Harmony Gold expects earnings to be lower than prior financial year

Harmony Gold [JSE:HAR] said on Friday that it has achieved its production guidance for the third consecutive year and increased its underground recovered grade by 8% - an increase in grade for a 6th consecutive year.

In a note to shareholders Harmony advised that a reasonable degree of certainty exists that earnings for the year ended 30 June 2018 will be lower than for the prior financial year. It is primarily due to once-off non-cash impairments; a reported translation loss on the US$ denominated debt at 30 June 2018; and lower derivative gains recorded in the 2018 financial year.

The recorded impairments reduce the net profit of the company, but have no impact on reported cash balances and free cash flow, it said.

Headline earnings per share (HEPS) are expected to be between R1.64 and R1.79. This is a year-on-year decrease of approximately 40% to 45% reported for the previous comparable period - which was R2.98.

In US dollar terms, HEPS are expected to be between 12 and 14 US cents per share, which is between 35% to 45% lower than the headline earnings of 21 US cents per share reported for the previous comparable period.

Earnings per share (EPS) are expected to decrease to a loss of between R9.95 and R10.11 per share. In US dollar terms, the loss per share is expected to be between 68 and 84 US cents per share.

Strong production performance

According to Harmony, it delivered a strong production performance in the 2018 financial year. During the financial year Harmony delivered a strong production performance and achieved what it regards as two significant milestones in driving the company’s strategy to produce safe, profitable ounces and increase margins.

The first milestone is the Hidden Valley re-investment, which was delivered safely, below budget and ahead of schedule. The second milestone was the acquisition of the Moab Khotsong operations and its successful integration into Harmony’s portfolio.

According to Harmony, these two investments enhance the quality of the company’s portfolio and are already contributing to strengthening its results.

In the 2018 financial year Harmony achieved an all-in sustaining unit cost of R508 970/kg (US$1 231/oz), beating annual guidance of R520 000/kg and beating the all-in sustaining unit cost of R516 687/kg (US$1 182/oz) reported for the June 2017 financial year.

Impairment

An impairment of R5.3bn (US$386m) was recorded at Harmony’s Tshepong Operations, Target 1, Joel, Kusasalethu, Unisel, Masimong, Doornkop, and the Target North undeveloped property. The impairments were mainly driven by forecasted cost inflation and a subdued gold price of R535 000/kg ($1 250 at R/$13.30) applied in the company’s life-of-mine plans and the resultant impact on margins.

A translation loss of approximately R669m was recognised on the US$ denominated debt as at 30 June 2018, compared to a translation gain of
R215m recorded in the previous comparable period.

The financial information on which this trading statement has been based has not been reviewed or reported on by Harmony’s external auditors.
Harmony will publish its production and financial results for the year ended 30 June 2018 on Tuesday, 21 August 2018.

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