Harmony Gold: Another Strong South African Gold Miner

Summary

• Harmony Gold posted a 39% increase in revenue this semester, or a jump from $1,054 million a year ago to $1,328 million.
• Total gold production for 2020 was 745,347 Au Oz compared to 688,379 Au Oz in 2019.
• Harmony has declared an interim dividend of 110 SA cents or $0.075 per share.
• HMY is a good long-term opportunity below $4.
• Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Learn More »

Source: Harmony

Investment Thesis

Harmony Gold Mining (NYSE:HMY) is mainly a South African gold miner compared to Sibanye Stillwater (NYSE: SBSW). I recommend reading my recent article on Sibanye Stillwater by clicking here.

The company released on Feb. 23, 2021, its year 2020 results ending on Dec. 31, 2020. Production for the interim six months was impressive, with Total gold production for H2 2020 of 745 347oz compared to 688 379oz last year.

The company owns and operates ten underground mining operations, one open-pit mine, and several South Africa surface operations.

Furthermore, Harmony is active in Papua New Guinea, where it owns the Hidden Valley mine, an open-pit gold and silver mine.

The investment thesis is about the same as my preceding article. I view the company as a long-term candidate for investors who want to get involved in the South African gold industry.

However, the gold sector is very unpredictable, and I recommend trading about 30% of your long-term position to profit from the volatility and lower your risk.

Harmony Gold differs slightly from Sibanye Stillwater because it produces platinum, palladium, and Rhodium with much smaller gold production.

Both HMY and SBSW have outperformed another South African miner called Impala Platinum (OTCQX:IMPUY) and now are up about 100% in one year.

Data by YCharts

CEO Peter Steenkamp said in the conference call:

The exceptional performances achieved in the first half of 2021, the financial year now, substantiates the growth strategy that we set out to pursue at the beginning of 2016. Through astute acquisitions, we have successfully added quality ounces and de-risked our asset portfolio. Harmony is no longer a marginal gold producer, but an emerging market mining specialist.

Harmony Gold Mining - 2020 Ending December 2020 - The Raw Numbers

Harmony Gold Mining	12/2018	6/2019	1272019	6/2020	12/20/20
Total Revenues in $ Million	1054.0	813.0	1034.0	837.7	1328.0
Net Income in $ Million	91.0	-147.0	89.3	-126.3	356.0
EBITDA $ Million	125.0	102.0	122.6	-99.2	425.3
EPS diluted in $/share	0.16	-0.27	0.16	-0.24	0.58
Operating Cash flow in $ Million	186.0	114.0	182.5	122.3	356.0
Capital Expenditure in $ Million	155.0	75.0	152.1	82.9	144.0
Free Cash Flow in $ Million	31.0	39.0	30.4	39.4	212.0
Total Cash $ Million	89.0	367.0	87.3	371.0	259.5
Total Long-term Debt (incl. current) In $ Million	396.0	446.0	388.5	444.3	295.2
Dividend in $/share	0.0	0.0	0.0	0.0	0.075
Shares outstanding (diluted) in Million	549.0	547.0	549.0	545.4	613.0

Click to enlarge

Data Source: Company document

Balance Sheet Analysis

1 - Revenues (six months) and other financial indicators

Harmony Gold posted a 39% increase in revenue this semester or a jump from $1,054 million a year ago to $1,328 million. The increase was due to higher production and higher gold price, reaching $1,726 per ounce.

Harmony posted a net profit of $356 million compared to $91 million a year ago. Finally, total production costs were up 30% or $911 million compared to $774 million a year ago.

The rand versus the US dollar ratio was 16.25 in 2020 vs. 14.18 in 2019.

2 - Quarterly production analysis - historical data

Total gold production for 2020 was 745,347 Au Oz compared to 688,379 Au Oz in 2019. This semester's higher gold production resulted from the Mponeng mine and related assets added to the portfolio of productive mines.

