Cash bonanza for Harmony shareholders
Harmony delivered another superb set of results for the six months ending June that will have investors smiling all the way to the bank.
A solid operational performance saw gold production rise by 8% to 553 862 ounces. This was supported by improved grades, which was “important for a marginal producer like Harmony,” said CEO, Peter Steenkamp.
Costs rose just 4% to R510 506 per kg, while headline earnings per share came out at R1.50. This resulted in epic cash flow generation; R1.9 billion in cash was generated by operations, boosted by the R627 million from a currency and gold hedge initiated in 2015.
This allowed Harmony to declare a dividend of 50 cents per share, returning an aggregate of R218 million to shareholders. The company has also aggressively paid down debt over the last twelve months – net debt fell from R2.5 billion at end December 2015 to R289 million at the end of the reporting period.
Steenkamp reaffirmed the company’s commitment to becoming a 1.5 million ounce-peryear producer by the end of 2019, despite concerns about over-reaching.
The company believes an annual production base of 1.5 million ounces will support the development of the Wafi-Golpu project in Papua New Guinea.
Harmony decided to double down on its Hidden Valley investment by purchasing the other half of the project, and then committing $180 million.
This raised the question of whether, given the huge cash windfall, the re-investment into Hidden Valley was a case of the “money burning a hole in its pocket” or whether Harmony really believes this is the best use of its capital. Steenkamp said they understood the orebody of the project extremely well, and the re-investment exceeded the company’s minimum hurdle rate of a 15% IRR (Internal Rate of Return).
Steenkamp reaffirmed the company’s commitment to becoming a 1.5 million ounce-peryear producer by the end of 2019.