The major downside to operating mines in a medium to low developed country is represented by continuous interruptions in production caused by social and economic problems. Miners engaged in metallic production and projects carried out in these countries often face problems with local populations, including illegal mining activities (e.g.,Ă‚ AngloGold Ashanti's Obuasi mine), strikes (e.g., Kinross Gold Corp.'s unionized employees strike in Mauritania) and lack of political stability, among others.
This is a problem because with an industry where there is not much room to expand due to depleting mineral deposits and increasing operating costs, operating in African countries, which are still very rich in resources, is becoming the only possibility for growth and guarantee for future production.
The Kusasalethu mine in South Africa is an example of a territory that is very rich in mineral resources, but mining activities for global gold producers are hit by frequent social issues.
Located 46.6 miles from Johannesburg, Harmony Gold Mining's (HMY, Financial) Kusasalethu mine had its operations interrupted when its employees joined an industrial action that was led by the Association of Mineworkers and Construction Union in response to disciplinary action against 40 employees who staged a sit-in in January. The strike began on March 21 but was deemed unprotected by the South African Labour Court on March 31.
The workers ended the strike Thursday after reaching an agreement with Harmony.
The strike cost the miner 12 days of production, which equates to 33.1 pounds of gold per day and $7.2 million in revenue. This figure accounts for around 5% of the company's total revenue generated from the mine.
“We are relieved that Kusasalethu is back to normal," CEO Peter Steenkamp said. "Unprotected industrial action affects the mine’s viability, its employees and their families. It is prudent that the Kusasalethu team now continues to produce safe, profitable ounces in line with its plan.”
At Kusasalethu, Harmony Gold runs a plant where it treats the ore mined at Ventersdorp Contact Reef, the miner's main ore body in West Witwatersrand Basin, and at the Carbon Leader.
Using conventional mining methods operated at a depth of 11,115.49 feet, the company produced approximately 124,198 ounces of gold and sold approximately 122,880 ounces of gold in fiscal year 2016 at the mine.
The company added that “security measures at the mine have been increased to address complaints of intimidation and potential violence.”
Harmony Gold is currently trading around $2.69 per share with a price-sales ratio of 0.75 and a price-book ratio of 0.50. The EV/EBITDA ratio is 3.80.
Disclosure: I have no position in Harmony Gold.
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