Harmony Gold Seeks Acquisitions, Debt Repayment as Profits Surge

  • Drop in South African currency is increasing profit margins
  • Gold miner is best performer on Johannesburg bourse this year

Harmony Gold Mining Co., the best performer on the Johannesburg stock exchange this year, is seeking to make acquisitions and repay debt after a plunge in the South African rand caused its profit margins to increase in the second quarter.

The company has a preference for operating mines and will look in its existing locations of sub-Saharan Africa and Papua New Guinea, Finance Director Frank Abbott said on a call with reporters Thursday. It will likely repay debt by the end of the year, he said.

Harmony’s stock has more than doubled this year as the plunging rand -- down 9.7 percent against the dollar since Dec. 1 -- combined with a rising gold price and caused its profit margins to surge. The company, which gets almost all its bullion from South Africa, gets its revenue in dollars while its costs are in the local currency.

Gold priced in rand has climbed 19 percent since Dec. 1 and traded at 18,268 rand ($1,143) an ounce at 8:34 a.m. in Johannesburg.

“This rand gold price, which is substantially better than even the previous quarter, does give us cash flow," Abbott said. “We will certainly be looking for possible acquisitions.”

Headline earnings were 74 million rand in the three months ended Dec. 31, compared with a 523 million-rand loss in the previous quarter, the Randfontein, South Africa based company said in a statement Thursday. All-in sustaining costs were 434,834 rand a kilogram, a 7 percent improvement. In dollar terms, they declined 15 percent to $950 an ounce.

“The fall in the rand has assisted a lot in term of profits but I think fundamentally we need to focus on the stuff that we can control which is the safety, the production the grade is and the cost,” Chief Executive Officer Peter Steenkamp said on the call.

The company produced 287,074 ounces of gold in the quarter, 2 percent higher than the previous three months, it said. Output will probably fall this quarter due to the slow startup after the December break, but the company’s 1.1 million-ounce forecast for the year remains unchanged, Steenkamp said.

Harmony repaid 1.1 billion rand of debt in the quarter, meaning its net debt is now 2.5 billion rand.

The higher margins means Harmony is able to fund the development of a mine at Golpu, a deposit in Papua New Guinean that it jointly owns with Melbourne-based Newcrest Mining Ltd.

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