Harmony Gold’s significant profit translates into strong cash generation

JOHANNESBURG, South Africa – Harmony Gold Mining Company in its operational performance for the nine months ended 31 March 2021 has delivered another strong set of operational results year-on-year on the back of the successful integration of Mponeng and related assets into its portfolio, and a stronger Rand per kilogram gold price.

The combination of a higher gold price received and improved EBITDA margin has resulted in strong cash generation and further strengthening of the Company’s balance sheet. Growing the Company’s  ounces and margins in a safe and capital-responsible manner will guide each of its decisions as it continues to invest in both its people and  its assets.

With a sturdy balance sheet and astute capital decisions, Harmony is well positioned for the next phase of its growth strategy. The Company has a pipeline of cash-enhancing projects which will boost its cash flow margins and sustain its production for many years to come.

In addition, the tier 1 Wafi-Golpu project offers both commodity and geographic diversification, further transforming Harmony’s portfolio as it focuses on becoming a lower risk and higher margin business.

Operating free cash flow for the nine months ended 31 March 2021 was up 78% to R5 297 million (US$335 million) compared to R2 970 million (US$199 million) for the previous nine-month period ended 31 March 2020.

Operating free cash flow margin increased from 13% in the previous comparable period to 18% for the reporting period on the back of:

  • a 2.6% increase in underground grade to 5.54g/t (5.40g/t at the end of March 2020)
  • a 23% increase in gold price received to R868 964/kg from R704 965/kg in the previous reporting period ended 31 March 2020
  • US$/oz gold price received increased by 16% from US$1 470/oz to US$1 708/oz
  • the Rand weakened by 6% against the US$ from R14.91 to R15.82 year-on-year
  • a 13.5% increase in production from 30 814kg (990 691oz) to 34 969kg (1 124 274oz)

The sequential increase year-on-year in production and free cash flow was largely due to the successful integration of Mponeng and related assets into its portfolio, as well as a higher R/kg gold price received.

Despite COVID-19 and the seasonal challenges typically faced in the third quarter of FY21, the Company managed to catch up on its development and production in the third quarter of FY21.

Quarter-on-quarter, production declined 12.2% from 13 425kg (431 622oz) to 11 786kg (378 927oz). The decline in production was predominantly as a result of an uncharacteristically slow start-up in January 2021 after the December 2020 break.

COVID-19 compliance rules further exacerbated the seasonal slow return post the holidays – especially as it relates to employees returning through the South African borders and COVID-19 hotspot areas.

At its Papua New Guinea operations, Hidden Valley was impacted by COVID-19 and geotechnical stability of the eastern wall of the stage 6 pit during the March 2021 quarter, which resulted in a decrease in the grade of the ore.

Despite this, Hidden Valley still managed a 15% increase in average recovered grade to 1.41g/t in Q3 FY21 from 1.23g/t in Q2 FY21, which resulted in a 16% increase in quarter-on-quarter gold production to 1 351kg (43 436oz) from 1 165kg (37 456oz).

Production at the Hidden Valley mine in the June 2021 quarter will be impacted by major fixed plant maintenance and repairs with a mill re-lining taking place as well as a belt splice repair on the overland conveyor.

Harmony’s all-in sustaining cost (AISC) for the reporting period increased by almost 16% to R720 572/kg (US$1 416/oz) from R622 458/kg (US$1 298/oz). The primary drivers behind this increase were again royalties on the back of an increase in the Rand gold price and COVID-19 related costs, while the Company has also seen an increase in costs relating to safety as it continues on its safety  transformation journey. The Company’s safety costs were further impacted by the increase in steel prices as it maintains and continues to install safety steel netting at all of its mines to eliminate incidents due to seismicity and fall of ground. Target 1 experienced pillar failure and backfill dilution during the March 2021 quarter, which further weighed on the AISC for the reporting period.

ANNUAL PRODUCTION, COST AND GRADE GUIDANCE

As a result of the major repair work and fixed plant maintenance at Hidden Valley which occurred in the beginning of Q4 FY21, the Company feels it prudent to make a small adjustment to its production guidance to 1.50Moz to 1.55Moz from its previous production guidance of 1.56Moz to 1.6Moz for FY21.

Harmony remains confident that it will achieve its underground grade guidance of 5.47g/t to 5.64g/t and its overall cost guidance of R700 000/kg to R720 000/kg for FY21.

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