SA mines solid for Harmony, but firm warns against rand strength

Peter Steenkamp, CEO, Harmony Gold. Source: Harmony Gold

HARMONY Gold turned in a strong operating performance in the first six months of its 2018 financial year lifting production 6% from its South African assets, and lowering costs across the group, but it warned against the effects of an improved rand exchange rate.

The rand has improved 17.5% against the US dollar over the last three months reflecting optimism following the election of Cyril Ramaphosa as president of the ANC – a development that positions him to succeed President Jacob Zuma as national president and raising hopes that the graft and corruption of that administration is at an end.

Harmony Gold, however, thrives on a weak rand traditionally. The dollar gold price improved over this period, but the rand gold price fell 14.5% over the same period. The rand gold price is currently at R509,016/kg compared to R596,034/kg previously.

Commenting in notes to the firm’s half year numbers, Harmony Gold CEO, Peter Steenkamp, said: “A weaker rand per kilogram gold price simply serves as a reminder to reassess excess costs – if any – and to cut back on expenses that do not support the core business”. He said planning for the next (2019) financial year had begun.

Responding to questions in a media conference this morning, Frank Abbott, Harmony Gold’s CFO, said the company’s hedging strategy meant it was still receiving an above spot, although gradually diminishing, rand gold price owing to a combination of its gold and currency hedge positions.

“We are getting about R580,000/kg until end-June, which falls to R550,000/kg until the end of the calendar year. Then we get R530,000/kg for the first half of the 2019 financial year,” he said. Harmony would “top up” the gold hedge when the opportunity presented itself, he said. “This is enough time to get Hidden Valley into production by which time our all-in sustaining costs (AISC) will be substantially lower,” he said.

The firm’s $300m purchase of Moab Khotsong, a mine that was today officially transferred to Harmony by dint of a section 11 grant from the Department of Mineral Resources, was predicated on a local gold price of R525,000/kg. Harmony said it expected Moab would boost cash flows 60% and help take it to production of 1.5 million oz. A $100m book-build or rights issue would be unveiled once all conditions precedent had been met.

Production for the first half of the year was 1% higher including Hidden Valley, which was subject to a capital investment of $150m, now completed. For the South African operations, however, production was 6% higher taking total group output to 560,003 ounces, a number already in the market following a trading update in January. AISC came in 2% lower year-on-year at R500,248/kg. JP Morgan Cazenove said it detected “… a minor risk to previous ASIC guidance of $1,180/oz on account of rand strength”. On a dollar basis, the first half’s AISC came in at $1,161/oz.

Without its currency hedge, Harmony is working on fine margins at the current rand gold price especially if a mine should a mine falter. Its Unisel mine, for instance, had undertaken a cut-back in scope in order to improve its profitability. Steenkamp said the operation was not considered vulnerable, however. The restructure resulted in an impairment at Unisel of some R116m mainly due to the 60% cut in its production.

There was also a hefty jump in the net debt position up 70% to R1.51m owing to the capital expenditure incurred at Hidden Valley. Total capex amounted to R2.4bn in the first half of the financial year. Abbott said this could be managed.

Net debt as a ratio of earnings before interest, tax, depreciation and amortization (Ebitda) would increase from 0.4 x currently to a peak of 0.9 x post the acquisition of Moab Khotsong before falling to 0.6 x in the medium term. Abbott said there was plenty of fire power on the balance sheet: there was a syndicated loan of $350m ($215 drawn down) as well as a $200m bridging loan and some R1bn in revolving credit. “With project capex being elevated, cash generation is limited, but the balance sheet has enough capacity to carry the additional capex,” said Leon Esterhuizen and Arnold Van Graan, the authors of a report on Harmony Gold for Nedbank CIB.

The outcome for Harmony shareholders was a net interim profit of R897m, significantly lower than the R1.54bn posted for the corresponding interim period of the previous financial year. The previous year, however, contained a gain “on bargain purchase” (the acquisition of Hidden Valley) – of R848m. On an headline earnings basis, Harmony registered a 49% year-on-year gain at some 224 South African cents per share.

