HARMONY Gold adjusted full-year production guidance downwards to 1.4 million ounces following a disappointing first half performance, principally at its Kusasalethu mine, but the problems were softened by a 19% hike in the gold price received.
The outcome was a massive 253 cents turnaround in interim share earnings of some 249c from a loss in the previous six month period. Headline earnings were R1.33bn for the six months compared to a R21m loss in six months ended December 2018.
Interim gold production came in 8% lower year-on-year at 688,379 oz (2018: 751,008 oz) as Kusasalethu ran into unexpected geological problems. Hidden Valley, Harmony’s gold mine in Papua New Guinea (PNG), also experienced lower grades – as guided – as it moved into a new stage of mining.
Peter Steenkamp, CEO of Harmony Gold, said readjustments to the planning schedule at Kusasalethu had been made and he therefore expected a smoother ride at the operation for the remainder of the financial year. He also acknowledged the current forgiving nature of the market. “We expect good margins coming through,” he said.
Harmony reported an operating free cash flow of R1.92bn for the six months ended December, an increase of 63% year-on-year, and remains highly leveraged. Assuming an exchange rate of R14.70 to the dollar, and a base gold price of $1,480/oz, Harmony receives a 29% bump in cash flow if the gold price increases 5%.
The improvement in cash enabled Harmony to cut debt R632m to net R4.29bn. The dividend was also passed. “We’ve been through a growth phase funded by debt,” said Frank Abbott, Harmony’s outgoing financial director, when asked if the company was keeping its powder dry for an acquisition.
Steenkamp was less forthcoming when asked during the media call to confirm speculation by Bloomberg News that Harmony had been successful in bidding for Mponeng and Mine Waste Solutions (MWS), assets that AngloGold Ashanti put up for sale last year.
“We continue to look at growth options in PNG, South Africa and the rest of Africa,” he said. Asked how the purchase of Mponeng would be funded, he said: “If we have an acquisition, we will have a funding plan”. Completing a due diligence and getting board approval for the deal would also be prerequisites, he added.
The market, however, seems convinced Harmony’s purchase of Mponeng and MWS will happen after Sibanye-Stillwater all but distanced itself from further major new investments in South Africa whilst another company interested in picking up remaining gold assets – China’s Heaven Sent Gold Group – has run into liquidity problems.
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