Harmony hunts for quality assets
• Thanks to higher gold price, miner is profitable again despite lower output
As market speculation intensifies over the possible acquisition by Harmony Gold of Anglo-Gold Ashanti’s Mponeng mine, the SA-based company has said it is on the hunt for quality assets. In its results briefing for the first half of financial 2020, Harmony CEO Peter Steenkamp would not say if the group was looking to buy Mponeng, but said acquisitions would be a key focus.
As market speculation intensifies over the possible acquisition by Harmony Gold of AngloGold Ashanti’s Mponeng mine, the SA-based company has said it is on the hunt for quality assets.
In its results briefing for the first half of financial 2020, Harmony CEO Peter Steenkamp would not say if the group was looking to buy Mponeng, the world’s deepest gold mine, but said acquisitions would be a key focus this year. Harmony said before it would look at merger & acquisition opportunities.
“If it makes sense for us to invest we will. Obviously it will need to be affordable too,” he said. “We don’t want to talk about any specific opportunity until we get to a point that we have some real clarity.” The sale of Mponeng will conclude the exit of AngloGold Ashanti from SA, marking the end of an era. Should Harmony acquire the operation, it would further entrench its exposure to SA which is already the highest among JSE-listed gold miners. Harmony is highly experienced in deep-level gold mining and has acquired a number of AngloGold’s older mines.
Harmony swung back into the black for the six months ended December 2019, with net profit of R1.3bn versus a loss of R19m in the matching period. This was despite an 8% drop in production and was due to the gold price rising almost 10% during this period. The results, however, fell short of market consensus, causing the share price to drop 7.6% on Tuesday.
Steenkamp said Harmony looked forward to a good quarter, given the fundamentals supporting the gold price, including interest-rate cuts by central banks and geopolitical tension, which helped to propel gold to a record price in rand terms.
Harmony said it would also raise its game as some projects were expected to yield results this financial year. A turnaround plan at its Kusasalethu operation, which was responsible for the bulk of production losses, was expected to yield improvements in the final quarter.
Though not adversely affected by power cuts in the period, Steenkamp said he was worried about continued stage 1 or stage 2 load-shedding, which require the company to cut its power usage 10%. “In the past, we could make it up over weekends or make it up at night when there is no load-shedding. Having this continuous load-shedding is a problem for us. We need a discussion now with Eskom to see how we can alleviate that.” Harmony
financial director Frank Abbott said paying a dividend remained a long-term intention, but paying down debt was the priority for now. This could be achieved within two years at current gold prices and production rates, he said.
“When will we be debt free? Of course, that will depend on the gold price and production — if it stays where it is — by the end of next year,” he said. “Will we leverage it for future acquisitions? Yes we will.”
A key part of the Harmony investment case is that it is highly leveraged to the gold price. But Steenkamp said Harmony was not against acquiring assets outside gold, as Sibanye-Stillwater had done. It had been looking at “quite a lot” of opportunities in platinum. “It’s all about price and, obviously, what’s available,” he said.