnage was 5% or 22 000 tonnes lower at 457 000 tonnes. Underground
recovery grades were marginally lower at 5,92 g/t compared to the 6,0 g/t
reported previously. Total gold recovered of 2 868 kg was 6% lower.
Total working costs were 4% or R9,3 million lower at R224,6 million. These
operations reported an excellent reduction of 12% in cost in R/tonne terms,
decreasing from R322/tonne to R283/tonne. In R/kg terms costs increased by only
2% from R77 046/kg to R79 152/kg.
The benefits from a development programme to improve the flexibility at
Elandsrand will deliver increased tonnages and grade over a period of six
months.
Deelkraal, which has been suffering from the lack of face availability, have
holed two new raises in March. These will be available for mining within the
next two months. A third raise line is expected to hole during May 2003.
Kalgold - installation of third mill completed
The Kalgold operations reported a 6% reduction in tonnage, decreasing from 267
000 tonnes to 250 000 tonnes. At a lower recovery grade of 2,27 g/t gold
recovery was 8% lower at 568 kg.
Working costs were well controlled with a 27% or R11,9 million reduction to
R32,2 million. This allowed these operations to retain similar costs in R/kg
terms of R56 722/kg. In R/tonne terms, working costs decreased by 22% from
R165/tonne to R129/tonne.
The project to increase the milling capacity at Kalgold by 50 000 tonnes per
month to 130 000 tonnes, has been completed with the construction of the third
mill. Lower grade tonnage, available from a 1,1 million tonne stockpile, will be
treated resulting in gold recovered planned to increase from 189 kg to
approximately 260 kg per month. The average overall feed grade to the plant is
expected to decrease from 2,5 g/t to 2,2 g/t.
Free Gold Joint Venture - Tshepong and Joel deliver good performances
The Free Gold Joint Venture operations reported a 29% or R58 million reduction
in cash operating profit on a 50% attributable basis, down from R199 million to
R141 million for the March 2003 quarter.
Underground tonnage decreased by 6% or 34 000 tonnes to 581 000 tonnes.
Underground recovery grade was marginally lower at 6,97 g/t compared to the 7,04
g/t reported previously. Underground gold recovery at 4 052 kg was 6% lower.
The benefit of a 165 000 tonne increase in surface tonnage milled at a higher
recovery grade of 0,62 g/t resulted in a total gold recovery of 4 472 kg, which
was 3% or 159 kg less than the 4 631 kg reported for the December 2002 quarter.
Whilst working costs in R/kg terms increased by 11% to R62 545/kg, working costs
in R/tonne terms decreased by 4% to R223/tonne. At US$232/oz the Free Gold
operations remain the most profitable assets in our portfolio.
Tshepong shaft continues to deliver world class performance with gold recovered,
increasing by 3% to 3 392 kgs. Although tonnage was 6% lower, the recovery grade
at the operations increased to 8,35 g/t from 7,62 g/t. In R/kg terms costs at
this shaft decreased from R47 760 /kg to R45 561/kg.
Whilst Joel continues to deliver steady operational performance, encouraging
development results are being achieved in the North Shaft ore reserve area. This
bodes well for the shaft"s future production programme as an increase in ore
reserves could result in either an extension of mining operations or increased
production in the medium term.
St. Helena, assets acquired from Gold Fields Limited on 29 October 2002,
delivered a poor performance with cash operating costs of R134 435/kg. The
increase in working costs was mainly the result of costs incorrectly allocated
at the time of acquiring the assets. Management have however realised the need
to restructure the operations for profitability and their focus on reducing
working costs will deliver benefits in the forthcoming reporting period.
Australian Operations - our focus directed at profitable ounces on total cost
basis
Our Australian production units, in aggregate, had a weak quarter with a range
of production problems and incidents at the various sites each contributing to
the overall result. The combined operations produced a total of 117 028 ounces
of gold at a working cost of US$297/oz.
Mt Magnet"s quarterly production decreased to 40 484 ounces. The most serious
production problems arose at our Hill 50 mine where a series of rockfall
incidents starting in February blocked the main ventilation raises near the
bottom of the mine. These incidents not only affected all of the high grade
production stopes for the whole of the month of March, but also revealed the
need for a redesign of the stope configurations and the positioning of the
ventilation systems at the deeper levels of the mine. This will adversely affect
the production levels and overall costs at this high grade mine for several
months until the issues are rectified.
