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Harmony Gold moves to profit

Publication: Moneyweb
Journalist: Geoff Candy

Its latest set of results can be seen as an argument for acquisition.

With gold miners across the world focusing on efficiency, costs are coming down; so too are exploration budgets and, importantly, the bottom-fishing M&A that many had expected has yet to come to pass.

Despite sharply lower valuations across the sector but, especially in the junior space, many management teams remain reluctant to dive into the market after some pretty high prices paid for assets that have subsequently had to be written down.

In light of this, Harmony Gold's latest set of results, can be seen as an argument for acquisition. "In case you hadn't noticed," Harmony Gold CEO, Graham Briggs told shareholders and analysts on Friday morning, all of the original marginal operations that Harmony started with have been closed. The operations that we now have are all acquired operations."

That is not to say the group has not had to spend any money, indeed, it has spent a great deal on capex development over the last few years, but it believes it is now beginning to start reaping the benefits of its acquisition and development programme. As Briggs told journalists on Friday morning, " we spent a lot of money in the past, we are now in the position where we can see some good profits coming forward."

Helping underline that point the group grew production 12% during the quarter which helped lift operating profit 55% to R1.03bn for the three months to September.

The group said, " Gold production for the September 2013 quarter increased by 12% to 9 635kg from 8 588kg in the June 2013 quarter. This was as a result of improved recovered grades at most of the underground operations and Kusasalethu building up to normal production after the temporary closure of the shaft earlier this year."

On the cost front, Harmony said that cash operating costs over the quarter rose by R140m largely as a result of a R147m rise in electricity costs, due to winter tariffs and a R38m rise in wages on the back of the two year wage deal signed during the quarter. These rises, the gold digger said, were somewhat ameliorated by a saving of R57m made at its Hidden Valley operation in Australia.

Despite this increase, however, at a dollar per ounce level, costs fell 11% to $1,144/oz because of the increased volumes at higher grade produced. It also benefited from the weaker rand.

At an all in sustaining cost level, the group also recorded an improvement with costs falling 14% to R404,694/kg, much of that reduction coming on the back of a 56% drop in sustaining capital expenditure.

The group also announced it had completed an agreement with Sibanye Gold to exchange a portion of its mining rights at Joel for two areas of Sibanye's Beatrix mine for the same value.

Under the agreement, Joel will acquire two additional Beatrix mining areas and will pay a 3% royalty on gold revenue when mining from these areas.

In headline earnings terms, Harmony produced a profit of $2m, up sharply from a loss of $85m in the previous quarter.

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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