Harmony posts year loss, wary of further gold falls

By James Macharia

JOHANNESBURG (Reuters) - Harmony Gold (HARJ.J), the world's No. 5 gold producer, moved to a full-year net loss and said on Friday it might have to implement cost cuts if gold prices slid further.

Gold XAU= has lost nearly a quarter of its value since hitting a record $1030.80 in March, hurt by profit-taking, oil's decline and more recently the dollar's rally.

"We may have to re-assess everything. It's a case of how long is the low gold price going to last, and we have to see how that affects our operations or projects," Harmony's Chief Executive Graham Briggs told a results briefing in Johannesburg.

Briggs said the company would focus on cutting costs if the gold price continued its decline over a sustained period.

South Africa's gold mining companies are wrestling rising costs as output dwindles. So far, despite lower output, they have seen profits rise on high gold prices.

However, gold fell more than 3 percent on Friday to stand well below $800 an ounce for the first time since December, as investor confidence in precious metals was shattered by falling oil prices CLc1 and a surging U.S. dollar.

Gold's price often moves contrary to the dollar as it is used as a hedge or safe haven against inflation.

Friday's drop sent shares in AngloGold Ashanti (ANGJ.J) and Gold Fields (GFIJ.J) tumbling 6.3 and 4.5 percent respectively, while Harmony lost 4.72 percent, weakening South Africa's blue-chip index.

WRITEDOWNS

For its annual loss, Harmony blamed hefty writedowns, which surprised analysts by their magnitude. Some said the writedowns were a necessary step to clean up Harmony's books at year-end.

Losses on the sale of its shares in rival Gold Fields, and from associate company Pamodzi Gold (PZGJ.J), and a writedown of some mining assets, led to a net loss of 245 million rand ($31.3 million) from a net profit of 382 million rand a year ago.

The writedowns hurt the company's headline earnings per share, stripping out capital, non-trading and some extraordinary items, which fell 2.6 percent to 38 cents from 39 cents in the preceding quarter.

Six analysts surveyed by Reuters had expected a rise in headline EPS, the key profit measure in South Africa, to 118 cents for the fourth quarter.

Stephen Roelofse, an analyst at Metropolitan Asset Managers, said the writedowns cut Harmony's headline EPS by about 89 cents. "The charges have distorted a solid set of results," he said.

"Their output and costs were near my expectations for the fourth quarter, and I like their plans in Papua New Guinea."

HIDDEN VALLEY

Briggs said he was confident about the future, and would focus on growing assets in Papua New Guinea, including the Hidden Valley (HV) project, due to start producing in mid-2009.

Together with Australia's Newcrest Mining Ltd (NCM.AX), Harmony is developing HV, which may yield 250,000 ounces of gold and 3.6 million ounces of silver each year for 14 years.

Annual gold output fell 11 percent to 1,747,071 ounces, while cash costs rose 25 percent to 138,319 rand per kg, partly due to higher electricity tariffs, the group said.

Like other miners, Harmony has been receiving some 90 percent of its normal power requirements since late January when a near-collapse of the power grid shut mines down for five days.

(Reporting by James Macharia; Editing by Erica Billingham and Quentin Webb)