HARMONY Gold is on course for impressive year-on-year operating and financial results, but the third quarter performance underpins short-term stressors as Covid-19 interrupted production and resulted in lower cash flow and an increase in net debt as of March 31.
The firm’s endeavours in Papua New Guinea were also in the spotlight. There is potential for further delays at the firm’s Wafi-Golpu project, and a repair programme set for the fourth quarter at its Hidden Valley mine led to a minor downward adjustment in the full-year gold production forecast.
The direction of travel at Harmony Gold is positive.
Having incorporated Mponeng mine – purchased from AngloGold Ashanti in September -, and bolstered by a stronger year-on-year gold price on a nine-month basis, earnings before interest, tax, depreciation and amortisation (EBITDA) totalled R9.5bn compared to R2bn at the same point in 2020.
Third quarter production was, however, down 12.2% compared to the second quarter. Harmony said production in January was “uncharacteristically” slow to build as a result of the second wave in Covid-19 infections in South Africa which delayed the return of foreign employees.
For the third quarter, a 12.2% decline in gold production to 378,927 oz, and a lower rand gold price resulted in “lower operating cash flow”. Consequently, net debt increased R373m to R953m despite the company having repaid R833m in gross debt during the period.
The company defended its hedging strategy which fell under the spotlight during the interim results presentation in February. An analyst had asked at the time why the company wasn’t gunning for 100% exposure to the rising gold price.
Harmony said today it had achieved an average forward rand gold price of R936,000/kg as of March 31 compared to R892,000/kg which was the closing average gold price achieved as at December 31. Harmony hedges no more than 15% of total gold production.
Full year gold production is likely to come in at between 1.5 million to 1.55 million oz from a previous forecast of 1.56 million to 1.6 million oz. This was largely down to anticipated lost production in the fourth quarter at Hidden Valley where the company has marked out mill relining and belt splice repair on an overland conveyor.
Hidden Valley also reported geotechnical stability issues at its eastern wall but it nonetheless achieved a higher yield in the third quarter helping it to higher quarter-on-quarter production.
Wafi-Golpu has been on Harmony Gold books as blue sky potential for more than a decade and its development looks as distant as ever.
The company said in its third quarter update that an Environment Permit granted by the PNG Conservation and Environment Protection Authority in December would fall under National Court scrutiny. This was after the Governor of Morobe province in PNG and the Morobe Provincial Government lodged a judicial review of the permit.
Project and permitting activities could continue even though the Judicial Review was yet to commence. The Environment Permit is an important prerequisite for the all-important grant of a Special Mining Lease – a piece of paper that has eluded harmony and its joint venture partner, the Australian firm, Newcrest Mining, for several years.