“We believe this is a good set of results and continues the positive momentum seen over the past few quarters,” said Esterhuizen and Van Graan. “The management team is slowly but surely building up a good delivery track record and we believe the market will start to take note,” they said.



  1. (Note to Editor: Please do not edit my comment as its fact based. I hold and you harmless from my comments. Should there be any legal action or threat , i will gladly email you my contact details and such legal action should be taken against me. Editing readers comments without cause is censorship)

    Dear Fellow Readers,

    This is a bit of a long one, so i propose that you get your favourite beverage before settling in for my analysis of this mole miner’s results. Overall , this was a lousy set of results, with serious impeding dark future signalled by management.


    1. Flat production of 560koz(H1FY17: 554Koz) with seemingly incessant uncontrollable Costs (OpEx + non-growth CapEx) escalation:
    H1FY16 = R8015M; H1FY17 = R9194M; H1FY18 = R10594M
    That’s CAGR = 15% /y ….So much for “Harmony Operational Excellence and Operating Model” …which is clearly just hot-air and hocus-pocus!
    2. Declining paper-thin Adj Operating Margins despite a favourable gold price environment:
    H1FY16 = 8%; H1FY17 = 7%; H1FY18 = 9%
    This woefully slim margins hamper cash flow generation, and thus require improved asset turns (i.e Increased Production Volume Over Fixed/Constant Assets Value BUT must be profitable ounces!)
    To make the numbers stack-up, some creativity is required:
    Revenue : FY5 = $1348M ; FY16 = $1264M ; FY17 = $1416M ; H1FY18 = $735M
    EBITDA : FY15 = $109M ; FY16=$262M ; FY17=$249M ; H1FY18 =$171M
    Net OpCF : FY15= $176M ;FY16=$312M ; FY17=$280M ; H1FY18 = $137M
    Unsustainable/Incredible/Magical Earnings-to-Cash conversion (Net OpCF/EBITDA CANNOT be >100% forever! ) : FY15 = 103%; FY16 = 113% ; FY17 = 121%….SOMETHING IS NOT KOSHER HERE….Normally this figure is 65-95% for heavy industry (i.e Mining) companies and NEVER above 100% for 2-3 FYs in a row! A COMPANY CANNOT GENERATE MORE NET OPERATING CASH FLOWS THAN ITS EARNINGS FOREVER! ITS IMPOSSIBLE AND THUS DEFIES ECONOMIC LOGIC!
    Unless we are back to practices that existed prior to 2008…. wherein some of the CapEx is ACTUALLY OpEx , and the misclassification is deliberate.
    3. Management team that is out of its depth, bulking up the executive suites for no apparent reasons. There are now 4 x management levels from CEO to Mine GM, thus negating the reasons for employing the current CEO. The chief reason for appointing him was to improve the deficient mining discipline of HMY u/g mines. Furthermore, it seems that each director of HMY has recommended execs from their previous /current employers/Directorships. You have ex –employees of Anarooq/Bokone , Amplats , ARM etc filling up HMY management positions.
    4. HMY needs to rejuvenate its asset portfolio, which currently only has Tshepong Ops as mid-to-long term asset, and Bambanani as cash cow, the rest are just mices in various forms of decay and red-ink laden. MK & Hidden Valley are NOT El Dorado’s for HMY. The horrendous Moab Khotsong mine acquisition, coupled with ill-fated Hidden Valley Reinvestments, are the epitome of capital misallocation. The management narrative is NOT supported by facts about these mines, which have now consumed ±$500M in FY16 to date. I cannot fanthom rational circumstances under which these investments will deliver returns, of course unless the gold price goes to the moon….
    5. HMY have topped up the Hedges for additional 442Koz (± 20% of Fcast Production) and $363M (±27% of Cost Base). It reminds me of Peter Lalor (Supremo of Sons of Gwalia (a failed Aus Gold Co.under its gold hedge) who proclaimed that Hedging was a cornerstone of its Operations Profitability. Lets just say that it did NOT END WELL!). Previous currency & gold hedges were winding down (c.R1,4Bn benefit to FY19 on a OpEX base = R21Bn/yr, thus insignificant ($200M) are a necessity including the “last saloon” option of a deal with Newcrest for its stake in Wafi-Golpu. HMY needs proceeds of > $500M! Net Debt =$480M will collapse it given annualised Net Mine OCF = $60M….
    7. The share register of HMY reflects its current state as a speculative penny-stock gold mining company. It’s for the speculators NOT investors. Anybody who buys its shares is a sheep begging to be sheared!
    It’s a good thing that shareholders revolted to the proposed 30% rights issue as a consequence of the highly value destructive Moab deal, and forced management to abandon it.


