Harmony’s hedging strategy has paid off richly

HARMONY Gold’s hedging strategy has helped it to generate cash flows of R3.6 billion since the strategy was implemented two years ago.

Presenting the group’s results for the year to end June, chief executive Peter Steenkamp said yesterday that the gold firm’s successful hedging strategy had secured cash-flow margins and enabled Harmony to repay debt and fund its growth strategy.

The group hedged about 20 percent of its production in 2016 for two years at an average price of R682 000/kg and generated R1.8bn ($141 million) in cash flow through the hedging strategy.

Despite generating this cash flow, Harmony reported a decline of 42.62 percent in headline earnings per share to 171 cents a share, down from 298c last year.

The group also reported a net loss of R4.47bn compared with a profit of R362m, negatively impacted by soft gold prices and high production costs.

In releasing its trading update last week, the gold-mining and exploration company said its earnings would record an impairment of R5.3bn at its Tshepong Operations, Target 1, Joel, Kusasalethu, Unisel, Masimong, Doornkop, and the Target North undeveloped property.

Harmony is pinning its hopes on its recent $300m acquisition of Moab Khotsong. The group bought the asset from AngloGold Ashanti in February.

Harmony has mines in South Africa and Papua New Guinea, and it expects its Hidden Valley mine in the latter to generate a lot of revenues in future.

Steenkamp said: “Our growth aspiration to produce 1.5 million ounces and improve the quality of our asset portfolio was realised with the re-investment in Hidden Valley in financial year 2017 and acquisition of Moab Khotsong in 2018. These operations will increase annual production by 450 000 to 500 000 ounces at an average life of mine all-in sustaining unit cost of $950 an ounce,” Steenkamp said.

Harmony shares rose 2.27 percent to close at R21.65 on the JSE yesterday.