Harmony Gold has released an operational update for the nine months ended March 2022. Although the share price closed 5.8% lower yesterday, it was on a day that burned bright red on the JSE. The resources index closed 4.9% lower.
In this nine-month period, the gold price in rands increased just 1% and gold revenue was 2% higher.
Gold production in South Africa was 2% higher and in Hidden Valley in Papua New Guinea was 34% lower as a result of the failure of an overland conveyor belt. The South African number is flattered by an additional three months of production from Mponeng. With electricity and water supply constraints in the local operations, there are underlying challenges there. Quarter-on-quarter production was 11% lower.
The ugly number is all-in sustaining cost, which jumped 15% thanks to lower production at Hidden Valley and inflationary pressures.
The net result isn’t very shiny at all unfortunately, with adjusted EBITDA 19% lower. This is a direct result of tepid revenue growth and production pressures during a time of inflationary pressures on expenses.
Hidden Valley is expected to return to normalised levels of production in the fourth quarter of FY22.
Despite all this, Harmony has reiterated its full year guidance. You may find it interesting that all-in sustaining cost guidance is between R805,000/kg and R835,000/kg. The current gold price is around R950,000/kg and Harmony engages in hedging practices on a selective basis.
The other good news story is that net debt has reduced over the nine months by R350 million to R603 million. It was stable quarter-on-quarter. Net debt to EBITDA is just 0.1x.
Harmony’s share price is down 15.4% this year and 19% over the past twelve months. A thesis of owning gold miners during a period of inflation really isn’t working. Ask me – I can tell you based on my own positions sadly!