The Star underground mine and the open pits took up a significant portion of the
tonnage shortfall but could not fully make up for the gold production shortfall
from this high grade source.
Excellent exploration results continued to be received from underground
extensions to the Watertank Hill area at Mt Magnet where the size of this high-
grade discovery continues to grow. It is estimated that resources will exceed
250 000 ounces and drilling is continuing.
South Kal Mines had a better quarter on production volumes (45 718 ounces). Good
tonnage, costs and development rates were achieved from the Mt Marion
underground mine. Open pit operations did not live up to grade expectations, and
high maintenance costs in the mills adversely influenced processing costs.
A study to assess the economics of developing a "mega pit" to access the large
resource which exists beneath the combined Jubilee and Hampton-Boulder open pits
was completed. This project needs a gold price in excess of A$600/oz (US$360/oz)
to provide an acceptable return on investment and will therefore not be
developed at this time.
Big Bell, which is in "harvest mode", produced 30 825 ounces, and again managed
to reduce its overall cost structure, producing gold at close to the prevailing
spot price.
The operational issues referred to above combined with the lower US Dollar gold
price and stronger Australian Dollar are affecting the operating margins at all
our existing Australian operations. There will be an ongoing need for capital to
explore and develop replacements for the existing short life projects. Our focus
will however be on restricting mining activities to only those areas which will
produce profitable ounces on a total cost basis.
Consistent with this approach, we have together with our Joint Venture partners,
Northern Gold NL, suspended the commissioning schedule of the Brocks Creek
project in the Northern Territories postponing full development of this project
to a time when higher Australian Dollar gold prices prevail.
The reduction in hedge agreements, dealt with elsewhere in this report, will
accommodate the planned future lower levels of production from our Australian
operations.
Capital Expenditure
Actual Forecast
March 2003 June 2003
Free State 31 30
Evander 26 25
Randfontein 9 22
Elandskraal 26 27
Kalgold 17 4
Free Gold (50%) 12 10
Australian Operations 63 35
Total 184 153
Operating and Financial Results (Rand/metric)
Free Free
State State Evander Evander
U/g Surface U/g Surface
Ore milled Mar-03 1 025 290 471 52
- t"000 Dec-02 1 053 332 526 44
Gold Mar-03 4 306 165 2 589 34
produced - kg Dec-02 4 507 233 2 804 33
Yield - g/t Mar-03 4,20 0,57 5,50 0,65
Dec-02 4,28 0,70 5,33 0,75
Cash
operating Mar-03 82 117 83 164 76 878 46 265
costs - R/kg Dec-02 78 708 89 742 69 289 75 394
Cash
operating
costs Mar-03 345 47 423 30
- R/tonne Dec-02 337 63 369 57
Working
revenue Mar-03 404 873 15 485 242 726 2 713
(R"000) Dec-02 468 760 23 430 280 987 3 280
Cash
operating Mar-03 353 597 13 722 199 036 1 573
costs (R"000) Dec-02 354 738 20 910 194 285 2 488
Cash Mar-03 51 276 1 763 43 690 1 140
operating
profit Dec-02 114 022 2 520 86 702 792
(R"000)
Rand- Rand- Elands- Elands-
fontein fontein kraal kraal
U/g Surface U/g Surface
Ore milled Mar-03 690 514 457 337
- t"000 Dec-02 768 498 479 248
Gold Mar-03 3 229 340 2 707 161
produced - Dec-02 3 887 308 2 876 161
kg
Yield - g/t Mar-03 4,68 0,66 5,92 0,48
Dec-02 5,06 0,62 6,00 0,65
Cash
operating Mar-03 65 112 55 676 79 152 64 404
costs - R/kg Dec-02 56 562 67 295 77 890 61 963
Cash
operating
costs Mar-03 305 37 469 31
- R/tonne Dec-02 286 42 468 40
Working
revenue Mar-03 302 448 32 031 253 332 15 364
(R"000) Dec-02 389 511 30 810 288 207 16 026
Cash
operating Mar-03 210 246 18 930 214 264 10 369
costs Dec-02 219 855 20 727 224 013 9 976
(R"000)
Cash Mar-03 92 202 13 101 39 068 4 995
operating
profit Dec-02 169 656 10 083 64 194 6 050
(R"000)
Free Free Australian
Gold Gold
Kalgold (50%) (50%) Operations
Opencast U/g Surface Total Total
Ore Mar-03 250 581 674 1 729 7 070
milled
- t"000 Dec-02 267 615 509 1 676 7 015
Gold Mar-03 568 4 052 420 3 640 22 211
produced Dec-02 617 4 331 300 4 021 24 078
- kg
Yield - Mar-03 2,27 6,97 0,62 2,11 3,14
g/t
Dec-02 2,31 7,04 0,59 2,40 3,43
Cash
operating Mar-03 56 722 62 670 61 338 79 967 73 150
costs - Dec-02 71 580 56 498 58 930 73 565 68 500
R/kg
Cash
operating
costs Mar-03 129 437 38 168 230
- R/tonne Dec-02 165 398 35 176 235
Working
revenue Mar-03 53 098 381 314 39 481 360 223 2 103 088
(R"000) Dec-02 61 365 431 632 29 785 388 129 2 411 922
Cash
operating Mar-03 32 218 253 940 25 762 291 079 1 624 736
costs Dec-02 44 165 244 692 17 679 295 804 1 649 332
(R"000)
Cash Mar-03 20 880 127 374 13 719 69 144 478 352
operating
profit Dec-02 17 200 186 940 12 106 92 325 762 590
(R"000)
Prepared in accordance with International Accounting Standards.
