Aus “BUSINESS REPORT” vom 30.5.2004
Harmony keeps its finger on the pulse
By Sherilee Bridge
Melrose Arch seems miles away from any of South Africa's deep-level mines but besides being the hang out of the who's who of black economic empowerment, the trendy new office park, which has quickly replaced Rosebank's Park Hyatt as the "in" meeting place, is home to Harmony Gold Mining.
Far from being displaced, it is apt that one of the country's youngest mining companies keeps its finger on the pulse of 27 mine shafts from first-floor offices overlooking the hottest African restaurant, Moyo, and a Virgin Active gym on the other.
While the unions may argue, Harmony's executives are among the most down-to-earth bosses in the industry.
Having built an empire through acquisition and, more recently, shifting into merge mode, the company employs 53 000 people - at least for now.
Harmony in the past week has found itself to be a dart board for organised labour, giving the industry's biggest union the artillery it needs to mobilise against the effect of the strengthening rand on job losses.
Harmony told the market it was restructuring because of "the impact of the weak gold price environment" and might have to close up to six mine shafts.
This puts another 5 000 mining industry jobs at risk.
The National Union of Mineworkers called Harmony "two-faced" for wanting to "force workers into a continuous operations (conops) arrangement under the pretext that it is guaranteed to save jobs".
Harmony plans to introduce conops at all its mines.
It says this should fight declining margins and negate the effect of the strong rand.
Harmony last year shed its marginal status by merging with its sweetheart empowerment partner, ARMgold, to become a 3.6 million-ounce-a-year gold producer.
Its production profile will be boosted to just under 4 million ounces once Avgold's Target mine in the Free State adds 350 000 ounces to the pie.
Pushing out Harmony's mine life by at least 13 years, Target will only be included once Harmony completes the acquisition, which is scheduled for April 19, and assuming minorities accept its offer of one Harmony share for every 10 Avgold shares held.
Not that this deal is expected to come unstuck - the competition tribunal yesterday unconditionally approved the merger.
As part of a three-way merger of Harmony, Patrice Motsepe's ARM Investments and Anglovaal Mining, the acquisition will bring to 25 the number of deals completed by Harmony since 1997.
In the three-and-a-bit years since 2000, Harmony has completed 13 acquisitions compared with three notched up by rival AngloGold and four by Gold Fields.
A turnaround master, Harmony's chief executive Bernard Swanepoel has been called a revolutionary and rebel for breaking the mould of the historic mining houses with their staid white mine bosses dressed in prim suits and ties.
Sporting an open-necked shirt and trademark grey shoes, Swanepoel stands at a crossroads.
Under his leadership, "the Harmony way" company culture has been very successful in transforming a fledgling mining firm into one of the world's five biggest gold producers.
But Harmony has matured and as it increases considerably in size, it may be forced to review its executive.
Andisa Securities describes this risk as a "culture shock" in its March report on the company.
Highlighting Harmony's R3.2 billion worth of organic growth projects, the report suggests that "competent transitional management will likely be one of its key success determinants".
By the end of the month Harmony will have discarded its "small-but-big approach" to contribute to the making of a mining monolith.
Dubbed the most significant merger in South Africa's decade of democracy, the new baby also comes with all of the social challenges that have kept mining companies on their toes for 10 years.
The tripartite model of business, the government and labour has not been all that well oiled.
While the country's new mining legislation seems to be as much in hand as possible, both business and the government may have underestimated a third power, that of the people.
It is going to be mighty difficult for the government to explain why firm
s are shedding jobs while their election campaigns scream "job creation" and "1 million real jobs".
And it is damn near impossible for business to ignore a shrinking wallet.
Exporters have been hurt most by the shrivelling dollar to rand exchange rate.
Unfortunately, the hole in their purses is often rung up as job losses and leaves little change in the country's 31.2 percent unemployment rate.
Cees Bruggemans, First National Bank's chief economist, estimates that 100 000 jobs may have been lost because of the rand's appreciation last year. The biggest losses were among salaried jobs.
When the local unit gained 28 percent against the greenback, most thought the worst was over.
So Harmony's announcement that it may shed up to 9.4 percent of its workforce came as a surprise.
Already sceptical about the whining at almost every results presentation last year, it seems difficult for the man in the street to grasp the job cuts when the gold price is basking at levels last seen some 15 years ago.
Simply put, local miners are getting about R85 000 a kilogram for their gold despite the price of bullion hovering about $20.50 below a 15-year best of $430.50 (R2 736.90) an ounce reached earlier this year.
If the price of gold stayed at $410 but the dollar exchange rate rose from R6 to R10, South African gold producers would get a significant R52 727 more for each kilogram they sold.
Put another way - at R85 000 a kilogram gold companies are just about breaking even.
The cost of mining gold in South Africa has rocketed as mines get deeper and older.
It is estimated that cash costs increase on average by more than R700 a kilogram every quarter at the country's big three - Harmony, AngloGold and Gold Fields.
That means cash costs could rise on average by about R2 800 a kilogram in just one year.
Harmony bleeds the most. With 85 percent of its cash operating profit generated from South African operations, the company is highly leveraged to the rand gold price.
World Gold, an industry publication, says that across the globe average cash costs were up 25 percent year-on-year in the last quarter of 2003.
It blames strong currencies in gold producing countries for the increase.
During the period, the dollar fell against 13 of the 16 major currencies and mining costs increased to $235 an ounce, from $188 in the last quarter of 2002.
Costs rose 50 percent to $295 an ounce in South Africa from $197 in the same period a year earlier. In Canada and the US, costs were up a mere 13 percent to $196 an ounce.
So far, the appreciation in the price of bullion has outpaced global cost inflation. But things may be about to change.
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Wer also auf einen fallenden Rand setzt, der kauft Harmony und Durban, ist jedenfalls meine Meinung.
Kuddel.
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