HMY

Business Context and Reporting Period

Company: Harmony Gold Mining Company Limited
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended 30 June 2025
Accounting Standards: International Financial Reporting Standards (IFRS)
Primary Jurisdiction: South Africa (incorporated), with operations in South Africa, Papua New Guinea (PNG), and Australia.

Harmony is the largest gold producer in South Africa and a significant producer in PNG. The company operates deep-level underground mines, open-pit operations, and surface retreatment facilities. The reporting period reflects a year of record gold prices, significant operational cost inflation, and a major strategic acquisition of MAC Copper Limited (MAC) completed in October 2025.

Key Financial Metrics

Note: Financial figures are in South African Rand (R) unless otherwise noted. Exchange rates: Average R18.15/US$ (2025) vs R18.70/US$ (2024).

Material Changes vs. Prior Period

• Revenue Growth: Driven primarily by a 31.1% increase in the average US dollar gold price received (US$2,620/oz in 2025 vs US$1,999/oz in 2024). This offset a 4.2% decrease in gold sold and a strengthening of the Rand against the US dollar.
• Production Decline: Gold production decreased by 5.3% due to lower recovered grades, reduced ore milled, and operational disruptions. Notable declines occurred at Doornkop (-21.3%), Target 1 (-23.7%), and Mine Waste Solutions (-18.3%). Mponeng was a bright spot, increasing sales by 20.9% due to higher grades.
• Cost Inflation: Cash costs and AISC increased significantly (15.3% and 16.9% respectively). Drivers included above-inflation electricity tariff increases (Eskom announced a 12.7% increase effective April 2025), annual wage increases (5-year agreement effective July 2024), and higher royalties due to increased profitability.
• Hedging Impact: Hedging losses increased to R4,594 million in 2025 from R1,265 million in 2024, reflecting the realized effective portion of hedge-accounted derivatives as spot prices rose above forward contract prices.
• Impairments: No impairment charges were recorded in fiscal 2025, compared to R2,793 million in fiscal 2024 (related to the Target North project).

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Capital Expenditure: Budgeted operational capital expenditure for fiscal 2026 is R12,927 million, excluding renewable energy projects. Funding is expected from cash generated by operations and existing credit facilities.
• Renewable Energy: Harmony is aggressively pursuing renewable energy to mitigate Eskom risks and carbon tax. Key projects include Sungazer 2 (100MW, expected completion 2027) and wheeled wind procurement (260MW).
• MAC Acquisition: On 24 October 2025, Harmony completed the acquisition of MAC Copper Limited for US$1.01 billion, funded by a US$1.25 billion bridge facility. This adds a significant copper asset (CSA mine) to the portfolio.
• Dividend Policy: The company targets a 20% return on net free cash generated to shareholders. A final dividend of 155 SA cents was declared in August 2025.

Key Risks and Contingencies

• Internal Control Weaknesses: Management identified material weaknesses in internal control over financial reporting (ICFR) as of 30 June 2025, specifically regarding Management Review Controls (MRCs), Information Produced by the Entity (IPE), and IT General Controls (ITGCs). The auditor (Ernst & Young) issued an adverse opinion on ICFR effectiveness.
• Regulatory and Political Risk (South Africa): Risks include the potential expropriation of land without compensation, changes to the Mining Charter, and the implementation of the Climate Change Act (carbon budgets). South Africa exited the FATF greylist in October 2025, improving access to capital markets.
• Regulatory and Political Risk (PNG): The "Take Back PNG" policy and the Draft Mining Bill 2025 propose increased state equity (up to 30%), higher royalties, and potential bans on deep-sea tailings placement (DSTP), which is critical for the Wafi-Golpu Project.
• Operational Risks: Persistent challenges with Eskom power supply (load shedding), rising electricity costs, and labor disputes (though a 5-year wage agreement is in place). Illegal mining and artisanal mining activities pose security and theft risks.
• Legal Proceedings: A provision of R261 million is held for silicosis and TB class action settlements in South Africa. The Wafi-Golpu Project faces judicial reviews regarding its DSTP environmental permit.

Investor Verification Checklist

• Internal Controls: Verify the progress of the remediation plan for the material weaknesses in ICFR and the timeline for achieving an effective control environment.
• MAC Integration: Monitor the integration of MAC Copper Limited, the drawdown of the US$1.25 billion bridge facility, and the impact on the company's leverage ratios.
• Cost Trajectory: Track the impact of the 12.7% Eskom tariff increase and the 6% annual wage increase on future cash costs and AISC, particularly as gold prices potentially stabilize.
• Reserve Life: Review the decline in gold production and the sufficiency of current reserves (36.8 million ounces) to support the life-of-mine plans, especially at deep-level mines like Mponeng and Moab Khotsong.
• Regulatory Changes: Monitor the finalization of the South African MPRD Bill and the PNG Draft Mining Bill 2025 for potential impacts on royalties, state equity, and project viability (specifically Wafi-Golpu).
• Carbon Tax Exposure: Assess the projected increase in carbon tax liability post-2025 as allowances are reduced, estimated to impact electricity costs by R100m to R600m annually from 2026 to 2030.