Harmony looks for further hedges to bolster cash buffer

Harmony Gold is trying to replicate its successful forward gold sales and currency hedging exercise that gave it cash at a critical time to invest in growth. This would also give the company space to return four mines to profit in the coming months.

Harmony, which declared a final dividend of 35c per share for the financial year to June, posted impairments of R1.72bn against its Kusasalethu, Tshepong and Target 1 mines. Target is one of the four mines the company intends returning to profit this financial year.

Harmony posted a net profit of R362m for the year compared with R949m a year earlier. The R1.75bn flowing into its coffers from the gold and currency hedges, as well as R998m in deferred taxes, provided financial respite for the company.

Harmony was actively looking for more hedging opportunities to buffer the company and allow it to invest in growth, as it had done during the 2017 financial year, said Harmony chief financial officer Frank Abbott.

Harmony is pouring $110m into the Hidden Valley gold and silver mine in Papua New Guinea to give the company 180,000oz of output.

This level of production would offset the 200,000oz of output that Harmony will lose when it shuts the Unisel, Bambanani and Masimong gold mines in the next four or five years.

Harmony will invest R2.7bn in SA during the financial year to June 2018.

Harmony sees itself as able to sustain its production at 1-million ounces for the next five years, but will add production by buying a mine capable of generating 100,000oz or more of gold a year as it strives to achieve its target of 1.5-million ounces of annual output.

Bloomberg has reported that Harmony and AngloGold Ashanti were close to a deal on South African mines, but that the third iteration of the Mining Charter and uncertainty over mineral right transfers had put a spanner in the works.

Harmony CEO Peter Steenkamp said the company was keenly aware of potential buying opportunities in SA, with AngloGold and Sibanye Gold planning to stop or sell unprofitable mines, but he declined to comment on any opportunities, citing nondisclosure agreements and pointing out that no agreement had been reached.