As expected, South Africa’s third largest gold producer Harmony Gold reported its eleventh consecutive quarterly headline loss due to the Christmas break, a reduction in grades and an increase in costs.
For the March quarter, Harmony reported a headline loss of 50 cents per share from a loss of 75 cents in the December quarter.
Seven analysts polled by I-Net Bridge had expected Harmony to report a March quarter headline loss per share of 34 cents.
Forecasts ranged from a loss of 96 cents to a profit of four cents.
Cash operating profit for the March quarter was R306-million from R389-million in the December quarter.
“Harmony’s March result was no surprise. What the company needs to do is rebuild credibility and that takes time. With volumes set to be similar to last year’s December quarter, lower cost and a higher gold price, the June quarter should be a good quarter,” Sanlam Investment Management resources analyst Stephen Roelofse said.
Harmony chief executive officer Bernard Swanepoel said that during the June quarter the volumes from the company’s mines would recover from the March quarter and grade improvements would come through towards the end of the year.
Of concern to Roelofse was that its took Harmony 18 months to acknowledge that flexibility was a problem at the company’s mines. “No flexibility means more development and that takes time,” Roelofse added.
At Harmony’s results presentation, there were questions about the company’s cash flow position in the future.
At the end of March, Harmony had R1,781-billion available in cash, down from R2,914-billion at the end of December 2005.
“Harmony has no real problem with cash flow, especially with the current gold price,” Roelofse said. Harmony would easily be able to access any extra finance, he added.
At 13.45pm, the spot price of gold was quoted at $679,90/oz, up $0,45/oz from the previous close, after climbing to the highest level since October 1980 of $684,69/oz.
Harmony had been expected to have produced gold output during the March quarter of between 614 000 troy ounces and 601 000 oz, down from the previous quarter’s 653 171 oz.
Instead, Harmony produced a total of 561 477 oz of gold in the March quarter.
Cash costs rose to $470 an ounce from $396/oz in the December quarter and in rand terms, Harmony’s cash costs increased to R92 914 per kilogramme from R83 154 per kilogramme in the December quarter.
The gold price received during the quarter was R110 399 per kilogramme from R102 333 per kilogramme in the December quarter.
In March, Harmony acquired a 29,2% stake in Western Areas for R1,985-billion.
Western Areas has a 50% stake in the South Deep gold mine near Johannesburg.
The world’s largest gold miner Barrick Gold owns the other 50% in the South Deep gold mine.
AngloGold Ashanti has expressed an interest in Barrick’s stake in South Deep and Gold Fields has said there was place for co-operation between South Deep and Gold Fields’ Kloof mine.
“Harmony is in a very good position with its 29,2% in Western Areas. If someone else buys into South Deep, then Harmony stands to benefit,” Roelofse said.
South Deep has one of the largest gold ore bodies worldwide with gold ore reserves estimated at 29,2-million oz and a resource of 67-million oz.
At 2pm, Harmony’s share on the JSE were quoted at R101,50, down 0,1% or five cents from the previous close. ‒ I-Net Bridge