Harmony Gold warns of precipitous drop in earnings

Harmony Gold said on Friday that its earnings per share for the six months to end-December 2018 would fall by as much as 97% compared with the year-earlier period, due to an almost R1bn drop in the value of an asset. 

Its Hidden Valley mine in Papua New Guinea reached commercial levels of production during the period but, as a result of its operations, the company registered a R915m depreciation of the asset. Depreciation refers to how much of the value of an asset was used during a period.

Headline earnings per share (HEPS) for the period are expected to fall by between 87% and 97% compared with the previous period’s R2.24.

The company also suffered a R180m translation loss on its dollar-denominated debt during the period. This refers to the loss suffered as a result of currency movements, with the rand depreciating 4.5% against the dollar in the six months to December 2018.

Gold production for the group was 751,000 ounces, a 34% increase over the same period in 2017 as a result of its investments in its Hidden Valley and Moab Khotsong mines.

The update was a bit disappointing, with a  large depreciation charge and foreign exchange loss taking some of the shine off the growth coming through at Hidden Valley and Moab Khotsong, said Nedbank equity analyst Arnold van Graan.

“However, at the end of the day it’s all about free cash flows, and both these assets should boost free cash flows going forward,” he said.

Harmony’s interim results are expected on Tuesday.

At 11.am on Friday, Harmony’s share price was down 0.66% to R28.81, compared with a 0.68% rise in the JSE’s gold index.

gernetzkyk@businesslive.co.za