Higher gold price makes up for lower production at Harmony


Higher gold price makes up for lower production at Harmony

Published Date: 2020-02-07 | Source: Stephen Gunnion | Author: Stephen Gunnion

Higher gold price makes up for lower production at Harmony

The gold producer will report significantly higher first-half earnings despite a dip in production due to grade issues at two of its SA mines.

Harmony Gold Mining's shares fell over 3% at their worst yesterday after lower first-half production figures removed the shine from increased profits.

In a trading statement and operating update, the gold producer reported an 8% decline in gold production for the six months to end-December, largely due to a 6% reduction in its underground recovered grade. It said the decrease was attributable mainly to grade issues at its Kusasalethu and Target mines. That was offset by a 19% rise in the average price it received for its gold to R683,158 per kilogram, resulting in operating free cash flow margins increasing to 13% from 8% previously. All-in sustaining costs for all operations rose 15% to R605,911 per kilogram due to the lower production.

While Harmony said it would release further details of the issues at Kusasalethu and Target with its results next week, during the first quarter of the year an unexpected geological structure at its Kusasalethu mine led to four panels being stopped, resulting in high grade areas areas being mined at lower grades than expected. At the time, it said the mine should be back on plan towards the end of its 2020 financial year.

It expects net profit of R1.3 billion for the six months, more than seven thousand times higher than the previous year, primarily due to a 12% increase in revenue and the higher gold price. Earnings and headline earnings per share are expected to reach 249c from a 4c loss previously.

The group restated its December 2018 headline and basic earnings due to what it called a bona fide error related to the application of IAS 23 borrowing costs, which resulted in higher amortisation and depreciation costs, as well as finance costs, while decreasing net profit and the value attributed to its property plant and equipment.

Its shares retraced some of their losses to close 2.9% lower at R45.70. Its results are scheduled for release on 11 February.

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