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Alberto Abaterusso
Alberto Abaterusso
Articles (2616) 

Harmony Gold Mining Announces Results

Despite production increase, lower gold price brought revenue down

August 18, 2016 | About:

Harmony Gold Mining Company Limited (NYSE:HMY) announces its second-half 2016 and full-year (ended June 30) results Aug. 17.

Keep in mind that the fiscal year starts July 1 and ends June 30 of the next calendar year so fiscal year 2016 started July 1, 2015, and the second half started Dec. 31, 2015. Both ended on June 30.

Last July, the miner announced that it met its annual production guidance of approximately 1.1 million ounces.

Harmony says it continues to differentiate itself through quality grade management, increasing underground grade by 6% year over year, making it the fourth consecutive year of increased recovered underground grades.

For the six months ended June 30, Harmony’s operations produced 513,576 ounces of gold, a 9.7% decrease from first-half 2016. For full-year 2016 the miner produced 1,082,035 ounces of gold, a 0.42% increase from the previous fiscal year.

In second-half 2016, cash operating costs and AISC were $836 per ounce (-1.8% from first-half 2016) and $996 per ounce (-2% from first-half 2016).

For full-year 2016, cash operating costs and AISC were $841 per ounce (-16% from full-year 2015) and $1,003 per ounce (-19% from full-year 2015).

During second-half 2016 and full-year 2016, operating costs in rand were higher due to increases in labor costs, electricity and contractor costs at South African operations.

Harmony has operations in South Africa and Papua New Guinea.

In South Africa, the company operates nine underground mines, one open-pit mine and several surface operations.

In second-half 2016, capex were $70.5 million (-2.6% from first-half 2016) for South Africa operations and $2.5 million (-16.7% from first-half 2016) for Papua New Guinea.

For the six months ended June 30, Harmony reported revenue of $625 million, a 2.1% increase year over year and a 2.2% decrease from the previous quarter. For full-year 2016, Harmony reported revenue of $1.264 billion, a 6.23% decrease from the year ended June 30, 2015.

In fiscal year 2016 a net profit of 949 million South African rand ($64 million) was recorded compared to a net loss of 4.5 billion rand in fiscal year 2015; consequently, headline earnings amounted to 221 South African cents per share compared to a headline loss of 189 South African cents per share for fiscal year 2015.

In spite of the higher gold production reported by the miner in 2016, up 0.42% (from 1,077,466 ounces in 2015 to 1,082,035 ounce in 2016), revenue in U.S. dollars was lower due to a decrease in the average gold price received from $1,222 per ounce in 2015 to $1,169 per ounce in 2016.

In second-half 2016 the production profit was approximately $201 million, a 38% increase year over year. For full-year 2016 the production profit was $350 million, a 43% increase from full-year 2015.

Harmony’s attributable gold and gold equivalent mineral reserves as declared June 30 amounted to 36.9 million ounces of gold, a 13.3% decrease year on year, and attributable gold equivalent mineral resources were 105.2 million ounces, a 4.6% decrease year on year.

Highlights of year-on-year results are second-half 2016 on first-half 2016 and full-year 2016 on full-year 2015:

Source: Harmony Gold Mining Co. for the six months and year ended 30 June 2016 report.

To create further cash certainty, the miner entered into short-term gold forward sale contracts for 432,000 ounces over two years, representing about 20% of the miner’s total production.

Harmony says the limited size and duration of the hedge means shareholders retain full upside exposure on 80% of the company's future gold production for the next two years, after which shareholders will have 100% exposure to the gold price.

As of June 30, the miner had cash and cash equivalents of 1.256 billion rand. During the second quarter it decreased by 611 million rand due to the debt repayment of 1.12 billion rand, offset by net cash generated of 501 million rand. On a year-on-year basis the net debt decreased 54% to 1.08 billion rand.

According to this July 26 news release, Harmony is one of the gold mining companies approached by Barrick Gold Corporation (NYSE:ABX) because the latter was considering selling its 64% stake in African unit Acacia Mining (ACA).

Acacia owns three producing gold mines in Tanzania as well as exploration projects in the country and other parts of Africa.

Harmony CEO Johannes van Heerden says the company is well positioned to benefit from a strong gold price because Harmony can further reduce its debt and strengthen the balance sheet with cash certainty being the key in times of extreme market volatility. The company felt it prudent to declare a dividend of 50 South African cents.

Harmony is uptrending as the gold price moves higher, and the miner gained 341% year to date. Enterprise Value/EBITDA is 10.86 and price-to-book (P/B) is 0.88.

The company’s operations in Papua New Guinea that form part of a 50% joint venture with Newcrest Mining Limited (NCM) include the Hidden Valley open-pit gold and silver mine, the Wafi-Golpu project and exploration tenements. In addition to its joint venture work, Harmony also has a 100%-owned exploration portfolio that focuses on prospective areas in Papua New Guinea.

Source: Harmony Gold Mining Co. website.

The company’s operations in Papua New Guinea that form part of a 50% joint venture with Newcrest include the Hidden Valley open-pit gold and silver mine, the Wafi-Golpu project and exploration tenements. In addition to its joint venture work, Harmony also has a 100%-owned exploration portfolio that focuses on prospective areas in Papua New Guinea.

Disclosure: I have no positions in Harmony Gold Mining.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about how to pick potential value stocks. Gold, silver and precious metals mining industries is also my cup of tea. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master\\\'s Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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