Despite Covid-19 disruptions to its operations, Harmony Gold Mining Company managed to achieve up to 75% of planned production during the last quarter of its financial year to June 30, which was higher than it initially expected to achieve.
However, year-on-year, total gold production was 15% lower at 1.2-million ounces, mainly as a result of the impact of the Covid-19 national lockdown and phased recovery in South Africa.
Year-on-year, the average underground recovered grade of Harmony’s South African assets was 2.5% lower at 5.45 g/t, compared with 5.59 g/t in the 2019 financial year. This was mainly a result of the impact of ongoing remedial actions to address geological challenges and seismicity at Kusasalethu.
In addition, surface operations posted a 3.9% improvement in grade to 0.267 g/t.
Meanwhile, as Harmony’s Papua New Guinea-based Hidden Valley’s operations transition from Stage 5 to Stage 6, its recovered grade has decreased to 1.25 g/t at year-end from 1.60 g/t in the 2019 financial year.
Accounting for lower production year-on-year, the all-in sustaining cost for all operations is expected to be between 17% and 19% higher year-on-year, at about R645 000/kg, to R655 000/kg. This is up from the R550 005/kg achieved in the prior financial year.
However, Harmony notes that gold prices have rallied to an all-time high following the global economic fallout from Covid-19 and ongoing geopolitical uncertainty supporting its safe haven status with investors.
The average gold price received for the year under review was 25% higher, at R735 569/kg, compared with R586 653/kg in the prior financial year.
As such, Harmony estimates that the operating free cash flow margin for the year under review may double, from 7% in the 2019 financial year, to about 13% to 15%.
Further, Harmony notes that the year-on-year weakening of the rand against the dollar negatively impacted on the translation of Harmony’s dollar facility, while also affecting the valuation of the foreign exchange derivatives.
Thus, the increase in the gold price, both in dollar and in rand terms, negatively impacted on the valuation of the gold hedges. As such, it is expected that these changes may have an impact on Harmony’s headline earnings.
In this regard, Harmony continues to enjoy favourable commodity and foreign exchange pricing on the unhedged portion of its exposure, while simultaneously locking-in the current higher prices as part of its hedging programme.
Meanwhile, Harmony also notes that preparations for the reporting of its year-end results have been slowed owing to the responsible employees and external audit team members having to manage their schedules in compliance with Covid-19 protective measures.
As South Africa moves into the suggested peak of the Covid-19 pandemic, Harmony has prioritised the safety and health of its employees, as well as those of service-providers required to visit the company’s offices and operations.
Consequently, the reporting of the provisional financial results for the year ended June 30 has been rescheduled from August 18, to mid-September, to ensure that the figures are accurate, reliable and reviewed by auditors, while still meeting JSE reporting timelines.