Johannesburg - Harmony Gold Mining said it will effectively stop mining Kusasalethu in five years, reducing the life of its third-largest mine by about 19 years.
"We’re now looking at harvesting the mine in the next five years," chief executive officer Peter Steenkamp said on a call with reporters on Wednesday.
The new plan lowers the company’s reserves 13% to 36.9 million ounces in the year that started June 30.
Harmony has been trying to turn around performance at Kusasalethu, which employs about 4 500 people, for at least the last three years as the company battled low grades, fires, illegal mining and labour disruptions.
The producer decided to focus on mining deeper, higher-grade areas to return the operation to profit but this has come at a cost of its lifespan.
“If we want to mine after five years, we’re going back to low-grade areas,” Steenkamp said. "We’d have to increase the volumes dramatically. To increase the volumes, we’d have to put a lot of capital into the project.
We don’t believe that’s the right place to spend the capital."
Even as it winds down Kusasalethu, previously its biggest mine, Harmony is planning to increase production to 1.5 million ounces a year at an all-in sustaining cost of $950 an ounce over the next three years. That’s up from 1.1 million ounces of gold at a cost of $1 003 an ounce in the year ended June 30.
Gold fell 0.2% to $1 344.15 an ounce at 7:16 a.m. in London, paring this year’s 27% gain. Harmony climbed 1.6% to R58.55. The stock has more than tripled this year.
Harmony will reach the higher production levels by running down its high-cost operations, developing its core assets and hunting for acquisitions, it said.
"We’ve identified specific targets we’d like to pursue, focusing on three areas," Steenkamp said. "That’s South Africa, the rest of Africa and also Papua New Guinea."
The company has benefited from rising margins in the last nine months as a higher gold price boosted revenue and a weak rand lowered costs.
The company has protected itself from reversals in these trends by locking in 20% of its production at set prices and hedging currencies.
Harmony plans to pay a dividend of R0.5 a share after posting headline earnings of R2.21 a share for the year to June 30. That compares with a loss of R1.89 the previous year.
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