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Let me give you the executive summary of Harmony Gold (HMY). It's a South African gold miner that is producing a million less ounces than it did ten years ago, has seen its costs sky rocket, has labor problems, its workers operate in unsafe conditions, its ore grades have deteriorated, has problems getting the electricity that it needs, has substantially increased its share count over the years, and is at a multi-year low. Other than that, it's a great investment.

Harmony's 52 week high is $9.01 and its low is $2.48. The last time the stock was this low was in the 1990s when gold was just a few hundred dollars an ounce. Believe it or not, Harmony actually made more money when gold prices were lower--its costs were lower too. The last article on Seeking Alpha was written in August and tells of some other woes .

Now for the good part. Harmony only has $226 million in long term debt and $209 million in cash. It is sitting on 37.7 million ounces of proved and probable reserves, according to its most recent Annual Report. At a market cap of just over $1 billion, it is sitting on gold (GLD) worth over $44.8 billion. Other minerals include: silver, copper, molybdenum, and uranium. When comparing Harmony apples to apples with other miners, don't forget to use the same measurement of reserves. In the US, we use proved and probable. Other countries use indicated reserves and other measurements.

Harmony is unhedged, meaning that it does not hedge with gold futures. Some outfits have successfully hedged their downside risk in falling markets but others have gotten badly burned when they guess the wrong direction. Personally, I like it when management leaves these decisions to share holders. If you don't like gold, then you're probably not going to like gold producers. Additionally, Harmony is denominated in the South African Rand which will affect profits.

The company produced 1.1 million ounces of gold, which is about half of what it was producing ten years ago. Its ore grade is 4.54 grams per ton which is pretty good. Unfortunately, management has estimated that cost of sales are $1,400, long term, per ounce mined. As you can see, this is a loser with gold at less than $1,400. Low gold has led to a $268 million write down taken on its Hidden Valley open pit mine in Papua New Guinea.

Now for the good news: all bad news is factored in. As a matter of fact, at close to $2.50 a share, there's not much more downside risk. An optimistic view would look something like this: gold goes back up and Harmony keeps having bad things happen but investors are no longer surprised. Investors don't like surprises but looking at the Annual Reports for the last twelve years, something bad always seems to be happening. Every great investor has had their $2 stock. Maybe this can be yours.

Source: Harmony: Bad News Factored In Is Good News For Investors