Posted: 2007-08-27 23:57 Harmony results  Presenter: Lindsay Williams Guest(s): Graham Briggs - Click here to listen to the interview The Harmony results – confirming their recent shock trading update – are out. Classic Business Day speaks to acting chief executive Graham Briggs LINDSAY WILLIAMS: Recently Harmony lost its longstanding chief executive, and its chief financial officer more recently. It also lost 30% of its value - that was after a trading update on the same day that the chief executive left. Today the numbers confirming what was rumoured in the trading update came to fruition - the fourth quarter and annual profit results were produced this morning. It’s the first net profit in three years, but that doesn’t really tell the full story - the June quarter was the one that shocked the market with a loss of 133 cents versus a profit from the previous quarter of 58 cents. In the studio now is the acting chief executive of Harmony - the fifth largest gold miner in the world - and that is Graham Briggs. Graham, we spoke on the date of that trading update briefly - how has it been since then? GRAHAM BRIGGS: It’s been a very busy time - very busy indeed. We added a bit to the executive team, we’ve done a bit of internal communication - not enough yet - and we’ve got some plans together so it’s been busy. LINDSAY WILLIAMS: In terms of the appointment of the chief executive I think Patrice Motsepe was quoted as saying this morning that the appointment of the CEO plus the CFO will be announced some time in the new year 2008 that is. Are you in the running for the chief executive position? GRAHAM BRIGGS: My name’s in that hat, yes. I think the board has to go through due process in selecting the most appropriate chief executive and financial officer - so they’re going to go through that - but my name is certainly in the hat, yes. LINDSAY WILLIAMS: Let’s look back at these numbers now - the quarterly numbers that is. The annual numbers I think we will push aside - we’ve got to focus on these three months that have caused so much consternation within the investment community. What actually happened? GRAHAM BRIGGS: There’s several issues, but two of the main ones are lower production of gold and there’s a cost issue. Let me just delve into the gold production first - there we had several operations Target and Tshepong with low grades, Bambanani we had an ore pass problem with less production from that - so collectively those produced probably two tons of gold less than normal, so we only had 16.4 tons of gold production in this quarter. Then compounded to that was a systems issue - we’ve introduced a new IT system and the new system came into operation during December, and January onwards it’s been live and stand-alone. What happened in March was not all the operation costs were captured - about R250million in operation costs weren’t captured. That was discovered at the end of July so that cost is now reflected in the June results - so March was understated in costs, and June is overstated in costs - but that compounds of course with the gold production problem. LINDSAY WILLIAMS: Let’s just go back to that R250million you spoke of - Patrice this morning almost referred to it as an “accounting error.” Have you gone back and decided how such a huge error could have occurred? GRAHAM BRIGGS: Yes. We’ve had a great deal of look into the system - and obviously we’ve had auditors and everyone crawling all over the place to look at everything that we’ve been doing, with a whole lot of parallel manual checks that we are doing. Basically it’s a fairly complicated accounting system - what it didn’t do was allocate those costs, and just basically kept them in almost a suspense system. Of course we’ve discovered that in July and we reallocated and corrected it - but it’s a systems issue, also a people and training issue. These systems to get them installed in a seven-month period is optimistic to say the most - so we are hoping that within the next six months the system will be stabilised, and we will have figures that don’t need all the manual checks and balances. LINDSAY WILLIAMS: There will be cynics listening to your words now and saying to themselves there’s systems and accounting that’s really hiding some bad practices there - do you think you will be able to trace it down to one particular entity, or one particular person that was deliberately trying to hide this R250million because costs were rising so sharply? GRAHAM BRIGGS: No. There is no deliberate issue here. These are issues - you can maybe say there was some neglect and should have been highlighted earlier, but there’s no deliberate issue hiding costs or anything like that… LINDSAY WILLIAMS: You say in the same article I’m reading where Patrice Motsepe is quoted - you are saying we are doing a due diligence of all our operations, and will make harsh decisions if we have to. Patrice says: “I really want to put behind us what happened during the period of the old chief executive”. I don’t know if that’s being taken out of context - and I don’t really think it is your job to comment on it - but in the mind of investors people are going to say he is saying that the previous regime has served Harmony badly, certainly in the last period of a year or so? GRAHAM BRIGGS: I think in the last while we’ve seen cost increases, and that’s probably an industry issue as well - but within Harmony we prided ourselves about really being cost conscious, and really having good control of our costs. I think we’ve lost a bit of that ability, and we need to regain it - so we need to do some due diligence on our operations and on the overhead services as well, and we need to cut out the fat that we have in the operation. Where that isn’t focused on core operations and producing gold we need to cut it out. LINDSAY WILLIAMS: I think often in this sort of situation you really have to do some painful exercises to gain in the future. We were talking before to Harmony - probably about a year ago - about the prospects for the uranium side of the business. Now I understand that’s not part of your future plans? GRAHAM BRIGGS: As far as the uranium dump goes we’ve really put that up for sale. There was talk on possibly doing an initial public offering (IPO) and various other things - we have been in talks with some companies on uranium, so the Cooke dump we’ve put up for sale - but there is still other uranium potential even on our current operations. The one I talked about this morning was really Cooke III - there’s the potential of really understanding that better, understanding new cut-off, and seeing if you can use that as a by-product. But that’s a bit early - we still need to continue to investigate the gold to uranium ratios, and how we’d implement that cut-off. Uranium is going to be interesting in that particular area of Randfontein with other uranium producers… LINDSAY WILLIAMS: Some of these rapacious corporate raider types might be looking at the situation now - and the situation that’s developed since the trading update - and be licking their lips and rubbing their hands together and saying Harmony was R115 not so long ago and now it’s in the R60s so now is the time to have a look at breaking it up and whatever they’re thinking. Have you had people knocking on your door and saying “let’s have a look at some of your assets”? GRAHAM BRIGGS: The vultures certainly fly around when these things happen, so there are some people. I guess there’s two areas - some approach you directly, and some you get the message through the press. Essentially I need to get all the people in Harmony on my side - I’ve given the statement to everybody internally and externally that nothing is for sale. We need to make the right decision with respect to any operation that’s underperforming, and we need to do that properly. I guess those vultures that fly around will continue to do so - but I haven’t had any letters in the post yet. LINDSAY WILLIAMS: Any feedback from major shareholders since the trading update, or is that something that you’re going to start to address now the results are out and in the open? GRAHAM BRIGGS: We have been discussing with major shareholders and minor shareholders as well - we’ve tried to keep them informed as best as we can in this closed period. Now that we’ve had our results I’m on a bit of a road show and will be seeing most of the investors hopefully - tomorrow I’m in Cape Town, and soon I’ve got a New York and London trip as well - so we’re keeping them informed of what we’re doing and what we intend to do. LINDSAY WILLIAMS: Good luck with that and the chief executive process as well. Transcripts: onsub1@johncom.co.za tr/met Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :