Big banks aren't the only ones showing failing executives the door these days. The departure of Harmony Gold Mining's
After eyeballing a five-year chart of gold or platinum, you might conclude that these mining folks have it easy. Both commodities are on a tear, so the mining profits surely must be rising exponentially along the way, no? Well, they would, if pesky things like cost inflation, higher wage demands, safety incidents, and mine grade declines didn't accompany the production ramp-up.
These are exactly the sort of issues that led Harmony to issue a warning yesterday that its quarterly financial results would come in far below expectations. Gold production, hampered at the firm's various mines by pretty much every factor possible, is expected to plummet 8%-12% sequentially. Coupled with the company's 4% reduction in reserves as of the end of June, this paints a pretty bleak production profile for the world's fifth-largest gold miner.
The production decline will weigh on Harmony's cost structure, which is already suffering from tightness in the supply of materials and labor. Before backing out the effect of a transition to a new accounting system, we're looking at a nasty 35%-45% rise in per-kilogram cash costs over the prior quarter.
Between the company's grim guidance and the unexpected departure of its leader of 12 years, the 18% freefall in shares yesterday doesn't look all that irrational. I'm not terribly interested in attempting to catch this particular falling knife, with so many other beaten-down gold producers to choose from today. Sure, I ragged on Yamana Gold