Harmony Gold Reports Fiscal 2017 Results

The South African miner posts higher headline EPS and an increase in gold production

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Harmony Gold Mining Co. Ltd. (HMY, Financial) released its financial and operating results for fiscal 2017 on Aug. 17.

The South African miner closed the year reporting headline earnings per share (HEPS) of 95 cents, a 42% increase from 67 cents in 2016.

Results for the year, however, were impacted by non-cash charges for certain impairments and by a $70 million provision the company raised to settle litigation and other costs related to a possible class-action lawsuit regarding silicosis claims.

Full-year headline earnings are backed by revenue of $1.417 billion, up 12% from 2016 due to higer volumes of gold sold (up 2% from 2016) and a 12% increase in the price of one ounce of gold sold. The latter was also possible thanks to gains in currency and commodity hedging activities.

In fiscal 2017, the miner sold approximately 1.098 million ounces for an average gold price of $1,304 per ounce.

The increases in sales volume and gold price improved Harmony’s bottom line, but the gold margin of the company’s core business worsened due to an increase in the all-in sustaining cost per ounce of gold sold.

The gains recognized on the gold and currency hedges helped Harmony Gold improve its financial performance. The miner reported an 8% reduction in net debt, which was $68 million at the end of fiscal 2017.

The AISC per ounce of gold sold was $1,182 versus an AISC of $1,003 per ounce reported in fiscal 2016. The increase in AISC was due to higher cash operating costs – up 19% year over year – and to higher sustaining capital used during the period to improve asset management and performance at its operations.

The production from Harmony Gold’s South African operations and the additional production from the acquisition of Hidden Valley in Papua New Guinea moved operations into higher gear, allowing the miner to reach gold production of 1.09 million ounces in 2017, a 1% increase from 2016. The company met its production guidance for the second year in a row.

The company also achieved another target in 2017. The average concentration of gold per tonne of mineral from underground operations increased to 5.07 grams. This was the fifth increase in a row.

Harmony Gold also said it will pay a dividend of 35 cents for full fiscal 2017, which represents a 70% increase from last year.

For 2018, the miner expects to produce approximately 1.1 million ounces of gold and to report an AISC of $1,180 per ounce. Harmony Gold projects reaching 1.5 million ounces of gold produced in 2019 through acquisitions and exploration activities. It also hopes to further drive costs down.

As of June 30, the company has $205 million in total liquidity, of which $95 million is cash on hand and securities. The remainder is a line of undrawn credit.

Harmony Gold is currently trading around $1.78 per share, up six cents or 3.49% from the previous trading day. The company has a market capitalization of $769.407 million.

Disclosure: I have no positions in Harmony Gold.