Below is shown the six-month gold production history.

Details production per mine for Y2020 (including the two last semester of 2020).

For the last six months, gold production was a total of 431,622 Au Oz, up significantly due to the addition of Mponeng and other related assets. Production from the company surface mines was 86% higher year over year due to higher throughput, while the surface grade dropped to 0.23 g/T.

Hidden Valley’s recovered grade decreased by 5% during the open pit transition between stages 5 and 6. Gold production was 17% lower for the period due to lower mill throughput occasioned by a major shutdown and additional maintenance work being carried out.

As we can see in the chart below. The average gold price received during 2020 was $1,716 versus $1,518 in 2019. AISC for 2020 was $1,370 per ounce vs. $1,336 per ounce in 2019. The company grade was up by 5% to 5.58g/t year over year.

3 - Mineral resources and reserves increased with the acquisition of AngloAshanti mines. It is now 169.8 Moz in resource and 43.8 Moz in reserves.

The company’s attributable gold and gold equivalent mineral resources are declared as 118.6Moz as of 30 June 2020, a 1.12% increase year on year from the 117.3Moz declared as at 30 June 2019

Image From Prior Presentation

However, the new acquisitions were adding to the reserves in December 2020.

Harmony has successfully integrated Mponeng and related assets as from 1 October 2020. The integration of these assets into our portfolio is expected to increase group resources by 43% to 169.8 million ounces from 118.6 million ounces and group mineral reserves by 20% to 43.8 million ounces from 36.5 million ounces (as per AngloGold Ashanti Limited mineral resources declaration as at December 2019).

4 - Free cash flow for recent last six months jumped to $212 million

Note: Free cash flow is the cash from operating activities minus CapEx.

The company's 2020 free cash flow is $251.4 million vs. $69.4 million in 2019. It's impressive progress.

About the new dividend policy:

Harmony has reviewed its existing dividend policy and is pleased to confirm a more definitive policy aimed at paying a return of 20% of net free cash generated to shareholders. The new dividend policy is aimed at being more predictable, meaningful and sustainable. While the dividend policy is reviewed every two years, the payment of a dividend will be at the discretion of the board and will be decided on every six months

As such, we are pleased to announce that Harmony has declared an interim dividend of 110 SA cents (7.5 US cents) per share on the back of our strong free cash flow. This translates to a dividend yield of approximately 2% based on our recent share price

5 - The net debt as of December 31, 2020, was down to $39 million.

The net debt has been reduced by $40 million this semester again. The net debt is now $39 million.

Conclusion and Technical analysis

Harmony Gold's recent results were quite impressive with a record gold production thanks to the Mponeng mine and other assets acquired from AngloAshanti.

The company is almost debt-free and has reinstated a dividend of $0.075 per share.

However, the market is not really focusing on the fundamentals here, and gold is getting sick sleeping in the dog house.

The gold price is falling like a stone in this ocean of sheer exuberance. The world economy is struggling, and governments are throwing paper money like it will not be a tomorrow.

The US Senate passed a 1.9 trillion relief bill that left me puzzled. Most American citizens will get another $1,400 check on top of the $600 check they received a couple of months ago. But where are these trillions coming from?

However, the market is talking about recovery "just around the corner" and oil prices reached $70 per barrel a few days ago with the help of OPEC+. Let's celebrate.

Technical Analysis

HMY forms a descending channel pattern with secondary resistance at the 50MA or $4.30 and a second resistance at $4.80. The short-term strategy is to sell partially about 30% of your position between $4.80 and $5.00 and buy back between $4 and $3.75, depending on the price of gold that continues to weaken and now is below $1,685 per ounce or about 19% correction from the top of $2,070 per ounce seen in August 2020.

I recommend trading while keeping an eye on the gold price. If the gold price cannot find support soon, HMY may eventually trade below $3.50.

Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support. Thanks!

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I may consider a position around $3.80.