Harmony Gold, the world’s number five producer, lifted its second quarter earnings due to a weaker rand, and said on Friday its output would rise this year and that it would consider a dividend after June.
Although South Africa has been spared the worst effects of the global financial crisis, markets and the rand have been hit by risk aversion and slower world economic growth.
Despite lower output this quarter, Harmony, the third-biggest producer in Africa, said output would rise this year, taking advantage of the steady gold price, which some analysts expect to trade at about $1 000 an ounce.
Some analysts were concerned about rising costs at Harmony, which were magnified by the drop in output of 8% to 362 242 ounces in the second quarter, mainly due to safety stoppages and fires in one underground mine.
Harmony’s headline earnings per share (EPS) rose to 101 cents from eight cents in the first quarter, largely on the gold price it received, which was 17% higher owing to the weaker rand versus the dollar.
South Africa’s gold producers pay their costs in rand and receive their earnings in dollars.
”It’s a good set of results, but it’s not a big surprise,” Stephen Roelofse, a mining analyst at Metropolitan Asset Managers said. ”They need to keep an eye on the total costs of production, which were 8% up. This is a niggling issue.”
To reduce costs, Harmony should boost its output, he said.
Harmony’s plan to lift output this year is based on improvements at its at Elandsrand and Target mines, and the revamp of the Doornkop and Phakisa mines, which will have their shaft infrastructure completed, and finally Hidden Valley in Papua New Guinea, which starts production in mid-2009.
”I believe calendar 2009 has every prospect to be a good year for Harmony. Commodity prices have come down and this should reflect in our mining input costs,” Graham Briggs, Harmony’s chief executive officer said.
Dividend
Briggs declined to give an estimate for third quarter output, but told a results briefing the company’s biggest mine, Elandsrand near Johannesburg, should be safer and would produce more after efforts to improve safety and output.
The company would also consider paying out a dividend.
”The dividend will be considered by the company’s board once we achieve a debt-free position after the June [fourth] quarter,” said Briggs at a results presentation in Johannesburg.
Briggs said owing to the credit crisis, Harmony would focus on conserving cash and being debt-free, and restated its desire to buy new assets after June, when it expects to be debt-free.
He added that the financial climate had put a lot of companies into dire straits, and ripe for acquisition.
”Our strategy is not restricted to any particular area, but is aimed at acquiring long-life assets that offer higher margins,” Briggs said. — Reuters