HARMONY Gold would book a headline share earnings loss for its 2020 financial year ended June 30 owing to derivative losses totalling R1.7bn, according to a trading statement published today.
The dollar and rand gold price have been elevated for most of the calendar year but Harmony has a policy of selling a fifth of production – about 200,000 ounces a year – into a hedge book in order to protect its high cost assets.
However, the largest portion of the derivative losses – some R919m – related to dollar denominated debt. The translation loss was “… primarily the result of the weakening of the rand exchange rate against the dollar (from R14.18/$ to R15.66/$),” Harmony said.
Underlying earnings, not detailed in the trading statement, as well as cash flow, are expected to be robust reflecting the impact of the average gold price.
Harmony said revenue would increase to R29.2bn from R26.9bn a year earlier as the rand gold price received had averaged R735,569/kg compared to R586,653/kg. The current spot price of gold is R1,05m/kg.
All in all, Harmony expected headline share earnings would come in at a loss of between 139 and 169 South African cents per share. This is a decline of between 168% and 183% lower than the +204 SA cents/share in the 2019 financial year.
In dollar terms, the headline loss per share is expected to be between 9 and 11 US cents per share, which is approximately 164% to 179% lower year-on-year.
The impact of the derivatives is likely to result in questions about its future hedging strategy when Harmony results its year-end figures on September 15. The group has said in the past it is committed to hedging a portion of production.
Despite the adverse, non-cash derivative element of its numbers, Harmony Gold has had a good 2020 financial year, although production will have been crimped by lockdowns associated with the Covid-19 pandemic.
The standout feature is the purchase of AngloGold Ashanti’s Mponeng mine and Mine Waste Solutions business for $300m. The $200m cash portion of the transaction was raised by placing stock for R57.50/share which compares to a current share price of R104.37/share.