Harmony strikes gold with old South African mines that others shunned

Harmony Gold is doing something unusual. And what makes it so unusual is that it is what one would expect from the gold mining industry.

To wit, Harmony said in a trading update on 26 August that it expects its annual earnings for 2024 to more than double. It will unveil its results on 4 September.

This is precisely what one would anticipate, given that the precious metal’s price this year has been racing to one dazzling record high after another.

But what is unusual about Harmony’s performance is that many of its peers are posting relatively subdued earnings despite the precious metal’s record run. While other gold producers are batting twos or boundaries on a pitch that is ideal on the price front, Harmony is whacking sixes straight out of the park.

And what is striking about this is that Harmony is spinning cash from old, deep-level, conventional South African gold mines – assets shunned by others.

“We have exceeded our upward revised production guidance of 1,550,000 ounces while all-in-sustaining costs will come in comfortably below R920,000/kg,” Harmony’s trading update said.

Grades from its deep-level South African mines, Mponeng and Moab Khotsong, were a key driver, rising 6%. And grades at its Hidden Valley operation in Papua New Guinea surged 33%.

“Headline earnings per share (Heps) are expected to be at least 1,852 SA cents per share, which represents an increase of more than 100% from the Heps of 800 SA cents per share reported in the previous comparable period,” the company said. Earnings in US dollars are also expected to rise by more than 100%.

Harmony has got the basics right. It has boosted production and grades with perfect timing to catch the windfall that is the sizzling gold price, which has been lifted to lofty peaks by demand from emerging-market central banks and its status as a “safe haven” investment in a world riven by geopolitical tensions.

During the period under review – the 12 months to the end of June 2024 – the gold price roared to record highs of more than $2,400 an ounce and it has since topped $2,500 an ounce.

In rand terms, it reached more than R1.4-million a kilogram in May at one point compared with about R1.16-million a kilo at the start of Harmony’s financial year. This has all flowed to the company’s bottom line, and its overall results would have been better were it not for an impairment of almost R2.8-billion on its Target North asset.

Harmony’s performance underlines the point that, although South Africa’s gold industry has long been in a decline that is steep, there is still money to be made way down deep.

In 2020, Harmony acquired Mponeng, the world’s deepest mine, for $200-million in a fire sale from AngloGold Ashanti as it departed from gold production in South Africa.

Read more: After the Bell: Does gold ‘glister’ or ‘glitter’, and do we care?

Mponeng has already paid for itself and was a central reason behind Harmony’s 60% surge in annual earnings last year.

“Harmony continues to do an amazing job. The large AngloGold operations it bought added significantly to gold produced and it doesn’t have a fat cat head office,” one mining analyst told Daily Maverick.

It’s all a contrast with some of Harmony’s peers, which one might have thought would be printing money at such prices. When the prices of platinum group metals (PGMs) hit record highs in 2021, PGM producers posted – surprise, surprise – record profits.

Grades from Harmony’s deep-level South African mines, Mponeng and Moab Khotsong, were a key driver, rising 6%. And grades at its Hidden Valley operation in Papua New Guinea surged 33%. (Photo: Unsplash)

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.