    AISC costs escalations at HMY are driven by poor asset quality and lax costs control culture. HMY mining assets are decaying & of poor quality , and not for investment, including ORD CapEx. Costs CAGR = >15% for period H1FY16-H1FY18, despite the general mining costs deflation in RSA. The gold price received has increased from 1HFY16 = R487K/kg; 1HFY17 = R569K/kg; 1HFY18 = R581K/kg . The result has been an unabating deterioration in the Operating margin. HMY management responded by high-grading the assets, only to stoke the costs escalation more BUT now coupled with sterilisation of orebody, and this making the assets more marginal and squandering the inherent optionality. So their actions have made a terrible situation even worse, thus doing disservice to shareholders.

    The high costs nature of HMY operations continues to astound me. Fellow Readers should not be fooled by the reported low unit costs of R2000/t-R2300/t. For comparison, albeit unfair given the difference in operational scale etc , Beatrix mine has unit costs of R1400/t vs Joel Mine = R1900/t despite them mining the same reef at similar depth. Therefore, clearly HMY operational costs management leaves a lot to be desired. Joel Mine benefits from district synergies with other HMY mines whilst Beatrix does not. Its for this reason I believed HMY would have been better served by buying Beatrix, if the price was right (± max R1,5Bn) from SGL given all the district synergies etc to be had with its other Free State mines.

    To further illustrate the absence of cost discipline/ management, consider Bambanani mine. Whilst this operation is a shaft pillar mining operation, thus subject to certain nuances as contrasted with usual deep-level u/g mining operation, it is an epitome of this lax cost control given its high unit cost. If HMY had a laser sharp focus on costs, the unit costs of Bambanani will be ±R2500/t as compared to current R4000/t. Therefore, given its high grade (> 10 g/t), its Net Mine Cash Flow will be a lot higher given the consistent orebody/reef position. So expect the same Operational ill discipline at Moab!

    So there is NO Operational Rigour to ensure that at the very least these assets are run Optimally despite their glaring shortcoming of being in their twilight stage of their LoM!


    I am NOT a fan of the previous CEO of HMY. I believe he was a failure in ALL aspects of the HMY business. But he realised, belatedly during FY13 , due to sharp decline in the gold price, something that can plausible be a solution to HMY woes: “To wean HMY of marginal & loss making Production”. It was a “Hail Mary Plan” but a plan nevertheless. The execution of this plausible solution has been haphazard and lousy, but I am of an opinion that it’s still a plausible solution to improving sustainability and durability of HMY Net Mine Cash Flows.

    The trick was to keep a lid on Opex & CapEx by improving mining performance (grade, mining metrics etc) by strict adherence to mining plans as they relate to breakeven parameters. This would have had the effect of stabilising-cum-improving operating margins at semi-constant gold prices. The key to this success will be higher consistent grade yields. I agree with such an approach, and to his credit he was beginning to show some results as illustrated by Production % that meets both its planned cut-off unit costs & grade (±10% of 2P grade) were as follows:

    FY13 = 0 ; FY14 = 19% ; FY15 = 27% ; FY16 = 25% , then he resigned in Dec 2016, only for this trend to collapse to FY17 = 8% ( all from H2FY17) ; H1FY18= ±11%

    The net-effect of this mess, is that H1FY18 NET MINE OPERATING CASH FLOW = $26M on a production base of 560Koz. If the entire HMY was a Newmont Mine, it will be slated for closure!

