Harmony Gold opens 2021 accounts with near tripling in free cash flow as ops bounce back

HARMONY Gold nearly tripled operating free cash flow in the first quarter of its 2021 financial year owing to a recovery in gold output following a Covid-19 lockdown, as well as an improvement in the overall price received.

The company registered R1.8bn in free cash flow for the three months ended September compared to operating free cash flow of R603m in the June quarter. Operating free cash flow doesn’t account for the cost of all expenditure.

There was a 5.4% increase in the rand per kilogram price of R922 398/kg ($1,698/oz, some 12% higher) quarter-on-quarter.

At the current rand gold price, and with production stable, the company would be net cash as of end-March, said Harmony Gold CEO, Peter Steenkamp.

“A solid operational performance, further aided by the gold price, has significantly our balance sheet, allowing us to achieve an operating free cash flow margin of 20%,” Steenkamp said in notes to the firm’s first quarter numbers. The cash flow margin in the previous quarter was 10%.

Net debt as of September 30 was R3.25bn, up from R1.4bn end-June which included $200m raised in cash through the issue of shares for the purchase of Mponeng and Mine Waste Solutions from AngloGold Ashanti.

Adjusting for the increase in shares, the firm’s net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) as of September 30 was 0.5x compared to a ratio of 0.8x end-June.

The improvement in the firm’s balance sheet is bound to trigger interest in the adoption of a dividend policy before financial year-end.

In terms of Harmony’s capital allocation framework, Harmony had prioritised debt repayment, projects and dividends, according to comments by Boipelo Lekubo, Harmony’s financial director, in September. Lekubo added it was likely the board would sit down to discuss an interim dividend.


Harmony reported 38% higher production of some 313,725 ounces the first quarter compared to the fourth quarter of its 2020 financial year. This was a result of underground operations returning to 100% production. The improvement in production lowered all-in sustaining costs in the first quarter.

An update on the firm’s 1.26 million to 1.3 million oz production guidance for the current financial year would be made at the interim point, it said.

Also helpful was the fact Harmony is getting an improved price for all its gold, a fifth of which was committed to a forward contract. The company reported a headline share earnings loss for its 2020 financial year ended June 30 owing to derivative losses totalling R1.7bn.

The firm said today that additional hedging had been undertaken “at prices in excess of R1m per kilogram” which would increase the average forward rand gold price of the hedge book to R846,000/kg, effective end-September, from R743,000/kg in the previous quarter.

One mote of poor news was of operational headwinds at Hidden Valley, Harmony’s Papua New Guinea mine, where production was 19% lower quarter-on-quarter. This was owing to a scheduled shut down on the processing plant and lower mined grade as mining efforts shifted between “various stages of the open pit”.