Business Maverick


Harmony Gold: What a difference the gold price makes

Harmony Gold: What a difference the gold price makes
The rand/gold price is fetching close to R750,000 a kg, almost 10% above the average levels the company was getting in the six months to the end of December 2019. (Photo: Adobestock)

Harmony Gold’s interim results have swung briskly back into profit. This is largely because of the rand/gold price, and, in a recurring theme, its earnings would have been even higher were it not for Eskom, notably the Stage 6 load shedding in December.

In the six months to the end of December 2019, the average rand/gold price that South African producer Harmony Gold received for its product was R683.158/kg. That was 19% more than it received in the last six months of 2018.

Much of that flowed to the company’s bottom line. Harmony reported interim results on Tuesday, 11 February, and the difference in its income statement from last year was stark. Net profit for the six months to the end of 2019 was R1.3-billion, versus a loss for the same period in 2018 of R19-million.

These glittering results would have been better had it not been for Eskom. 

“The continued risk posed to our South African operations by our reliance for electricity on power utility Eskom was brought sharply into focus in December 2019. With little notice, Eskom declared unprecedented Level 6 load shedding on 9 December 2019. It requested us, amongst many others, to immediately reduce electricity consumption to levels required only for the maintenance of emergency services,” Harmony said.

“The night shift on 9 December 2019 and the day shift on 10 December 2019 were both cancelled, with a consequent loss of production estimated at 80kg to 90kg,” the company said. That lost production cannot be made up. If you take 85kg at the average price the company received for its gold in the period, that one incident cost it more than R54-million in revenue.

That may not seem like much against revenue for the period of R1.7-billion – a 12% increase mainly due to the spiking gold price. But Eskom weighed in other ways as well. The company’s power costs rose 13% against an 8% increase in labour costs. The latter have been muted across the mining sector, in part because of low inflation which has curtailed wage demands.

The reporting period was not without its blemishes. In line with most of the sector, Harmony’s safety record has been improving but is not the best.

“Our overall Fatal Injury Frequency Rate (FIFR) has declined from 0.12 in FY2019 to 0.07 in H1FY20. The South African operations recorded three million fatality-free shifts in the period under review,” the company said. 

Still, it is lagging its peers on this front. The company had three fatalities at its South African operations in the period under review. Sibanye-Stillwater by contrast recently recorded 10 million fatality-free shifts, a first-ever in deep-level South African gold mining, and had no fatalities in 2019 on its South African gold operations. AngloGold Ashanti had its first-ever fatality-free calendar year in 2019 across all of its global operations including South Africa. 

So, while Harmony’s improvements are laudable, it has work to do in this area, and the company said it is working on the issue, which is becoming an increasing concern to investors across the industry. 

“Employees who do not adhere to our safety standards are disciplined and bonuses are lost if safe ounces are not produced,” it said. 

Harmony executives did not comment on a Bloomberg report that it was the winning bidder for AngloGold’s Mponeng mine, the world’s deepest at 4km. 

In the meantime, the gold price has maintained its upward trajectory, helped by crises such as the coronavirus outbreak, which enhances the precious metal’s “safe haven” status with investors, who often seek shelter in times of turbulence and uncertainty. 

The rand/gold price is currently fetching close to R750,000 a kg, almost 10% above the average levels the company was getting in the six months to the end of December. One can expect that trend to lift its earnings even higher when Harmony reports full-year results. BM


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