UPDATE 2-Harmony Gold Q1 jumps three-fold on bullion's surge

Mon Oct 31, 2011 3:16am EDT

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* Q1 earnings exceed consensus, rise over 200 percent

* Headline EPS 95 cents vs f'cast 90 cents

* Op profit up 45 percent at 1.3 billion rand

* Production up 0.5 percent to 328,162 ounces

* Sticks to output target of 1.45 mln-1.55 mln oz in fiscal 2012

* (Adds details, analyst quote)

By Ed Stoddard

JOHANNESBURG, Oct 31 (Reuters) - Harmony Gold , South Africa's third-largest gold producer, posted a more than three-fold increase in quarterly earnings on Monday, beating expectations as bullion's record run and a weaker rand combined to lift its profits.

Production was flat for the quarter, hampered by a crippling five-day strike, and analysts said the miner needs to ramp up output to meet its full-year target.

The average gold price in the July-September quarter was up about 13 percent from the previous quarter at just over $1,700 an ounce. In rand terms, the gold price was up 20 percent because of weakness in the South African currency.

A weaker rand is a bigger benefit for Harmony than its rivals, because about 90 percent of its output comes out of the ground in South Africa, a much higher percentage than AngloGold Ashanti and Gold Fields .

While South African miners sell gold for dollars, the bulk of Harmony's costs are in rand, meaning a weaker rand fattens its bottom line.

Analysts said the Harmony's 2012 output target was looking increasingly difficult to reach.

"The disappointing fact was that despite the strike action during the quarter we would have expected an increase in gold production on the back of their strategic objectives," said David Davis, an analyst with SBG Securities in Johannesburg.

"I think the target is becoming very stretched ... They need to demonstrate an uplift in production," Davis said.

OUTPUT TARGET

Harmony said production during the three months to the end of September was up just 0.5 percent to 328,162 ounces as it was hampered by a wage strike that shut output for five days.

Chief Executive Graham Briggs said on a conference call with reporters that Harmony was sticking to its output target of between 1.45 million ounces and 1.55 million for its 2012 financial year to June 30.

The company produced around 1.3 million ounces in its 2011 financial year.

Power and labour costs also remain concerns.

The group said costs in rand terms were 9.2 percent higher during the quarter but this was partly because mines have to pay higher tariffs for power during the winter months of June to August.

Harmony's headline earnings per share, the main profit gauge in South Africa, soared to 95 cents in the quarter from 30 cents in the previous quarter, above an average estimate of 90 cents in a Reuters poll of six analysts.

Operating profit rose 45 percent to 1.3 billion rand ($166 million) while revenue was almost 4 billion rand, a record for the group.

Harmony's share price is up 24 percent so far this year, outperforming the wider gold mining index on the Johannesburg bourse, which is up about 13.6 percent.

Aside from the gold price, Harmony shares have been driven in part this year by bullish expectations about its promising Wafi-Golpu project in Papua New Guinea. ($1 = 7.83 South African Rand) (Editing by David Dolan and David Holmes)

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