UPDATE 3-Harmony Q3 falls short of estimates

Thu May 5, 2011 9:36am EDT

Related Topics

* Q3 headline EPS 91 cents vs 97.3 cents market forecast

* Production down as expected due to seasonal woes

* Shares resverse earlier gains on commodity prices

* CEO sees gold price at $1,800 an ounce

(Adds quotes, background, details)

By Ed Stoddard

JOHANNESBURG, May 5 (Reuters) - South African group Harmony Gold (HARJ.J) fell short of market expectations with a 32 percent rise in quarterly profit after a slow restart following its annual Christmas shutdown led to a drop in production.

Harmony was the first of South Africa's big three gold miners to release results for the January-March quarter, a period the companies had warned might be sluggish.

But beyond the usual seasonal woes, the company performed well, said Leon Esterhuizen, an analyst at Royal Bank of Canada Capital Markets in London.

Investors initially looked past the seasonal downturn and sent the shares of South Africa's third-largest gold miner up by 2 percent.

But along with its peers it then reversed course as spot gold XAU= slipped amd silver XAG= plunged. At 1200 GMT its share price was 1.90 percent lower at 92.20 rand.

Analysts are also optimistic about the miner's current project in Papau New Guinea, which Harmony has said could yield up to 700,000 ounces of gold and up to 320,000 metric tonnes of copper a year.

"Papua New Guinea drill results continue to impress and this asset continues to hold the promise of substantial increases in the Harmony share price," Esterhuizen said.

Harmony said headline earnings per share, the primary profit gauge in South Africa, totalled 91 cents in the three months to end-March, versus 69 cents in the previous quarter.

That was below the average estimate of 97.3 cents in a Reuters poll of analysts. Harmony said last month it expected a deferred tax credit to lift its earnings.

The company said its production was down 2 percent to 316,909 ounces, in line with its own forecasts because of seasonal factors.

Cash operating costs fell slightly in dollar terms to $970 an ounce but rose a touch in rand terms.

CEO PEGS GOLD AT $1,800

Chief Executive Graham Briggs told a results presentation that he believed it was possible for the gold price to reach $1,800 an ounce next year and believed it would continue to rise in both dollar and rand terms.

Spot gold XAU= scaled a record high of over $1,575.00 an ounce on Monday but has fallen sharply since and was trading around $1,503.00 an ouncee at 1222 GMT.

He also told Reuters the company was not interested in the deep level Blyvoor mine that mid-tier rival DRDGold (DRDJ.J) wants to sell.

Analysts have said only Harmony or one of the other big South African gold miners, Gold Fields (GFIJ.J) or AngloGold Ashanti (ANGJ.J), would be viable buyers because of their experience with deep mining.

South Africa's mines are the deepest and the most dangerous in the world and the big gold companies are scrambling to diversify their operations and develop mins elsewhere.

Finance Director Hannes Meyer told Reuters in an interview on Thursday the group aims to fund at least half its $1.5-$2.0 billion Wafi-Golpu project in Papua New Guinea from debt or copper-backed finance and that even if it could pay the bulk from cash it was "prudent" to have debt in the mix.[nLDE7441E6]

On the subject of looming wage talks with its unionised workforce, he said gold miners could not afford to paying above-inflation wage hikes.

"It is not a sustainable scenario having above-inflation increases over many years. You can afford a year or two but we've had a few now of above average inflation," he said.

(Editing by David Dolan and David Cowell)

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