Harmony Gold Mining, the gold mining and exploration company that produces gold from its operations in SA and Papua New Guinea, on Thursday said it would bounce back to profitability in the year to June, with acquisition of the Mponeng operations from AngloGold Ashanti last October boosting its bottom line, in addition to higher average gold prices.
Like its bigger peers, Harmony has benefited from the rise in the prices of precious metals, which act as a store of value during bouts of uncertainty. The gold price peaked at $2,063.54/oz about a year ago when uncertainty about the direction of the Covid-19 pandemic fuelled demand.
To help soften the blow of the pandemic on the economy, the US Federal Reserve cut interest rates to record lows in 2020 and started a multi-billion dollar bond buying programme.
However, demand prospects for gold have dimmed in 2021 given signs of economic recovery and rising inflation in the US, which raised speculation that the US Fed could taper its $120bn a month bond buying programme.
In yet another sign of economic recovery, South Korea raised interest rates by 25 basis points for the first time in nearly three years.
In a higher interest rate scenario, the demand for gold tends to drop as it has to compete with other higher-yielding asset classes.
Harmony Gold is at the mercy of the gold price and rand exchange rate, which are determined by market forces.
In a trading update, Harmony said in a statement that headline earnings per share will be R8.57-R9.94 in the year to end-June, swinging from a headline loss per share of R1.54 a year ago.
The acquired assets from AngloGold contributed R7.9bn in revenue and R1.8bn in net profit. In addition, the fair value of the assets and liabilities acquired exceeded the money Harmony Gold paid, resulting in a gain on bargain purchase of R1.2bn.
The average rand gold price during the period was R851,045/kg, from R735,569/kg the year before. The quantity of gold sold rose 23% to 47,353kg, lifting group revenue to R41.7bn from R29.2bn. In dollar terms, the average gold price rose to $1,719/oz, from $1,461/oz.
Harmony Gold made a gain of close to R1bn on its hedging strategy, as the rand strengthened against the dollar. Over a comparable period a year ago, it made a loss of R1.67bn.
Harmony Gold shares were down 0.13% to R53.76 on Thursday. However, other gold shares were mostly higher on the day, with AngloGold Ashanti gaining 2.29% to R242.59 and Gold Fields gaining 1.8% to R137.01.
The gold producer will release its full-year results on Tuesday.
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