Our opinion on the current state of HARMONY(HAR)Harmony Gold Mining Company Limited (HAR), traditionally considered one of South Africa's most marginal gold mines, has taken significant strides towards enhancing its operational and financial profile. The acquisition and subsequent development of Mponeng gold mine, which is the world’s deepest mine, represent a crucial pivot in its business strategy. This mine, fraught with the challenges of ultra-deep level mining, was purchased in 2021 for R4.2bn, marking a substantial commitment to its future growth.
To complement its mining activities, Harmony is also investing in renewable energy, with plans to build a 30 MW solar park in the Free State and an additional 80 MW of green power. These initiatives underscore a broader shift towards sustainability within the mining sector.
Tragically, the company has faced significant operational challenges, including the death of four employees at Kusasalethu mine in May 2022. Such incidents highlight the ongoing safety challenges in the mining industry.
Expanding beyond South African borders, Harmony acquired the Eva copper project in Australia for R4.1bn in October 2022. This project, which is not expected to commence production for three years, promises to diversify Harmony’s production by adding 260,000 ounces of gold and 1.7 billion pounds of copper to its reserves.
The financial results for the six months ending 31st December 2023 were promising, showing a 14% increase in gold production and an 18% increase in the average price received due to an 8% decline in the rand. This resulted in a significant 226% increase in headline earnings per share (HEPS), allowing Harmony to declare a dividend of 147c per share. The company highlighted the approval of the Mponeng extension project, which is expected to extend the mine's life from 7 to 20 years and improve its profitability margins.
Further updates for the nine months to 31st March 2024 indicated continued operational success with an 8% increase in recovered underground grades and a 10% rise in gold production. This performance has led to a 26% increase in gold revenue, supported by a 17% rise in the rand price of gold.
Harmony's financial position is robust, with a net cash balance of R1.544 billion as of the latest reporting period. Additionally, the recent agreement on a five-year wage deal with all its unions on 3rd April 2024 suggests stable labor relations moving forward.
Despite these positive developments, Harmony remains subject to the intrinsic risks and volatilities associated with the gold mining industry, which are closely tied to fluctuations in the international price of gold. The technical analysis suggests that the stock is in a volatile upward trend, emphasizing its nature as a high-risk, high-reward investment opportunity primarily influenced by global commodity prices.