Tuesday, 21 August 2012 - 20:00
Harmony Gold ? Unlocking Potential in Papua New Guinea?
Harmony Gold, South Africa’s third-largest gold producer, recently released a set of strong numbers for their financial year ended 30 June 2012. The gold miner reported an 80% increase in operating (production) profits for the year to R 5.9bn, with headline earnings per share more than doubling from 223 cents to 551 cents. A final dividend of 50c brought total dividends for the year to 90c per share.
Simple start, rapid expansion
Harmony was incorporated and registered in 1950 and operated a single gold mine in agreement with Randgold until 1997, when it became completely independent. Through a series of acquisitions including Lydex, Bissett, Evander Gold Mines, Randfontein Estates, Kalgold, and West Rand Consolidated Mines, the company has evolved into a world-class gold producer that is looking for opportunity to expand even further. Much of Harmony’s recent success can be attributed to their innovative management team and executives, including CEO Graham Briggs and non-executive chairman Patrice Motsepe.
The miner’s interests in South Africa include nine continuing underground operations and three surface operations, mostly concentrated in the Witwatersrand area. Operations at Kusasalethu and Tshepong account for nearly 33% of the total gold produced locally, and contribute 37% to the production profit.
Harmony has made a conscious effort of late to dispose of high-cost, unproductive mines, and this strategy is rewarded in that only one operation posted a loss for the year. In addition to streamlining its current operations, a renewed focus was placed on exploration and unearthing new opportunities in SA and abroad.
Harmony launched into offshore operations in 2007, acquiring royalty rights for the Hidden Valley area in Papua New Guinea. The Morobe Mining Joint Venture situated at Hidden Valley, which is a 50% partnership with Newcrest of Australia, is still in its exploration phase, with production planned to start in 2016.
This area is probably the most valuable untapped resource on the planet, with investigations and test drilling at the Wafi-Golpu site revealing the presence of vast amounts of high-quality copper and gold. The results of the pre-feasibility study on the region, which Harmony will release on 29 August, will be critical to Harmony’s future production and resultant profitability. Management hopes to mine 40% to 45% of its gold outside of SA by 2017, and establishing a flourishing operation at Wafi-Golphu can make this objective a reality.
Drivers of Profit
Harmony produced 39.642 tons of gold from a total of nearly 19m tons of ore milled, which is a slight decrease of 2% over the previous financial year. Cash operating costs increased by 20% due to increased electricity tariffs and a rise in transportation costs. The main drivers of profitability were the increase in the rand gold price by 36% and the weakening of the ZARUSD exchange rate by 11%. As a result, the increase in operating profit of 80% is mostly due to unpredictable macro factors that do not necessarily reflect Harmony’s ability to mine gold efficiently. These factors affect all gold miners similarly, and result in very inconsistent year-to-year earnings figures across the board.
Current Valuation and Future Prospects
Harmony currently trades at a PE of 13.69, which is expensive relative to its rivals AngloGold Ashanti (8.69) and Gold Fields (8.9), and has a DY of about 1.2%. With the resources sector in general priced at very attractive levels, the opportunity to increase exposure is ever present.
Harmony’s venture at Wafi-Golphu has the potential to distinguish the company from its rivals in terms of ounces produced and ultimately also profitability, but only time will tell if the gold deposits can be accessed cost-effectively.
Investors have to decide if Harmony’s current price is low enough to pay for a capable management team, established local operations, and a potential gold mine (pardon the pun) of possibilities overseas.
Cor van Deventer
021 914 4966
Tue, 21 Aug 2012
South African stocks booked a fresh record close on Tuesday as industrials and miners pushed higher on hopes that meetings on Greece's future this week and new plans drawn by the European Central Bank will help the Europe manage its debt woes.
Revenue for the year shot up to R224.8 million (2011: R180.9 million). Gross profit jumped to R103.9 million (2011: R83.4 million), profit from operations rose to R22.2 million (2011: R15 million), while profit for the year attributable to equity holders of the parent grew to R18.1 million (
Hong Kong shares ended flat on
Tuesday, as strength in the Chinese consumer sector outweighed a
3 percent loss for China's leading offshore oil producer CNOOC
Ltd after its first half net profit fell twice as much as the
market had expected.
Platinum edged down on Tuesday, sliding from a two-month peak hit in the previous session on heightened supply worries in top producer South Africa, while expectations for easing monetary policy supported gold.. . .
Platinum prices jumped nearly 2
percent on Monday, hitting a two-month high after deadly
violence at a mine in top producer South Africa triggered heavy
speculative buying on supply worries.
Bullion prices edged up as trading volume for U.S. gold
futures was. . .
