Harmony, DRDGold at new 12 month highs as Eskom worries take rand to fresh low

THE South African rand sank to a three year low against the US dollar partly driven down by ongoing concerns with the country’s power crisis, said Reuters.

“We would need to see Eskom come out and give a detailed plan on how they plan to stop the electricity crisis,” said Andre Cilliers, a currency strategist at TreasuryONE in a note cited by the newswire. “The market is worried about stagnation in the local economy, and investors do not want to invest in a country with a poor short-term outlook,” he said.

Rand Merchant Bank analysts said in research note that it was easy to see a continued run on the rand as negative sentiment was now in the driving seat.

The rand is down almost 3% this week against the greenback, underperforming emerging market peers, said Reuters. It is currently at R18.99 to the dollar after going through R19 earlier in the day. The local currency is trading at 23.87 to the pound.

Coupled with a strengthening dollar gold price, the price received for South African miners has increased 26% in the past 12 months. The rand gold price is currently at a shade under R1.2m per kilogram.

Shares in DRDGold, which processes gold from surface deposition sites, were trading at R24.14 per share – its highest level in two-and-a-half years. Harmony Gold also traded up to a fresh 12 month high of R99.74/share valuing the company at R61.7bn – an increase of 75% over the period.

However, a weaker rand implies inflation on mine consumables such as reagents, diesel and explosives – although Jared Coetzer, spokesman for Harmony Gold said these costs comprised only 20% of total mining costs.

“We have the Eskom increase coming through, but our labour costs are fixed following our three year wage deal,” he said of a 2021 agreement setting down a total average wage increase of 7.4% and 7% for this and next year respectively.

The company will suffer foreign exchange losses on US denominated debt. It mobilised $170m of a $400m facility – consisting of a revolving credit facility and medium term loan – in order to buy the Eva copper project in Australia.

Its South African mines are mature but the performance of its high grade Mponeng mine this year – with a strong quarter of high revenues to come – may give the group food for thought on whether to allocate capital on its deepening.