Harmony Gold

Source: Energy Digital

Date :29/04/2008 14:41:25

Despite an uncertain economic climate, Harmony Gold hopes that its sustainable business model will help it establish long term success

Written by Lucy Mowatt and Produced by Alex Smith

Founded in 1950 in South Africa as a company managed by Rand Mines, Harmony Gold became an independent company in 1995 and floated on the Johannesburg Stock Exchange in 1997. The country is the second largest producer of gold after China, and as such Harmony Gold is the fifth largest production company in the world.

Harmony Gold now operates 21 mines in South Africa, Australasia and Papua New Guinea and has an annual turnover in the region of about R10 billion. In the region of 2.3 million ounces of gold are produced by the company, a figure it wants to increase to 3.5 million ounces by 2010. This is in addition to reducing the cost of producing that gold to less than $400 per ounce, improving margins.

The Harmony Improvement Platform has been put in place in order to achieve these aims. By looking at its operations and improving upon its performance, Harmony Gold is looking to make substantial savings. However, these have to be in line with company’s six core concepts which include empowered management teams, increased productivity and a low cost ethic.

Operations

Harmony Gold currently operates 21 mines in South Africa, as well as a project shaft and an open cast mine in Witwatersrand Basin, which are categorised into four types; quality assets, which are larger reserves of gold with longer life expectancy; leveraged assets, which can be utilised in the event of gold price increasing; growth assets and surface operations. As such, Harmony Gold has a wealth of opportunity to produce gold in its home country.

Harmony is investing significantly in the exploration and expanding existing reserves too, which will offer future opportunities for expansion and increased production.

With the Hidden Valley and Wafi Golpu projects in Papua New Guinea, as well as opportunities for expansion, Harmony Gold is looking to increase its output going forward. Mineral productivity is high in Papua New Guinea and Harmony Gold owns one of the best sites available to mine. The Hidden Valley project is expected to produce 285,000 ounces of gold and 3.845 million ounces of silver and will be operational by March 2009.

The Wafi Golpu project, on the other hand, has two ore systems close together, upon which pre-feasibility studies have already been completed. Gold mining will not be the primary activity here, as much of the ore is copper-based, but there is enough gold in the area to adequately meet Harmony’s standards for mining.

Mining activities in Australia have been hit recently by unfavourable conditions, however, especially with two seismic events affecting the Hill 50 mine near to Mount Magnet and a 3.9 percent reduction in production. New underground support constructions have been installed in the Hill 50 mine, which has improved safety significantly while the remaining gold is mined.

Going forward Harmony Gold will divest these assets, as the reserves of gold are depleting. A sales agreement was signed at the close of 2007 with the Australian company Dioro International NL. Harmony has also made the strategic decision to cease its activities in Peru, following the discovery that none of the exploration activities returned adequate results.

Acquisition

Acquisitive growth is also high on the agenda for Harmony Gold, which already owns six key subsidiaries. This is in addition to a number of strategic partnerships with other companies in the industry. In 2002 Harmony Gold sponsored Project AuTek, in collaboration with Mintek, the South African metallurgical and minerals research science council. Investing R3.1 million in 2007, Harmony Gold has particularly been focused on developing gold-based treatments for illness.

A new CEO, Graham Briggs, was appointed at the start of 2008 and has been with the company for 13 years, progressing through the ranks, picking up experience of the business along the way. The company encourages the development of its people, and at the last count employed 55,000. The Harmony Bursary Scheme encourages talented employees to stay with company, offering full time study to individuals that show talent and knowledge in the mining industry, in order to support its workforce.

In order to ensure that employees stay with the business and progress, the company not only offers training and development, but it also offers healthcare services. Three medical facilities in South Africa offer 24 hour emergency services, intensive care units and outpatient facilities, which are ensure that all employees are cared for sufficiently.

And this applies to all of Harmony Gold’s employees. Strongly supporting Black Economic Empowerment in South Africa, Harmony Gold seeks to offer employment opportunities, training and development to historically disadvantaged communities in South Africa. This extends to the companies with which Harmony does business; it does not discriminate. It is all part of sustainable business, which it advocates.

Environmental focus

In such a potentially dangerous working environment Harmony Gold has to have a concentrated focus upon the health and safety aspect of its business. The company’s website states that its aims include the “elimination of all workplace injuries”, which it has made moves towards achieving. A skilled safety management team has been recruited, along with a full time safety manager at the Hidden Valley. Fire fighting and first aid training are also in place to ensure that mines are prepared to cope with accidents.

A behaviour based safety program has been rolled out across the company’s facilities since 2006; called the Sindile Mosha campaign, it attempts to create a sense of ownership amongst employees, while teaching methods for reducing the number of accidents. Communication is also encouraged to ensure that accidents are prevented.

The number of work related fatalities decreased at Harmony Gold from 31 in 2006 to 27 in 2007 as a result of these measures. For 2008 the company wants to achieve its target of zero fatalities and a reduction of ten percent in lost time.