    The planning gold price was continuously and deliberately increased by R25K y/y (or 5% y/y). This was sensible as it disregarded the rocketing gold price to enable the margins to expand thus improve Cash Flows BUT remove marginal & loss making ounces from the production profile. This is akin to “ Fixing the house roof when the sun is shinning NOT during heavy rain”

    Evidently, when the current CEO took over in H2FY17 he went bonkers on production volume, seduced by the higher hedged gold price, and sacrificed all the sensible hardwork done by then. As a way to reverse this blunder, he increased the Planning gold price to an unsustainable level of R550K/kg only for the gold price to retreat to now ±R520K/kg, thus plunging more planned production into loss-making position. If he had followed on his predecessors ‘s aforesaid plan, % profitable production to plan will be ± 40%, and HMY will be ± 700Koz/yr producer BUT sustainably profitable capable of withstanding the strong R/$ environment, and subsequent positive shares rerating. HMY is stuck with no operating profit margins, AND NOW with an increased debt load due to his desultory M&A! There is no clearly defined holistic realistic executable M&A strategy to resolve the asset portfolio (refer to Agnico Eagle and Iamgold on how to do this!) for a clearly defined and executable asset portfolio rejuvenation strategy). He has squandered the bullets by shooting aimlessly.

    The net result is that HMY production has become more marginal/loss-making thus hurting prospects for self-help measures to rejuvenate the portfolio. Now he has a lot more work to do to remove unprofitable ounces from his own stated 1,5Moz/yr production target after the M&A $500M (incl Hidden Valley Reinvestment) splash. I have seen brokerage firms reports estimating FCF = $250M/yr (yes, you read correctly, Free Cash Flow of Two-hundred and Fifty Million of United States of American Dollar) based on the CEO’s forecasts/utterances. They are bound to be bitterly disappointed. So this current CEO has hemmed/stunted prospects of HMY and has stretched Balance sheet to breaking point given the assets’ poor cash flow generation capability. I suppose Incompetence comes in different forms….


    Previously, I have expressed my views about HMY long-tenured detritus BoD skills mix, composition and ineptitude in dealing with the challenges this company confronts. This is by no means my final instalment on this serious matter, BUT a mere entree. Fellow readers, the following aspects, but not limited to, about HMY have serious corporate governance implications:

    a. When the company does NOT meet its business objectives in a profitably sustainable manner.
    b. Despite a. the executive compensation payout is 90%. This whilst HMY Total Shareholder Returns (TSR = -77%) lags production-peers ( IAMGold , Yamana etc) and underperforms the JSE Gold Mining Index (JGLDX) by >-20% , despite it being a major component thereof, since H2FY16 (thus current CEO tenure). It is the worst performer (up 13%) of the Van Eck GDX Index(up avg 27%). The Compensation pot consists of 60Million shares (13 % of Issued shares capital prior to Moab Rights Issue) (see 2017 20F filing, pg 268). Since 2010, some 8,6M shares (avg R520M) bonus compensation to management, who have cashed them (BoD & Execs own total ±1,08M , or 0,24% of total equity shares) NOT held them, whilst shareholders have seen MCap go from $5Bn to $840M.
    c. Capital Misallocation on unprofitable ORD CapEx which is aimed at achieving production targets BUT losses to Shareholders.
    d. When ostensible loans (>R500M since 2012, with last disbursement being R200M in March 2016) to ARM BBBEE Trust (Chairman’s benefit) are NEVER repaid. According to the said Intercreditor Agreement (between HMY & ARM) , HMY cannot enforce its rights without ARM approval.
    e. When the current CEO was hired to improve mining capabilities/efficiencies subsequently designs organograms that ensures that he is removed furthest away from the u/g stopes. Previously, there was only the COO (1x level) between the CEO & Mine GM. Now there is 4x levels (RGM; SAOps EXCO; RSA COO; CEO). So there are more opportunities to “tailor make” the message to the CEO about the “Operational Challenges” being encountered! All this for a company with only 2x meaningful operations (the other 8 are just mices)!
    f. When the current Financial Director seems to be the ONLY person who understands HMY financials given that this is his 3rd stint. To put it diplomatically , he is of advanced age too. There has been 2x Financial Directors who did NOT seem to last, including the current CFO of First Quantum.

