BUSINESS MAVERICK

Harmony Gold’s full-year loss narrows as it takes over the world’s deepest mine

By Ed Stoddard 15 September 2020

Harmony’s free cash flow more than doubled in the year, and that should start flowing to the bottom line. (Photo by Gallo Images / The Times / Sydney Seshibedi)

The gold price has been on a tear this year, but that is not translating into profits for all producers. Harmony Gold posted an annual loss despite generating better cash flows, with its bottom line undermined by gold hedging and foreign currency losses.

Harmony Gold said on Tuesday 15 September 2020 that its full-year net loss had narrowed to R850-million from a loss of R2,6-billion last year. The gold price has been surging this year, with the Covid-19 pandemic boosting its status as a haven. Harmony said in the 12 months to June, there was a 25% increase in the rand gold price to R735.569/kg, resulting in a 9% rise in revenue to R29.25-billion. 

Still, the company failed to turn that bonanza into a profit as gold hedging derivatives and foreign currency translation losses linked to a US dollar loan drained income from its coffers. So, unlike its peers, Harmony is not paying a dividend.

But the market clearly liked other aspects of its results and sees profits in the pipeline at current prices. Its share price rose by more than 5% on the day, bringing its gains in the year to date to more than 100%, according to Sharenet data.

Harmony Gold’s Kusasalethu gold mine in Carletonville. (Photo by Gallo Images / Beeld / Lisa Hnatowicz)

Gold is all the rage these days. Harmony’s free cash flow more than doubled in the year, and that should start flowing to the bottom line. And since it began five years ago, the company says the hedging programme – which applies to only 20% of its production – has realised a net gain of R2.2-billion. With such instruments, sometimes you win and sometimes you don’t.

“Harmony continues to enjoy favourable commodity and foreign exchange pricing on the unhedged portion of its exposure, while simultaneously locking in the current higher prices as part of its derivative programme,” the company said.

Harmony has also concluded its purchase of Mponeng, the world’s deepest mine from ground level, with shafts reaching 4km beneath the surface, from AngloGold Ashanti and is set to assume full ownership of the asset on 1 October. That will boost production with ounces that should be profitable.

And if gold prices remain robust, the company’s shareholders will expect a dividend sooner rather than later. DM/BM

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