Harmony Gold continues to ride the wave of rising gold prices, with the group reporting another record high in its free cash flow and dividend payouts.
Operating free cash flow for the six months to end-December rose by 46% year on year to a new half-year record of R10.39bn, from a previous record of R7.11bn in the second half of 2023.
Shareholders in SA’s largest gold producer by volume will enjoy an interim dividend of 227c per share.
The windfall comes as the group continues to benefit from a soaring gold price, which climbed 23% in the second half of last year as geopolitical tension in Europe and the Middle East, the global election cycle and fears about US President Donald Trump’s potentially inflationary trade policies drove safe-haven demand for gold.
High inflation and rising electricity costs have made operating in SA more expensive than it was during the previous gold boom, in 2019-20, due to geopolitical risk stemming from US-Iran relations and uncertainty about Covid-19.
In its latest interim results, the group’s all-in sustaining costs were more than R250,000/kg higher than in the six months to end-December 2020 — a period in which the gold price Harmony received rose 31% year on year.
The mounting pressure over the past few years was mostly driven by inflation, but electricity tariff hikes also played a role, with the cost of SA’s power costs increasing 15% in the second half of last year.
Harmony spent R4.3bn on electricity in the last six months of the year while wage increases caused the cost of labour in SA to rise 8% year on year to R8.41bn.
The group’s improved profitability is also a double-edged sword in terms of taxation; its current tax expense increased nearly 70% to R1.93bn, while royalties for the SA operations increased by more than half to R812m.
Despite the gradual decline in the profitability of SA’s gold mining sector, the rising gold price has more than offset Harmony’s domestic operational challenges over the past two years.
In the last six months of 2023, the average gold price Harmony received was 18% higher year on year, driving a 226% increase in headline earnings per share.
With an even greater price lift in the second half of last year, the group managed to sustain this momentum despite coming off a higher base, with headline earnings per share growing by a third to R12.70c, thanks to a 19% year-on-year increase in gold revenue during the period under review.
Though full-year production, grade, cost and capital guidance remain unchanged, the group reported a 4% decline in gold output for the first half, driven primarily by lower production at Hidden Valley and its SA operations.
However, the Mponeng gold mine, acquired from AngloGold Ashanti in 2021, delivered a “stellar performance”, with an 11% increase in recovered grades driving a 27% rise in gold production from the operation.
The improved performance of this flagship asset follows investment by the group, which spent a combined R851m on life-of-mine extension projects at Mponeng and Moab Khotsong during the period under review, with R2bn in capital expenditure (capex) earmarked for these projects in this financial year.
With the addition of capital deployed to extend Mine Waste Solutions’ tailings surface facility and begin the construction of a 100MW solar plant at Moab Khotsong, the miner reported a total capex bill of R4.72bn, up 23% from the previous first half.
The new year also brought a shift in Harmony’s leadership, with changes to the board and executive team implemented in January, including the appointment of Beyers Nel as the group’s new CEO.
Nel told Business Day that it was “too early to say much” about how the group’s strategic direction may shift under his leadership, but that Harmony would continue to execute on its strategy to remain a 1.4-million to 1.5-million ounce producer up to 2030, with a clear pathway already in place.
“Different leaders have different styles, but it’s not an individual CEO who drives the performance and the culture — it’s a collective effort,” said Nel.
“As far as strategy goes, it’s too early to say much. But gold is a long game — you don’t change the strategy every quarter. The decisions we make today are the trees we plant that our children will sit under,” he said.
The group plans to make copper a growing part of its business, offering countercyclical benefits should the price of gold fall in the coming years.
During the first half, Harmony completed more than 38,000m of drilling to grow the recently acquired Eva Copper resource in Australia, and the group now expects the last proposed amendments to the environmental authority granted by the Queensland government to be submitted in the final quarter of this financial year.
Update: March 4 2025
This story has been updated with new information.
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