Harmony Gold: First Quarter 2022 Production Analysis – Seeking Alpha

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Harmony Gold Mining (HMY) is one of the South African gold miners I regularly cover on Seeking Alpha. The quarterly operational updates gold production, but it is not a complete results report, released every six months.

1 – 1Q22 snapshot

On November 11, 2021, the company released a 2021 operational update for the three months ended September 30, 2021.

Production for 1Q22 was 413,714 Au Oz (sold 417,800 Au Oz), up 0.6% from the preceding quarter, as we can see later. Total production comprises the underground and surface production for South Africa and production in Hidden Valley in PNG. Total gold production was 32% higher this quarter when compared to 1Q21.

1Q22 Revenues were $749 million compared to $746 million in the preceding quarter. Operating free cash flow went down to $63 million this quarter, down 27.6% from 4Q21.

The company operates nine underground mining operations, one open-pit mine, and four South Africa surface operations.

Furthermore, Harmony Gold is active in Papua New Guinea, where it owns the Hidden Valley mine, an open-pit gold and silver mine.

All-in sustaining costs (AISC) were $1,691 per ounce in 1Q22, up from $1,607 per ounce in 4Q21. The company indicated a decrease in underground recovered grade from 5.27 g/t in 1Q22 to 5.44 g/t in 4Q21. Below are the production details per mine.

2 – Investment Thesis

The investment thesis remains the same as my preceding article. I view the company as a long-term candidate for investors who want to get involved in the South African gold industry. The company is proactive and said in the recent press release:

Newly acquired assets and assets that we have reinvested in, now represent 62% of operating free cash flow, while our surface source operations accounted for 34% of operating free cash flow this quarter. Assets which have been in Harmony’s portfolio for many years accounted for only 4% of the operating free cash flow this quarter, which illustrates how we have transformed our portfolio through the acquisition of quality ounces

However, the gold sector is highly unpredictable, and I recommend trading LIFO about 40% of your long-term position to profit from the volatility and lower your risk exposure.

3 – Stock performance

HMY dropped over 29% on a one-year basis. The stock performance has been disappointing and lags both Gold Fields (NYSE:GFI) and AngloGold Ashanti (NYSE:AU).

Harmony Gold Mining – Balance sheet ending September 2021 and Production data – The Raw Numbers

Note: The numbers indicated are indicated in US$ with a ratio of 14.625x (Rand/US$) for 1Q21.

Harmony Gold Mining 4Q21 1Q22
Total Revenues in $ Million 745.7 749.3
Adj. EBITDA $ Million 122 106
Cash Operating costs in $ 545.46 583.75
CapEx in $ 103.61 108.76
Free Cash Flow in $ Million 87 63
Gold Production in Oz 411,078 413,714
Gold sold in Oz 414,873 417,800
Gold price realized in $/Oz 1,769 1,771
AISC 1,607 1,691

Data Source:

* Estimated by Fun Trading

Balance Sheet Analysis

1 – Revenue for 1Q22 (ending September 30, 2021) and other financial indicators

Harmony Gold posted revenue of $749.313 million in 1Q22 compared to $745.712 million the preceding quarter.

The rand versus the US dollar ratio was 14.63 in 1Q21.

Production guidance for 2022 remains unchanged and is estimated to be between 1.540 Moz and 1.630 Moz at an all-in sustaining cost of between R765,000/kg to R800,000/kg. The underground recovered grade is planned to be between 5.40 g/t and 5.57 g/t.

Source: Previous

2 – Quarterly production analysis – historical data

Total gold production for 1Q22 was 413,714 Au Oz compared to 411,078 Au Oz in 4Q21.

The average gold price received during 1Q22 was $1,771 versus $1,769 in 4Q21. AISC for 1Q22 was $1,691 per ounce vs. $1,607 per ounce in 4Q21. AISC is exceptionally high in South Africa, and it is a concern.

3 – Operating Free cash flow is $63 million in 1Q22 (including the Mponeng acquisition)

Note: Free cash flow is the cash from operating activities minus CapEx.

Technical analysis and commentary

HMY forms a with resistance at $4.25 and support at $3.50. The short-term trading strategy is to take profits between $4.25 and $4.40 and accumulate at or below $3.50.

However, depending on the gold price strength and how hawkish the Fed will be in 2022, HMY could cross the support and retest $3. Conversely, if the FED turns more dovish, HMY may jump to $4-75.

I recommend trading short-term LIFO about 35% of your total position and keeping a core long-term holding for a much higher target.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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