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Harmony boosts annual dividend

Publication: miningmx
Journalist: Brendan Ryan

[] -- The run of good news from the South African gold producers in the June quarter continued with the latest numbers from Harmony even though the group fell short on its production target for the year to end-June.

Harmony increased its operating profit for the June quarter by 5% to R901m (March quarter – R855m) while the group reported headline earnings of R957m for the year to June compared with just R4m for financial 2010.

Harmony has declared an annual dividend of 60c a share which is 20% up on the 50c declared for financial 2010.

CEO Graham Briggs said the improving trend will continue in the current 2012 financial year as a number of the mines into which Harmony has sunk major capital expenditure in recent years continued to ramp up their output.

These included the Doornkop, Kusasalethu, Tshepong and Phakisa operations but Briggs also highlighted the turnaround at Harmony’s embattled Evander mine thanks to the effect of higher gold prices on the restructured operation.

Evander was restructured in 2009/2010 with three shafts being closed while 8 shaft was re-engineered to drop costs and get at higher-grade areas. Evander increased gold production 55% to 750kg for the June quarter and dropped cash costs 31% to R205,235/kg to earn an operating profit of R88.6m (R7.3m).

“That’s pretty good going for an operation which you guys (the analysts) gave us zero value for in your assessments,” Briggs said in a presentation to investors on the June quarter results given in Sandton on Monday.

But for the year to end-June Harmony’s total production of 1.3m oz ( 2010 - 1.4m oz) was lower than planned “largely due to safety stoppages and under-performance at some of the shafts.”

Briggs commented, “our focus remains on producing safe, profitable ounces and our operations in build-up will add to our production in future.” Briggs was queried by JP Morgan Cazenove analyst Steve Shepherd on Harmony’s reported underground grade of 4.6g/t which, although an improvement on 2010 levels, was still some 25% below the group’s stated underground reserve grade.

Briggs replied that was the result of the development work still underway at various mines which were ramping up output and where volumes of waste material were diluting the ore feed.

“There’s a lot of development ore coming into the system. Our development plans are in place and our gold production is building up,” he commented. Harmony shares dipped 1% to R97,90 in trading on the JSE after release of the results but remained close to their recent 12-month high of R104.7 and 35% up on the 12-month low of R72.50.

Much of that share price improvement is the result of rising investor interest in Harmony’s Wafi/Golpu project in Papua New Guinea (PNG) which it holds through a 50/50 joint venture with Australian partner Newcrest Mining.

Wafi/Golpu has turned out to be the richest copper-gold porphyry deposit amongst its peers and is currently estimated to contain 70m “gold equivalent” ounces although the size of the deposit continues to be increased by on-going exploration drilling work. At this stage the development of Wafi/Golpu is estimated to cost around $3bn – of which Harmony would have to fund 50% - with major capital expenditure payments expected from financial 2014 with production to start in financial 2017.

The writer owns shares in Harmony.

Annual report

Integrated annual report 2016
Integrated annual report 2017


Investor brief

Harmony Investor brief, Sep 2017
September 2017 -
Harmony Investor brief

(PDF - 6.5MB)

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