    As fellow readers will know that yours is NOT surprised by all the above given that I have expressed my views about it before. However, something else has struck me thus warrants my comment. It seems that some Execs are direct recruits of board members given previous dealings via directorships or employment. So executive recruitment is “jobs for pals” scheme. Furthermore, given the combined BoD seats of 31 between HMY (14) and ARM (17) (supposedly a 14,55% shareholder) a huge number of warm-bodies (11) are shared or had prior, and still running/current commercial dealings ( i.e ex CEO of BoE Bank , then Nedbank) with HMY as it relates to ARM. This makes them rather a majorities in both HMY & ARM, including current HMY CEO (ex ARM Mining Exec) and Financial Director (who was FD for ARM as well). Makes one wonder in whose interest is HMY managed? Is this a social-club?


    HMY commissioned SRK to produce a CPR for Moab Transaction. This CPR document is a 242 pg , so its about ½ day worth of garbage reading if you have the time. I did it and what a waste, but I felt compelled to take the pain on behalf of fellow readers. It reads like a NOT FOR MARKS group assignment for 1st year students in that its incoherent with conflicting material figures such gold production, discount rates, Cash-Flows, OpEx , CapEx , Tax rate etc …ALL IN ONE DOCUMENT! This excludes flawed assumptions like getting back 70% of the acquisition price in tax breaks etc!


    I do understand that when a company makes an acquisition, it needs to make it appear good BUT this is overzealous and pushing limits of propriety by HMY. If HMY paid R10M for the Due Diligence that resulted in this document, then I fear for the worst. Lets be clear, AGA chaps were forthcoming with the challenges and information during the said DD (see pg 7-11 of CPR). But it seems SRK are presenting “alternative facts “ at the behest of someone (akin to KPMG’s SARS Rogue unit report).

    The reason for the shoddyness can be found on pg 242 of the document, in that there is a HMY employee whose name appears. I presume, given the disclaimers by SRK about the information received and coordinated by this employee, that he is the reason for such a wishy-washy and abhorrent CPR due to his interference. Furthermore, the CPR production forecast (310Koz/yr) even contradicts the HMY chairman’s production target (250Koz/yr) all in the first year of production. Can you imagine the disparities in the internal LoM projections to the BoD to motivate for deal?

    In my long mining career, I have never witnessed a CPR being instituted by an acquiring company (HMY) to DEMONSTRATE the worth of an asset (Moab Khotsong & others) in the seller’s hands (AGA)! INCREDIBLE! (ref pg 158 of CPR)

    According to this flawed SRK (or more appropriately HMY) CPR, the after-tax Free Cash Flow profile indicate the following (pg 155 of CPR):

    2018 : R1,22Bn
    2019 : R1,26Bn
    2020 : R0,86Bn
    2021 : R0,53Bn
    2022 : R0,24Bn
    2023 : -R0,22Bn

    with AGA’s WACC = 7,5% , the preferred value of this transaction under AGA ownership is US$260M. This is for the 2P = 1,3Moz above infrastructure including some ounces from Zaaiplaas Ph2 project. So the significant chunk of the 2P =5Moz will require significant CapEx (± $350M =Zaaiplaas Ph2 FEC) in a faulted areas at greater depth with low stope extraction efficiencies etc . If in Real Estate the mantra is Location..Location…Location, In u/g mining geology its Structure…Structure…Structure!

