Harmony Gold CEO Graham Briggs
Harmony Gold CEO Graham Briggs Mike Hutchings/Reuters

(REUTERS) -- Harmony Gold, South Africa's third-largest bullion miner, cut its full-year production target by 13 percent on Monday, as safety stoppages threatened to crimp a surge in profit from record gold prices.

Harmony's chief executive warned the frequency of government-mandated safety stoppages was creating tension between South Africa's mining industry and government.

Pretoria has been clamping down on miners to cut their accident rates, leading to lower output. Mines are usually shut down for several days at a time for an investigation after a fatality.

While Harmony more than doubled its second-quarter profits on Monday as it reaped the benefit of a weak rand and a sky-high gold price, CEO Graham Briggs voiced concern over the government's rules on stoppages.

It's a difficult issue because obviously there are justifications, but the way they are using them is punitive. The stoppages are not always related to fatalities, he told Reuters in an interview on the sidelines of an industry conference.

It's a big problem because it's becoming a situation where we don't trust each other. It becomes a potential area of conflict instead of working together to solve problems. It becomes a very difficult and suspicious arrangement, Briggs said.

After seven fatalities at its operations during the October-December quarter, Harmony has cut its production target to 1.35 million ounces, from the previous target of 1.55 million ounces.

It is a concern in the general mining operations in South Africa. I don't think we have a good track record, said Abri du Plessis, chief investment officer at Gryphon Asset Management, about industry safety. But one must also remember, we're working a bit deeper than average.

South Africa has some of the world's deepest gold mines, increasing both the risk for mineworkers and the cost to extract bullion.

SHARES SURGE

Shares of Harmony jumped 3.6 percent to 96.49 rand as investors overlooked the lower output target and focused instead output on the stronger-than-expected earnings.

Harmony posted headline earnings per share of 242 cents in the October-December quarter, up from 95 cents in the preceding quarter. That far outstripped the average estimate of 159 cents in a Reuters poll of five analysts.

Safety stoppages have also hurt the platinum sector, which accounts for about 80 percent of the global supply of the precious metal.

Lonmin, the world's third-largest platinum producer, lost 177,000 tonnes of production to safety stoppages in its first quarter.

Aquarius Platinum, the world's fourth-largest, last week joined the industry in warning the government's drive to slash fatality rates was leading to lengthier and more costly halts to production.

National Union of Mineworkers spokesman Lesiba Seshoka said that by cutting production forecasts, companies were already assuming they would have more fatalities in the coming year.

We have always been of the view that if companies meet their safety targets there is no way they will not meet their production targets, he said.

The average gold price during the quarter in rand terms scaled 12 percent to a record, helped by a weaker local currency.

Harmony said it expected even higher gold prices in the coming year.

We expect that gold will reach an average price of $1,850/oz for calendar year 2012 and we may even see it as high as $2,000/oz later this year, the company said.

While South African miners sell gold for dollars, the bulk of local producers' costs are in rand, so a weaker local currency fattens their margins.

Production for the quarter was 344,592 ounces (10,718 kilograms), up 5 percent quarter on quarter, and brought first half production to 673,000 ounces.

Harmony declared a dividend of 40 cents.