Further to the audited results for the year ended 30 June 2012 released on SENS today, 21 August 2012 notice is hereby given that a gross cash annual dividend of 28.00 cents per share has been declared for the year ended. . .
Shareholders were advised that in line with their strategy to operate as One Bank in Africa, Barclays and its subsidiary Absa Group Limited ("Absa") are engaged in discussions about combining the majority of the Barclays Africa operations with Absa ("the proposed. . .
World Markets (Spot Prices)
|JSE Top 40||17:00||31630.26||331.00||1.06%|
|JSE Indust 25||17:00||35865.71||349.00||0.98%|
|Rand / Dollar||19:59||8.2391||-0.0890||-1.07%|
|Rand / Pound||19:55||12.9747||-0.0818||-0.63%|
|Rand / Euro||19:55||10.2780||-0.0079||-0.08%|
|Rand / NZD||19:58||6.6843||-0.0536||-0.80%|
|Rand / AUD||19:55||8.6433||-0.0602||-0.69%|
|Yen / Dollar||19:59||79.2860||-0.1780||-0.22%|
|Euro / Dollar||19:55||0.8014||-0.0083||-1.03%|
|Dollar / Euro||19:59||1.2478||0.0132||1.07%|
|Pound / Dollar||19:55||0.6333||-0.0030||-0.47%|
Click here for the Sharenet Spot Price page
The JSE Today
* Includes all listed instruments on the JSE
|Index Name||RP||Move||% Move|
|Financial & Ind. 30||39,209.00||314.00||0.81%|
|Oil & Gas ||26,713.00||249.00||0.94%|
|Oil & Gas Producers ||14,363.00||134.00||0.94%|
|Basic Materials ||26,714.00||447.00||1.70%|
|Forestry & Paper ||13,889.00||156.00||1.14%|
|Industrial Metals ||29,169.00||838.00||2.96%|
|General Industrials ||98.00||.00||0.77%|
|Consumer Goods ||36,388.00||192.00||0.53%|
|Automobiles & Parts ||6,114.00||57.00||0.94%|
|Health Care ||48,778.00||706.00||1.47%|
|Index Name||RP||Move||% Move|
|Food Producers ||66,015.00||1424.00||2.21%|
|Personal Goods ||522.00||3.00||0.65%|
|Consumer Services ||74,200.00||993.00||1.36%|
|General Retailers ||62,328.00||862.00||1.40%|
|Travel & Leisure ||4,081.00||43.00||1.07%|
|Support Services ||2,148.00||-4.00||-0.23%|
|Non-life Insurance ||42,494.00||281.00||0.67%|
|Life Insurance ||22,470.00||118.00||0.53%|
|General Financial ||2,474.00||.00||-0.04%|
|SHARIAH TOP40 ||3,108.00||43||1.43%|
|FTSE/JSE SHARIAH ALL||3,231.00||44||1.39%|
|FTSE JSE Fledgling ||5,583.00||9||0.17%|
|FTSE/JSE Alt X ||1,059.00||-48||-4.40%|
|SA LISTED PROPERTY ||486.00||-0.07%|
|CAPPED PROPERTY ||387.00||-0.02%|
|FTSE/JSE RAFI 40||7,318.00||69||0.95%|
|Capped Top 40||16,692.00||174||1.06%|
|Capped All Share||18,126.00||183||1.02%|
|JSE TABACO ||5,561.00||0||0.02%|
Click here for the Sharenet Index Summary page
Latest Consensus Changes**
|MST||MUSTEK LIMITED||BUY||17 Aug|
|IPL||IMPERIAL HOLDINGS LTD||HOLD||17 Aug|
|RLO||REUNERT LIMITED||SELL||17 Aug|
|ALT||ALLIED TECHNOLOGIES LIMIT...||HOLD||17 Aug|
|BIL||BHP BILLITON PLC||BUY||17 Aug||
|Expected||Company Name||Fin. Date|
|22 Aug 2012||BHPBILL||June 2012 (Final)|
|22 Aug 2012||BHPBILL5||June 2012 (Final)|
|22 Aug 2012||EHSV||June 2012 (Interim)|
|22 Aug 2012||EMIRA||June 2012 (Final)|
|22 Aug 2012||FERRUM||June 2012 (Final)|
|SA CORP||12-08-20||12-09-20||12-10-01||R 0.1517|
|FBR||Famous Brands Ltd.||23/08/2012||Confirmed|
|ISB||Insimbi Refractory and Alloy Supplies Lt...||24/08/2012||Confirmed|
Stock Exchange News Service
Click here for more SENS news