Harmony pushes earnings up 60%
Harmony Gold, which has mines in SA and Papua New Guinea, said its interim headline earnings would be up to 60% higher than in the matching period a year earlier because of operational improvements across its suite of assets.
Harmony Gold, which has mines in SA and Papua New Guinea, said its interim headline earnings would be up to 60% higher than in the matching period a year earlier because of operational improvements across its suite of assets.
Harmony, which is buying the Moab Khotsong gold mine in SA from AngloGold Ashanti for $300m, will report results for the six months to end-December on February 13.
It said headline earnings, which exclude one-off items would be between R2.10 and R2.40 a share compared with R1.50 a year earlier.
“Headline earnings are higher due to an improved operational performance recorded by the South African operations,” Harmony said, noting it had told the market about its interim production data in January.
Harmony has said its production for the interim period would be more than 550,000oz compared with the 553,862oz it produced a year earlier.
The first-half production performance put Harmony on course to achieve its full-year target of 1.1-million ounces.
Earnings for the period, however, are forecast to fall to between R1.58 and R2.29 per share from R3.52 a year earlier when a one-off gain on the R848m purchase of the 50% of the gold and silver Hidden Valley mine was recognised.
Harmony has set itself a production target of 1.5-million ounces in the next three years to offset the closure of old and depleted gold mines in SA. The Moab purchase, which includes the mothballed Great Noligwa mine and a large gold-bearing tailings deposit, will bring Harmony close to that target.
“We rate Harmony underweight since we believe the company’s strategic direction carries higher risk than many of its global peers, in part because it has the highest exposure to SA, more than 80% of production,” JPMorgan Cazenove said in a note on Friday. JPMorgan estimated that 40% of Harmony’s production came from mines with lives of less than eight years.
At the prevailing gold price the argument to invest in its domestic asset base was “uncompelling”.
“Therefore we believe Harmony is likely to pursue M&A [mergers and acquisitions] to avert rising costs and production decline. Consequently we believe Harmony’s capital at risk is higher than peers,” it said.