UPDATE 2-Harmony Gold misses Q4 market forecast as costs bite

Mon Aug 15, 2011 9:52am EDT

* Q4 headline eps 30 cents vs 33.5 cents forecast

* High costs related to power, equipment take toll

* Company sticks to 2 mln oz output target by 2015 (Adds CEO interview, analyst comment, details)

By Ed Stoddard

JOHANNESBURG, Aug 15 (Reuters) - Harmony Gold , the world's fifth-largest gold producer, reported a 67 percent drop in quarterly profit, falling short of market expectations as power rates, new equipment and the costs of a troubled mine shaft hit its bottom line.

While production rose around 3 percent in the April-June fourth quarter, output for the financial year was 9 percent lower, totalling 1.3 million ounces, as safety stoppages disrupted operations and some shafts underperformed.

Harmony said on Monday it would give its 2012 production target at an investor event next week. Chief Executive Graham Briggs told Reuters the miner remained committed to reaching 2 million ounces in gold production by 2015.

"These assets can produce 2 million ounces. We'll continue to focus on the targets," he said in an interview.

"Having said that, if one of the assets starts wobbling or something, we'll take it out. We're not going to be obsessive about our two million ounces but we are going to be obsessive about having a profitable and sustainable company," he said.

Analysts said output is likely to rise, as new shafts begin operating and as a broken conveyor belt at Harmony's Hidden Valley mine in Papua New Guinea is due to be functioning by September.

"Production on their growth projects should be coming up ... When that conveyor belt comes back on line at Hidden Valley we should see some action," said David Davis, a gold mining analyst with SBG Securities in Johannesburg.

Harmony's headline earnings per share, the main profit gauge in South Africa, fell to 30 cents in the three months to end-June from 91 cents in the previous quarter, short of an average estimate of 33.5 cents in a Reuters poll of seven analysts.

COSTS UP

A fall in profit was expected after the company said last month it expected an upswing in costs due to higher power fees and equipment-related expenses, and the inclusion of costs related to Target 3, a troubled shaft it acquired.

Quarter on quarter, operating costs were 12 percent higher due to the increase in electricity prices and the impact of Target 3, the company said.

Equipment costs pinched earnings in part because of a spate of public holidays when costly maintenance work is often done.

CEO Briggs told Reuters that costs should decline in the current quarter though power rates would still weigh. South African miners pay higher power fees during the June to August winter season.

On the price of gold, which has been scaling new highs as investors seek safe havens amid the U.S. and European debt crises, Briggs told Reuters: "I don't know that it's going to scream back any higher this year."

"I have a prediction next year for $1,850. It looks like I'm undershooting," he said. Spot gold at 1139 GMT was trading around 0.4 percent lower around $1,738 an ounce. It rallied to a record high of $1,813.79 last Thursday.

The average gold price was up about 9 percent to $1,509 an ounce during the June quarter from the previous one and Harmony's bigger domestic rivals AngloGold Ashanti and Gold Fields both reported sharply higher earnings for the period.

Analysts remain bullish about Harmony's Papua New Guinea project Wafi-Golpu and its Hidden Valley mine in that country.

The group said that it had signed a new four-year, $300 million revolving facility with Nedbank and FirstRand Bank earmarked for its development costs there.

The surge in bullion has helped push Harmony's share price up about 20 percent so far this year, making it the best performer among the companies measured by Johannesburg's index of gold miners

Its shares were down more than 2 percent on Monday, reflecting investors disappointment and a general retreat by gold producers on a lower spot price. (Editing by David Dolan and Erica Billingham)

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