    “ Moab Khotsong is NOT sensitive to increase in R/kg gold price due to the structurally constrained nature of the orebody BUT is very sensitive to a drop in gold price”

    Geological structure of MK is faulted (DeHoek & Buffels East faults constrained/discontinuous with fault induced reef throws of up to 1000m in VR , PZ3 is thrown 400m below infrastructure ( or Middle Mine) , deep at 3000m , it thins ( CW decreases) east to west ( mining direction) , varying footwall facies are not competent thus resulting in more support pillars for high Stoping Widths which results in high Milling Width, thus diluting grade and lowering MCF. To maintain facelength, MK thus required extensive ORD etc. So from aforemention, its evident that AGA is walking away from MK mine because its geological structure going forward is UNPROFITABLE and lacks Longevity ( dependable meaningful LoM ) . I refer readers to Q4FY14 earnings transcript (pg 20 of ppt) ; R&R 2015 ; R&R 2016 ; CRP pg 54, 67,85,86 &104. Some ±16% (208koz/ ±1yr production) of the 1,3Moz on LoM is actually from inventory (Not classified/Level 3 plans). This acquisition does not make sense at $300M, maybe at ± $50M!

    Now this posses serious questions given that the HMY purchase price is US$300M, thus rendering the transaction NPV= -$40M (negative number) according to SRK’s CPR with additional ± $49M of underfunded Rehabilitation Liability. But when you use HMY WACC (after Tax) of 9,6% (as per the Acquisition financing package), PLUS the US$300M to be paid, the entire transaction (with flawed assumptions and operating improvements, thus ex-ante Bullish Case) is NPV = -$137M! Clearly this is a HORRENDOUS OUTCOME that even a materially higher (± R700K/kg) gold price CANNOT fix!

    But it gets worse, given the following flawed assumptions, which are beyond omnipotence:

    1. Unit costs will be magically decreased from R3200/t to R2200/t ! Please don’t ask why!Maybe extraordinary deflation? Because volumes will decrease dramatically henceforth.
    2. The Labour costs will decrease but no allowance for retrenchments etc. I did not know that our RSA Labour laws were that flexible!
    3. Tonnage mined increase from 0,927Mt/yr in 2017 to 1,28Mt/yr in 2018 without additional labour costs or capex! HMY chaps have magic presence in that their mere ownership increases productivity! We will run MK shaft at capacity & use some of GN for Hoisting!
    4. No ORD CapEx from 2018 until 2022, but maintain facelength in a geologically faulted ground. That’s some cost-cutting measure alright!
    5. No Tax payment until 2020! HMY Chairman is politically more connected than the Guptas because his brother-in-law is NOW ANC’s Makhulu-baas! SARS have been enfeebled by the Guptas & their cronies BUT I just don’t believe this despite the fancy capital structure HMY can concoct for MK ownership.
    6. At HMY, when we reduce labour we get more tonnage/centares and NO section 54 stoppages from hereon for LoM.
    7. At HMY, in geologically complex ground, we achieve 97% reef extraction efficiency without additional costs!
    8. We reduce stoping width from 183cm to 105cm without due regard to geotechnical conditions of where we are mining! AGA chaps have been diluting unnecessarily!
    9. As for the thinning of the Vaal Reefs in our 370 geozone domain, well for us it will maintain the channel width of > 93cm. Kopanang Mine was unlucky when CW decreased to 12cm.
    10. We will plan the extraction of Noligwa shaft pillar for 0,4Moz in $950/oz

    3. Increase HMY’s RSA u/g R+R base by 17,5Moz, of which 12,51 Moz ( a whopping 71% ) is below infrastructure, thus needs CapEx.

    HMY had R+R=53,4Moz and 1,1Moz/yr production. Therefore NO need for R+R UNLESS the current HMY’s R+R has NO prospect of economic extraction. Advancing this as a reason is nonsensical when you spending $300M. Maybe improving HMY’sR+R grade?
    4. Is a natural strategic fit with HMY’s current asset base providing multiple opportunities to optimise operational performance of the assets and realise synergies ;

    Why has the synergy amounts not quantified? There are absolutely NO synergies BUT dis-synergies given that now 3x companies will own Vaal Reefs Ops instead of just AGA.
    5. Increases cash flow and earnings per share at current gold prices from year one:

    This is wrong. There is a 30% shares dilutions related to the deal, thus –ve $84M earnings impact. Furhermore, there is an outlay of some $300M. So this is a mischievous statement

    6. Results in an improved cash flow profile and scale, facilitating HMY’s ability to fund future growth prospects.

    Nothing could be further from the truth. This bogs down HMY balance sheet and prohibits future growth prospects including SIB-CapEx. There will be scale (production volumes and no. of assets increases ) BUT not with cash flows!

