Investors Find Cheer in Harmony Gold Stock
By Charlotte Mathews
20 Oct 2008 at 11:08 AM GMT-04:00
resourceinvestor.com
Harmony Gold Mining’s shares offered a ray of cheer to investors buffeted by choppy markets last week as they continued to outperform the other 160 stocks in the JSE’s all-share index on Friday, with a 22% gain since January.
JOHANNESBURG (Business Day) -- Although Harmony’s shares were weaker by midday on Friday at R86.49, in line with the other gold stocks responding to a lower rand gold price, earlier in the week they had recorded an increase of 38% to over R90 in the past 12 months.
In the same period, other gold shares have shed between 30% and 45%.
The only other outstanding performer in the gold mining sector is cash shell Village Main, whose price has more than doubled after former Harmony CEO Bernard Swanepoel bought a majority stake and declared his intention of injecting mining ventures into it.
Old Mutual Investment Group SA fund manager Mandla Mapondera said Harmony’s share price gain on a 12-month basis reflected its recovery after it fell sharply on news of Swanepoel’s departure last year.
Recent gains, though, showed Harmony was benefiting from high rand gold prices.
Its operations were highly leveraged and excluding the Hidden Valley mine being developed in Papua New Guinea, were all in SA, unlike some of the other gold miners.
Imara SP Reid analyst Percy Takunda Chiweshe said one of the suggestions in the market was that US investors were buying Harmony’s shares because Harmony was easier to understand than the other South African gold producers. Gold was about R257,113/kg by Friday afternoon as the rand strengthened slightly against the dollar, helping to offset a sharp fall overnight in the gold price to below $790/oz.
Various explanations were offered for gold’s weakness, ranging from expectations of deflation in the near term to aggressive selling by funds, or big gold loans being made by central banks to inject liquidity into the global banking system.
In a presentation posted on the company’s website from a breakfast held for analysts on Friday, Harmony CEO Graham Briggs said the group was bullish about the gold price.
He said Harmony’s underground operations in South Africa increased tons milled and recovered grade in the September quarter compared to the last quarter, giving an overall increase in production.
He said costs per kilogram were higher than in the previous quarter because of higher labour and stock costs, while the higher winter electricity tariff and the annual electricity increase also had an effect.
Hidden Valley in Papua New Guinea would produce its first gold by the middle of next year, he said. Chiweshe said although Harmony’s management did not give much detail on quarterly performance, analysts had not expected more because the company was in a closed period. Harmony is due to report on the September quarter at the end of this month.
Chiweshe said that management had indicated that in the December quarter, at a gold price of R250000/kg, Harmony would make a margin of R100,000/kg produced.
Chiweshe said his own estimate was that their costs had moved from about R125,000/kg to about R150,000/kg.
Briggs said the company had resumed the sales process for Mount Magnet and was finalising the deal with Rand Uranium on forming a joint venture to exploit its Randfontein assets and could use the proceeds to repay debt.
Harmony would focus on growing its project pipeline and exploration, probably in southeast Asia. Joint ventures and partnerships could be an element in any transaction, he said. |
