Harmony Gold shares rally after strong update

Kusasalethu gold mine near Carletonville (Photo: Harmony Gold)
Kusasalethu gold mine near Carletonville (Photo: Harmony Gold)

Harmony Gold's share price rocketed following the release of its quarterly operational update.

The gold mining company on Wednesday afternoon issued the update for the three months ended September 30, 2019, which showed improvements in gold sales and production profitability.

The share price closed 8% higher at R49.08. 

According to the report, a higher rand gold price received helped improve cash flows for the first quarter of the 2020 financial year.

The 12% increase in the rand gold price helped boost revenue 20% higher to about R8bn, compared to the previous quarter.

The gold price was also favourable for Harmony's hedging programme. "During the quarter, the volatility and weakening of the rand exchange rate against the US dollar, combined with the increase in the gold price, presented an opportunity to top up and maintain our hedging programme," Harmony said.

There were also increased volumes of gold sold during the quarter. 

Production from South African underground operations quarter on quarter was 7% higher at 8 736kg. Total gold production rose by 1.5% to 11 231kg. This is 5% lower than the 11 773kg production reported for the same period last year.

During the period cash operating costs increased as much as 10.9%, compared to the previous quarter, to R536m.  The main drivers were winter electricity tariffs and annual wage increases.

"Once-off winter electricity tariffs (R271 million) and annual wage increases of R181 million were the primary contributors, accounting for 5.5% and 3.7% respectively of the increase in total cash costs," the update read.

Harmony also gave an update on operations at Kusasalethu mine, about 90km west of Johannesburg. "An unexpected geological structure in one high grade raiseline at Kusasalethu resulted in four panels being stopped. Given the erratic nature of the Ventersdorp Contact Reef, some high grade areas are currently being mined at lower grades than expected. We believe Kusasalethu should be back on plan towards the end of FY20," Harmony said.

Harmony aid the Walfi-Golpu Joint Venture, a unincorporated joint venture between subsidiaries of Harmony and Australia-based Newcrest Mining relating to a project in Papua New Guinea, is revising a work programme meant to start this financial year. "The legal proceedings giving rise to these delays remain unresolved, and an ongoing review by the PNG Government of policies governing the mining industry may further delay permitting timelines.

"It is difficult to estimate the duration of the delay and the market will be advised when discussions resume. The government continues to signal its support for the project," Harmony assured.

As for its operations at Joel and Hidden Valley, Harmony anticipates lower grades of gold at mines nearing the end of their lives, these are Bambanani, Masimong and Unisel. The mining company expects higher grades at the Joel and Hidden Valley mines towards the fourth quarter, it said.

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