Total Operations - quarterly financial results (Rand/metric)
Quarter Quarter
ended ended
31 March 31 December
2003 2002
Ore milled - t"000 7 070 7 015
Gold produced - kg 22 211 24 078
Gold price received - R / kg 94 687 100 171
Cash operating costs - R / kg 73 150 68 500
R million R million
Gold sales 2 103 2 412
Cash operating costs 1 625 1 649
Cash operating profit 478 763
Income from associates 24 -
Amortisation (132) (121)
Mark to market of financial instruments 133 12
Rehabilitation cost provision (13) (11)
Employment termination costs (8) (15)
Other income - net 40 53
Interest paid (63) (60)
Corporate, marketing and new business (32) (30)
expenditure
Exploration expenditure (23) (27)
Foreign exchange loss (49)
Mark to Market of listed investments (17) 105
Profit before taxation 338 669
South African normal taxation
- Current tax (30) (87)
- Deferred tax (73) (125)
Net earnings 235 457
Adjustments:
- Profit on sale of property, plant and (7) (11)
equipment
Headline earnings 228 446
Earnings per share - cents *
- Basic earnings 130 262
- Headline earnings 126 255
- Fully diluted earnings ** 129 257
Dividends per share - (cents) - -
Prepared in accordance with International Accounting Standards.
* Calculated on weighted number of shares in issue at quarter end March 2003:
180.6 million (December 2002: 174.4 million)
** Calculated on weighted average number of diluted shares in issue at quarter
end March 2003: 182.5 million (December 2002: 177.4 million)
Abridged balance sheet (Rand)
At At
31 March 31 December
2003 2002
R million R million
Employment of capital
Mining assets after amortisation 8 986 8 945
Investments 1 375 1 409
Net current (liabilities)/assets (excluding (514) (431)
cash)
Short-term investments
- Placer Dome - 723
Cash 3 128 1 439
Total Assets 12 975 12 085
Capital employed
Shareholders" equity 8 932 7 863
Loans 2 015 2 009
Long-term provisions 686 698
Unrealised hedging loss 491 736
Deferred tax 851 779
Total equity and liabilities 12 975 12 085
Prepared in accordance with International Accounting Standards.
Basis of Accounting
The unaudited results for the quarter and the 6 months have been prepared on the
International Accounting Standards basis. The accounting policies are consistent
with those applied in the previous financial year.
Issued share capital: 184.2 million ordinary shares of 50 cents each. (December
2002: 174.6 million)
Operating and financial results (US$/imperial)
Free Free
State State Evander Evander
U/g Surface U/g Surface
Ore milled - Mar-03 1 130 320 519 57
t"000
Dec-02 1 161 366 580 49
Gold Produced Mar-03 138 440 5 305 83 238 1 093
- oz
Dec-02 144 903 7 491 90 150 1 061
Yield - Mar-03 0.123 0.017 0.160 0.019
oz/ton
Dec-02 0.125 0.020 0.155 0.022
Cash Mar-03 305 309 286 172
Operating
Costs - $/oz
Dec-02 255 290 224 244
Cash Mar-03 37 5 46 3
Operating
