Strikes, violence threaten Harmony Gold's mine

South Africa's Harmony Gold (NYSE:HMY) shares dove Monday after the company announced it would delay the post-holiday restart of the Kusasalethu mine, located 65 kilometres west of Johannesburg, due to ongoing violence and labour unrest.

The country’s third-largest gold producer said it would seek an agreement with the workers that would allow Kusasalethu, closed last month, to operate without threats to its employees’ well being.

But Harmony is actually reviewing the mine’s financial and operational status. In fact, it revealed it has launched a legal process that could result in the mine being placed on "care and maintenance.” This means production would end, but the infrastructure would be kept in fine form by a reduced number of staff.

Kusasalethu's troubles mark a shaky start to 2013 for South Africa's mining industry, after a year marked by numerous violent strikes, which left more than 50 miners dead and harshly hurt both the country's investment image and the economy.

"There is an extremely high risk something could go wrong at Kusasalethu in its current state. We are drawing a line in the sand," CEO Graham Briggs said.

He added that managers had received death threats and shots had been fired at police at the mine in repeated incidents.

"Kusasalethu has achieved substantial successes in terms of production growth, strong cash flows and excellent safety results, before the December 2012 quarter. We do trust that we will be able to rescue this mine in the next couple of months, provided it can be run safely and return to being cash flow positive,” he said.

The gold miner also released Monday a presentation entitled Kusasalethu: the way forward.

Harmony’s shares were down almost 5% at 10:47 a.m. ET.


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