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Harmony Gold Profit Triples on Asset Sale, Prices (Update4)


Publication: Bloomberg.com
Journalist: Nicky Smith

Feb. 6 (Bloomberg) -- Harmony Gold Mining Co., Africa’s third-largest producer of the metal, said fiscal second-quarter profit tripled after the company sold a stake in its uranium assets and the rand price of gold increased.

Net income rose to 1.32 billion rand ($134 million), or 3.23 rand a share, in the three months ended Dec. 31, compared with 402 million rand, or 99 cents, in the previous quarter, the Johannesburg-based company said today in a statement. Production declined 8 percent to 362,242 ounces.

During the quarter Harmony concluded the Rand Uranium transaction, where it formed a uranium venture with Pamodzi Resources Ltd. by selling that company a stake in its assets. Harmony received 901 million rand after tax from the sale, it said.

“It’s nice that they are making money, finally,” said Wayne McCurrie, a fund manager with RMB Asset Management, in an interview in Johannesburg today. “They have a weak rand and a fairly high gold price, so they should be making money.”

Harmony posted a loss before one-time items in 12 of the preceding 17 quarters, according to Bloomberg data.

“I cannot see the gold price collapsing. Maybe we are going to get a gold price of $1,000 an ounce,” McCurrie said.

Bullion for immediate delivery in London slumped 2.1 percent this week after ending at $927.85 an ounce on Jan. 30, the highest closing price since July 28.

Higher Gold Price

Harmony’s average received gold price was 17 percent higher than the previous quarter at 253,441 rand per kilogram. A weaker rand dollar exchange rate benefits Harmony as it pays costs in rand and earns revenue in dollars. For the quarter, the rand traded at an average of 9.93 rand to the U.S. dollar.

Harmony’s gold production dropped after underground fires at its Bambanani mine and gold recovered from waste dams was lower. Cash costs rose 7 percent to 168,299 rand per kilogram.

“That is a very good cost number. If they can keep cost growth below 10 percent, their margin will keep them going a very long time if the rand stabilizes at stronger levels,” McCurrie said. South African inflation averaged 12 percent in the three months through December.

Won’t Cut Jobs

Earnings per share before one-time items were 1.01 rand compared with a median estimate of 92 cents from four analysts surveyed by Bloomberg. South African gold companies compare earnings with preceding quarters rather than the same period a year ago.

The company said it won’t cut any more jobs and is unlikely to make an acquisition before June, when it expects to be debt free. Harmony currently has debt of 1.2 billion rand, and will consider paying a dividend once this burden is paid off. “We will consider that issue after the June quarter,” Briggs said.

Harmony will look at doing projects in partnership with other companies. “Ideally we’d like to look at producing mines,” he said. The company has a preference for “gold only” greenstone projects, as opposed to porphyry projects which hold a combination of metals such as copper and gold, Briggs said.

Harmony’s capital expenditure program will fall to 1.8 billion rand in two years, from 2.8 billion rand this year, Finance Director Frank Abbott said in an interview.

The company aims to produce 2.2 million ounces of gold annually by 2012, Briggs said. This would be achieved from current investments in projects already under way, he said.

Harmony fell 59 cents, or 0.5 percent, to 114.01 rand, giving the company a market value of 47.6 billion rand.

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