Harmony is the latest gold producer to report a big boost in profits after gold bulls ran rampant last year, taking the price at one point into record territory above $2,000 an ounce. The Covid-19 pandemic has roiled the global economy while lifting gold in the process.
Low interest rates enhance the yield appeal of gold, while general uncertainty burnishes its status as a safe haven for capital. For South African producers, rand weakness becomes a double bonus as gold is priced in dollars while most of their cost base is in the domestic currency. With wages talks in the gold sector set to take place later this year, none of this will be lost on unions.
Gold companies need to be in a position to take advantage of rising prices and so work on raising productivity, containing costs and mining ore bodies with high grades. This means that even small price bumps can flow hugely to the bottom line, and a fall in prices can be taken on the chin. Of course, a big fall can still tip a company’s income statement into the red.
In Harmony’s case, the average rand price it received for its product for the six months to the end of December was almost R900,000 a kg, up 31% compared to the same period in 2019. That resulted in its net profit jumping 336% to $356-million, and enabled the company to bring back its dividend after a three-year hiatus, declaring an interim one of 110 SA cents per share.
“Harmony has reviewed its existing dividend policy and is pleased to confirm a more definitive policy aimed at paying a return of 20% of net free cash generated to shareholders. The new dividend policy is aimed at being more predictable, meaningful and sustainable,” the company said. Precious metals producers currently are churning out dividends galore and so no company wants to leave their investors in the lurch on this front as they have plenty of green pastures to choose from.
And the cash generated from Harmony’s operations allowed it to slash its debt and cover the costs of acquiring AngloGold Ashanti’s last operational assets in South Africa last year. This includes Mine Waste Solutions, which offers the opportunity to make money on the surface from the gold found in waste dumps. It also includes an asset extracting gold from well below the surface – Mponeng, the world’s deepest mine which has shafts that reach 4 kms underground.
Harmony’s CEO Peter Steenkamp told Business Maverick that with advances in technology, Mponeng could go even deeper as there are still high-grade orebodies there that have yet to be tapped.
“We can still go deeper and certainly over time we should be able to do that … but we don’t have to do it tomorrow,” he said. This is an interesting space to watch. After over a century of industrial scale mining that has accounted for about a third of the gold produced in recorded history, South Africa still sits atop mountains of the stuff. It’s just very deep. DM/BM