HARMONY Gold reported a staggering increase in net cash to R1.5bn in the nine months ended March 31 compared to R74m at the half year point only three months earlier.
Commenting in a March quarter production update, the South African miner said grade and consequent gold production increases helped drive the improvement.
But gains in the rand gold price stands out most prominently especially as it could be higher yet in the current quarter assuming the current spot price. Net cash was also helped by underspend on capital projects.
The average rand price received was just over R1.2m per kilogram of gold, a 15% improvement quarter-on-quarter and 17% higher year-on-year. Currently, the rand gold price is R1.39m/kg even after a 2% correction in the dollar gold price this week.
The performance raises questions as to the extent to which Harmony will reward shareholders when its board sits down to consider dividends, bearing in mind that it has major capital projects on the horizon, including the extension of Mponeng.
In any event, group operating cash flow increased to R8.78bn in the quarter, more double the R3.2bn of a year ago at the same stage in the financial year. Harmony pointed to higher recovered grades at its Mponeng, Moab Khotsong, and Hidden Valley mines, and at its surface retreatment operation, Mine Waste Solutions.
The production improvements resulted in a 2% decrease in all-in sustaining costs which came in at R877,965/kg for the nine months. The third quarter is normally a quiet one for the group considering it comes amid year-end holidays.
As a result, Harmony improved full year guidance across all its key metrics including total production – to 1.55 million oz from 1.38 to 1.48 million oz previously –, AISC (R920,000/kg from below R975 000/kg previously), and grade which has been increased to six grams per ton from 5.6 to 5.75g/t previously.
And in another boost to possible short-term shareholder returns, capital guidance has been reduced to R8.6bn from R9.5bn, mainly as a result of lower plant and services capital. Interestingly, Harmony said it was also negotiating extending its forward sales programme in the current environment ahead of its capital projects.
“The higher rand gold price continues to provide Harmony with significant tailwinds, boosting margins and free cash flow generation,” the group commented.
The news was most likely priced into the stock, which actually fell 2.9% in Johannesburg (as of 3pm), but shares in Harmony are about 42% higher year-to-date and 89% higher over the last 12 months.
The leverage of Harmony’s deep underground mines in South Africa to the rand gold price is helping maintain its performance especially as the major North American counters have barely moved in the face of record dollar gold prices (Barrick is actually weaker year-to-date while Newmont is 3% stronger).