    I have seen this movie before and it never ends well. Now, here are my predictions for this transaction:

    1. HMY will seek to monetise 27month facelength in earnest to their own detriment. AGA used to spend $40M/yr on ORD CapEx to achieve 180K m2, so with resultant reduced facelength I predict reduced m2 in 2019 onwards and tonnage volumes will decrease and so will flexibility for optimal head grade deliveries to the plants. With that, reduced Net Mine Cash Flows!
    2. We will be told that there is necessity for a deviation from the CPR for “value to be realised”. HMY will NOT deliver on the mining m2 ; costs & CapEx targets, and furthermore the R/kg gold price has declined from R575K/kg to R520K/kg. The proposed immediate mining areas are located in the extremities of the mine, resulting in making tonnage calls a challenge with effective face shift of 3-4hrs, but HMY will be reducing complement! Go Figure!
    3. The said deviation will entail reduced gold production, as always post overpriced M&A, to something 200-230 koz/yr for “maximum optionality to the future gold price “ more like prolonging the LoM (To disastrous economic effect!). The Tailings Retreatment Project will be announced with much fanfare to fool some people. Expect a gigantic Impairment in FY19.
    4. The promised FCF of $92M will NOW be something R1Bn , and will overrun on costs and will have duration of > 5yrs to accommodate production at MK. Just like the Bambanani pillar project which came at ±R600M ( Approved Budget: R309M in FY09)
    6. Zaaiplaats Project Ph3 PFS CapEx is R12Bn. HMY commissioned FS will have outcome CapEx= ±R8Bn for a smaller scale project of ±100koz/yr , but will be delayed until ……MK is sold to the Chinese!
    7. As for the BEE SPV for the transaction, expect either acquaintances of the HMY Chairman or any of his related companies to be involved in some form or the other.
    8. There will be hiccups after hiccup….Yet HMY management & BoD will keep telling shareholders that this was a good deal WHEN we all, including them, know that this was a deadbeat from the get-go. And then “all purpose scapegoats” like “RSA political Climate”, Gold price and Eskom will be blamed for the mishaps! This transaction needs Gold Price > R700K/kg to work , so a LOT NEEDS TO GO RIGHT LIKE A SWITCH WATCH!
    9. HMY will NEVER lower Moab Khotsong unit costs to below R 2500/t or AISC= R400K/kg at production base > 150koz/yr ! If they do, I will record a YOUTUBE video of myself kissing/licking my own elbow!

    I have committed to 5x lucky readers the following:


    This commitment stand!


    Fellow readers, A true measure, amongst others, of a public company investor appeal is when institutional investors own significant (>50%) of its Issued shares. It is trite that institutional investors conduct (or supposedly) the necessary assessment or due diligence for their investments. In 2011, 74% of HMY issued shares were held by institutional investors (Coronation, Calpers , Blackrock , Allan Gray etc) , inclusive of ARM’s 15%. In 2018, Institutional Investor hold 15 % ( excl ARM ), including PIC with 5,91%. PIC is a major investor on the JSE as per its mandate. For Sibanye & AGA, institutional investors own on average 55% of issued shares. Institutional shareholders NEVER use ADR’s, as holders through this mechanism are not afforded direct shareholder rights BUT claims/rights as per ADR deposit agreement through intermediary. So the Shares register of HMY is replete of speculators and ETF ‘s (Van Eck Gold ETF owns 8.96%). So HMY is not for investors, and should be shunned, because with no meaningful institutional shareholders base, retail investors are bound to be abused by management, in cahoots with BoD. As per below, this abuse is afoot.

