Harmony issues profit warning

Harmony Gold, the world’s fifth largest gold producer, has issued a warning that its quarterly financial results will come in far below expectations.

The news will surprise some, as it comes amid a booming commodities market.

However, Harmony’s gold production has been adversely affected by the unavoidable issues of cost inflation, higher wage demands, safety incidents, and mine grade declines.

According to Harmony, lower production and higher costs will result in the cash cost per kilogram increasing by between 35% and 45% in the three months to the end of June 2007.

During the period, operating costs increased between 25% and 28% quarter-on-quarter, although this can be attributed in part to the company’s newly installed accounting software system, which has included some of the March quarter’s costs in the June 2007 quarter.

Gold production is expected to be down by between 8% and 12%, mainly as a result of production incidents at Bambina and Joel, plus the lower grades mined at Harmony’s Shaping mine and the underperformance at Mt Magnet’s underground operations in Australia.

These issues, coupled with the company’s 4% reduction in reserves as of the end of June, make the outlook uncertain for Harmony, which has also just lost its chief executive. He has resigned after 11 years in post.