PROPELLED by record-breaking gold prices Harmony Gold on Tuesday declared a record-breaking interim dividend. Coming in at R1.4bn, the payout was as Harmony’s net cash leapt nearly four-fold in the six months ended December.
As previously guided the average gold price received was, at 23% higher, R1.4m/kg in the first half compared to R1.1m/kg in the previous half year. In US dollar terms, the average gold price received was 28% averaging $2,437/oz compared to $1,900/oz previously.
This resulted in a 33% increase in interim headline earnings of R12,70/share. An interim dividend of 227 cents/share has been declared, equal to R1.44bn or $78m.
Net cash increased to R7.28bn compared to a closing net position on June 30 of R2.8bn.
The performance was driven principally at Mponeng mine which has helped take underground grades to higher than the guided 5.80 grams per ton. There was a planned 3% dip in production, but Harmony said it was sticking to its forecast full-year production of between 1.4 to 1.5 million oz.
Offset against the dividend, which by sticking to its policy of 20% of net free cash might be considered conservative, is a major capital bill.
Growth capital of R3.8bn is projected in South Africa, R1bn more than in the 2024 financial year, contributing towards total capital (including stay-in-business) of just over R10bn. Over three years, Harmony plans to spend R30.5bn including just under R8bn at Mponeng, the much-fêted gold mine that descends deeper than any other.
The outlook for the current period is high promising in terms of net cash generation as the gold price in rand terms is R1.73m/kg, a fifth higher than the period under review. All things being equal this amounts to a net operating margin of R300,000 per kilogram or R7.5bn in additional operating free cash flow in the second half.
Asked if at these margins, Harmony’s board might be prompted to consider a special dividend, Harmony CEO Beyers Nel said the group would remain focused on “funding our operational needs, growth and rewarding our shareholders”.
He added: “Harmony is well positioned to benefit from the high gold price, but we don’t soley rely on it. What we are saying is that we have re-engineered our portfolio with high quality ounces and predictable production”.
About half of Harmony’s free cash flow in the six months was generated by Mponeng and Moab Khotsong, mines acquired from AngloGold Ashanti in 2020 and 2018. Another major contributor was Hidden Valley in Papua New Guinea, another acquisition. Harmony’s seven ‘optimised mines’ in South Africa, comprising the rump of the asset base, contributed the balance of cash.
Of these optimised mines, Harmony said it had run into “infrastructural challenges” that delayed the ramp up of Target 1 following four years of recapitalisation. “We have encountered some teething problems,” said Nel. “We need to create some flexibility by getting the mining team ahead so we can open up massive stopes to mine.”
Harmony is expected to publish a feasibility study into its Eva copper project in Australia’s Queensland in the calendar year. Nel said the technical aspects of the study were complete but the company was tackling outstanding permit amendments. “It is a priority for us but I can’t give you a definitive answer” on when a final investment decision would be made.