Additionally, Harmony Gold actively looks at its environmental impact and tries to minimise any effects that its activities could have on its surroundings. For the second year running Harmony Gold has produced a Sustainability Development Report, which outlines the actions the company will be taking.

In 2006, the company pledged to have achieved ISO 14001 qualification by 2012; since then it has set about implementing an Environmental Management System to that end. Although Harmony Gold concedes that its operations will inevitably have effect on its surroundings, it has focused particularly on reducing water, energy and materials consumption as well as emissions, which will not only help the environment but have a positive effect upon the company’s outgoings.

The price of water in South Africa looks set to increase. As such, Harmony Gold is looking to both optimise the use of water as well as recycle it throughout the business.

Low energy lighting has been installed in mines too, while in collaboration with Eskom, South Africa’s electricity company, it is looking to introduce Demand Side Management strategies (DSM). This will mean that Harmony Gold will reduce its energy consumption at peak times, which will again reduce costs, because of the cost incentive to use electricity during off peak periods.

In May 2007, Harmony Gold signed a contract with PNG Power Limited for the supply of electricity from the hydroelectric Yonki Dam. This power, which will supply the Hidden Valley Mine, will also have a positive impact upon the company’s power bill, as well as its carbon footprint, providing two-fold benefits.

Gold production also has a range of by products and emissions, the most significant of which could be considered to be cyanide. Routinely used to separate gold from its less precious ore material, cyanide can destroy entire food chains if it is not handled responsibly. In 2007, Harmony Gold signed the International Cyanide Management Code for the Manufacture, Transport and Use of Cyanide in the Production of Gold (developed by the UN Environment programme), which seeks to promote the responsible handling of cyanide and its derivatives, which can take years to breakdown.

Moves have also been made by the company to reduce the amount of dust released into the environment, including the maintenance of slime dam walls, which dust adheres to, while research is being carried out to identify how much dust is released and how it can be minimised. Significantly, the number of dust-related complaints received by Harmony Gold has reduced since 2006.

This is all in addition to Harmony Gold’s continuing project to reduce its carbon footprint. In 2007 Harmony Gold signed up to the Carbon Disclosure Project, an international scheme which creates dialogue between companies about their impact upon the environment and how this could be improved. Harmony released details of their carbon emissions, which amounted to 5,039,813 tons of CO2 in 2006, a figure which it aims to reduce significantly.

Community

Harmony Gold is committed to the wellbeing of all its stakeholders, whether they are shareholders, employees or those around the mines. A number of programs are in place to ensure that these aims are met, both independently and in conjunction with other organisations. In line with the Social and Labour plans established alongside the Department of Minerals and Energy, Local Economic Development Programmes have been drawn up. With a focus on improving infrastructure, housing and agricultural programmes alongside bursaries and internship schemes, Harmony Gold is committed to giving something back to the locale.

R75 million has been spent by Harmony Gold to implement LED programmes, while a further R20 million was spent on independent Corporate Social Initiatives. Currently one percent of the company’s profits are donated to the CSI fund each year, which seek to help impoverished communities and groups across South Africa in order to improve conditions. Again, the company encourages education, with the provision of schools, libraries and laboratories, but it also helps to stimulate local economies by creating jobs and development schemes to find new uses for gold. This is in addition to arts and humanities funding.

Groups supported by Harmony Gold include the Pretoria based South Africa Mathematics Foundation, while there is also a Harmony Athletics Club and a Harmony Sports Academy, both of which support talented students and those from disadvantaged backgrounds.

Rural communities are also supported because at least 30 percent of their workforce comes from these environments. Outreach schemes have been implemented to support “labour-sending communities”. As such, it has donated R12.9 million in association with Teba Developments, a company which specialises in helping to develop education, healthcare and infrastructure in under-privileged communities. Teba is also concerned with the well being of mine-workers that have had to retire due to occupational health problems. In 2002, Teba established South Africa’s first Home Based Care scheme in the Eastern Cape, which has since been extended.

Families of mine workers are assisted with giving care, medicines and support groups within the community. Referrals for care can also be made to other organisations, for rehabilitation for example. By 2007, 100 support workers and ten retired nurses were directly employed by Teba to help with the provision of services, although care is also provided by partner organisations. Teba can also help when families claim any funds or financial support to which they may be entitled.

The not-for-profit Students in Free Enterprise (SIFE) organisation has also been supported by Harmony Gold since 2006. In 2007, R785,000 were donated to the scheme which encourages the development of entrepreneurial skills of university students, encouraging them to develop community outreach projects. These will result in economic development and the creation of jobs. Organised in terms of teams, the projects will be judged not only according to the immediate effects of the schemes they have implemented, but on the long term sustainability of these projects. The winners of the South African competition are then put into the SIFE Global Cup, where projects from around the world are evaluated.

With such a strong focus, not only upon its output, but upon its corporate social responsibilities, Harmony Gold looks set to maintain its position as one of the largest gold manufacturing companies in the world. Making moves to improve the safety at its facilities, its impact upon the environment and the communities in which it operates, Harmony Gold’s mines around the world will become increasingly efficient and productive, while also helping a wider cause.

Click here to view the corporate brochure on Harmony Gold