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Harmony rewards shareholders


Publication: Business Report
Journalist: Justin Brown

Harmony Gold has buckled to shareholder pressure and paid out its first dividend in five years despite the fact that the gold mining company faces a number of risks that could challenge its profitability.

Graham Briggs, the chief executive of Harmony, said yesterday the company had not planned to pay a final dividend, but it had decided to do so because the group’s institutional shareholders, including its largest shareholder, fund manager Allan Gray, which owns at least 28.24 percent of the company, in particular had requested it do so.

Harmony will pay its shareholders a R213 million dividend in cash. As it declared the dividend, the group announced that its gold production during the 12 months to June fell 10 percent to 1.473 million ounces - its lowest output in 10 years. However, the group is looking to grow its annual bullion output to 2.2 million ounces by June 2012.

Briggs said Harmony had no policy to decide how much of its profits it would pay out, but the company would like to pay further dividends in future.

Andrew Lapping, an Allan Gray portfolio manager, declined to say whether Allan Gray had requested Harmony to pay a final dividend.

Lapping said it was positive that Harmony was returning money to its shareholders.

African Rainbow Minerals (ARM) spokeswoman Monique Swartz said ARM, which is Harmony’s second-largest shareholder with a 15.5 percent stake, had indicated for some time that it would like to receive a dividend from the gold producer.

Mandla Mapondera, an Old Mutual Investment Group South Africa analyst, said that the decision by Harmony to pay dividends was positive.

"The dividend is obviously a sign that the hard work over the past 18 months is showing through," he said.

"Graham Briggs' back to basics approach and his stabilisation of Harmony’s financial position is paying off."

He added that it was difficult to say whether the firm’s payment of dividends would become a trend as its profitability also depended on the rand-gold price.

Steve Shepherd, an analyst at JPMorgan, said at Harmony’s results briefing that the firm had surprised some people by declaring a dividend.

At the end of June, Harmony had cash of R1.95 billion and debt of R362m.

An analyst, who wished to remain anonymous, said: "The dividend was a bit of a surprise. I was only expecting Harmony to start paying dividends from the end of its 2010 financial year" next June.

Harmony shares closed down 2 percent at R73.50 on the JSE, which valued the company at R31.3bn.

The payment of a dividend came after Harmony reported a record annual net profit of R2.9bn. This profit came on the back of R1.9bn in operating profit and a profit of R1.2bn from asset sales.

However, during the June quarter Harmony sustained an operating loss of R450m.

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