Runway gold price helps Harmony nearly triple quarterly cash flow

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  • Harmony Gold increased operating free cash flow quarter-on-quarter to R1.8 billion, from R603 million in the previous quarter, on the back of stronger gold prices.
  • Net debt at 30 September 2020 was at R3.25 billion after the company paid for the AngloGold Ashanti assets, which include the world's deepest mine, Mponeng.
  • Global ratings agency S&P said it expected gold prices to revert to the long-term average of $1 300 an ounce from 2023.


High production volumes and the stronger gold price saw Harmony increase its operating cash flow almost three times in the quarter to end September, the company announced on Monday.

The gold miner, which in October took control of AngloGold Ashanti's last operating mines in the country, following a $200 million sale, lifted operating free cash flow quarter-on-quarter to R1.8 billion, compared to R603 million in the previous quarter.

Gold companies have benefited from runaway gold spot prices in the last quarter, helping them to reduce debt and improve earnings. Last week, global ratings agency S&P revised the outlook for local gold producers AngloGold Ashanti and Gold Fields from stable to positive, citing favourable operating conditions. 

"A solid operational performance, further aided by the gold price, has significantly strengthened our balance sheet, allowing us to achieve an operating free cash flow margin of 20%," said Harmony CEO Peter Steenkamp.

"We are in the process of integrating our newly acquired assets in line with our growth strategy and believe that we will be able to unlock further value through increased ounces and various surface and service synergies."

The Johannesburg-based company said stronger production cash flows enabled it to reduce net debt to EBITDA ratio from normalised 0.8x in June 2020 to 0.5x by the end of the quarter. Net debt at 30 September 2020 was at R3.25 billion after paying for the AngloGold Ashanti assets, which include the world's deepest mine, Mponeng and Mine Waste Solutions, which are expected to have a positive contribution to future earnings.

"With current favourable market prices and current levels of production prevailing, we expect to be in a net cash position by the end of March 2021," the company said.

Gold is currently trading at $1.854.65 an ounce, having gaining 15.09% in six months. S&P said it expected gold prices to revert to the long-term average of $1 300 an ounce from 2023.

In a bid to protect itself from the rand volatility, Harmony has hedged completed additional hedging to cover the newly acquired ounces at prices in excess of R1 million per kilogram. It increased the average forward gold price on the hedge book from R743 000 per kilogram kg in the previous quarter, to R846 000 per kilogram in September 2020.

"The programme is intended to reduce Harmony’s exposure to a strengthening rand/US dollar exchange rate and lower commodity prices. These programmes are topped up as and when opportunities arise to lock in attractive margins for the business."

The company said it will provide an update to its current market guidance at announement of its interim results in February 2021. 

Harmony closed 1.5% down at R77.55. 

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