    ARM Ltd owns 14,55% of HMY issued stock, prior to the rights offer for Moab Khotsong acquisition. ARM has displayed strange behaviour for a major shareholder. They never express an opinion regarding performance and have always sided with management even when their actions are prejudicial to shareholders. This holding of ±62M shares, at zero-cost (no cash outlay to acquire), have been held through peaks and troughs for no apparent reason even when ARM was starved for cash. The shareholding was acquired during the Avmin , HMY & ARM deal in 2003. Furthermore, there is this unusual oft-revised Intercreditor Agreements between ARM and HMY as is relates to “ARM BBBEE Trust” which receives loans (±R500M to since 2013 to date) BUT never pay them back to HMY. Such “Loans” are NOT disclosed in ARM results both in FY13 & FY16. This non-disclosure applies to Dividends declared by HMY. Since 2010, I have been looking for this agreement (it’s a 14-pager Loan Agreement), and finally got it in 2017 via request. The loan agreement does NOT specify loan amounts and it’s open-ended commitment with its signatories being HMY Financial Director and ARM CEO.

    I do concede that ARM shareholding in HMY is critical as it relates to BEE requirements. This CANNOT fully explain why ARM has to be “continuously incentivised” via non-repayable loans by HMY never to sell MORE SO via its BEE partner NOT itself directly. However, if I delve deep into the readings of the Freegold JV and its financings and the Avmin takeover,something else emerges. Freegold costs R2,26Bn in 2001 to purchase. HMY funded its own portion of 60% ( R1,1Bn) , BUT ARMGold was funded by BoE , with cession and pledge of HMY shares, and by way of selling its assets to HMY. There was a financing agreement Clause that should ARM default, then BoE will sell the shares back to HMY to recover funds, as part of the JV terms. That’s were the plot really thickens given that the Avmin deal (which was Anglo’s 34,5% in Avmin for R1,7Bn, funded by Nedbank loan) was done immediately ( in 2003) after the Freegold JV for the acquisition of Target mine for HMY.

    All manner of corporate ninja & kungfu tricks were done, resulting in crossholding whereby HMY owned 19% of ARM & ARM owning ±19% in HMY, post asset stripping of Avmin & reverse listing into it by ARM. HMY disposed its ARM stake for R936M, clearly less than the loan value, in Q4 FY05. I will leave the readers in suspense by asking: Is the ARM’s 14,55% stake in HMY unencumbered? If YES, what’s the purpose of the Intercreditor Agreement between ARM & HMY for essentially ARM’s BEE partner (and related party to HMY Chairman) that causes HMY to make these seemingly unobtrusive/low-profile BUT substantial payments? If NO, that explains the behaviour!

    With VanEck GDX ETF as a ±9% , maybe Glass Lewis/Egan Jones or ISS will recommend an appropriate proxy vote for this value destroying deal for long suffering HMY shareholders. Management is requesting approval to issue 30% more shares , which is prejudicial to shareholders at this depressed MCap.


    There is preponderance of facts that truly makes HMY a penny stock for traders & other speculators, and does not even justify its current MCap = $850M. The longevity of its assets is poor and just scrabbling by despite the favourable R/kg gold price environment. It is a moribund company with limited, if any, options available for resurrection. Only 2x assets (Tshepong Ops and near depleted Bambanani ) are generating meaningful net mine cash flows, I value HMY at MCap = ±$200M, including Moab Khotsong. So from my valuation model, there is lots of agony ahead for shareholders. It is the worst house in the not-so-good street! Maybe with the forecasted debt load ( >$500M) now, I might be unwittingly giving Viceroy, Muddy Waters & Jim Chanos ideas. More so if Newcrest plays hardball when it comes to HMY dealing its stake in Wafi-Golpu. I posit that should the anticipated proceeds (hoping for > $500M) fail to materialise from such a deal, which will be used to deleverage HMY after MK deal, HMY will breach its covenants of ND:EBITDA < 2,5x . I am BEARISH on HMY. UNTIL their asset portfolio is rejuvenated coupled with sensible Operating Model, it will continue to languish and not attracted investors.