Harmony Gold Mining Company Limited — FY2019 Form 20-F
Period clarification: The filing is an annual report for the fiscal year ended June 30, 2019, not a standalone 2018 fourth-quarter report. It reports in South African rand under IFRS; financial amounts below are R millions unless noted.
Business context and reporting period
Harmony is a gold producer operating primarily in South Africa, with operations and projects in Papua New Guinea (PNG). The year included a full year of production from the Moab Khotsong acquisition and Hidden Valley. From July 1, 2018, the company changed its presentation currency from US dollars to rand. It also reclassified by-product credits from cost of sales to revenue and re-presented comparative periods. IFRS 9 and IFRS 15 adoption had no material impact, according to the filing.
Financial and operating metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | R26,912 | R20,452 |
| Operating loss | R2,538 | R4,660 |
| Loss before tax | R2,746 | R4,707 |
| Net loss | R2,607 | R4,473 |
| Operating cash flow | R4,679 | R3,884 |
| Investing cash flow | (R4,797) | (R8,075) |
| Financing cash flow | R380 | R3,723 |
| Total borrowings at year-end | R5,915 | R5,614 |
| Total assets at year-end | R36,736 | R39,521 |
| Total equity at year-end | R22,614 | R25,382 |
- Revenue rose about 32%, primarily due to higher gold sales volumes, including the full-year contribution from Moab Khotsong and Hidden Valley, and increased silver sales. Gold sold was 44,568 kg, up from 35,671 kg; average received price was R586,653/kg versus R570,709/kg.
- The company produced 44,734 kg of gold. Cash costs increased 4% to R439,722/kg; all-in sustaining costs (non-GAAP) increased 8% to R550,005/kg. In US dollars, cash costs were $965/oz and all-in sustaining costs were $1,207/oz.
- Cost of sales was R28,869, including a R3,898 impairment charge. Depreciation and amortization rose to R4,054 from R2,570, largely reflecting full-year production at Hidden Valley and Moab Khotsong.
- Capital expenditure was R5,037, compared with R4,571. Net cash flow was positive R287, after operating, investing, financing and foreign-exchange cash flows.
- The filing does not provide a clear cash balance in the supplied text. Management said working capital resources, including operating cash, borrowings and cash on hand, were sufficient for present needs.
- No FY2019 dividend per share is reported in the selected data; FY2018 was 35 South African cents. The company says dividends depend on available funds and solvency and liquidity requirements.
Material changes versus the prior comparable period
- The net loss narrowed by R1,866, while the operating loss narrowed by R2,122. Impairments fell to R3,898 from R5,336, but remained a major drag on results.
- Operating cash flow increased by R795. Investing outflow declined mainly because FY2018 included the Moab Khotsong acquisition; FY2019 included higher additions to property, plant and equipment.
- Borrowings increased R301 year over year. Finance costs rose to R575 from R330, mainly due to borrowings.
- Rand-denominated unit costs increased amid wage, electricity and supply-contract inflation. Weaker average rand exchange rates reduced reported US-dollar costs per ounce.
Outlook, commentary, risks and unusual items
- FY2020 capital expenditure is budgeted at approximately R4,933, including R217 for Wafi-Golpu. The company expects to fund operating capital expenditure from operations and borrowings as needed. No clear production or revenue guidance is provided in the supplied filing text.
- Management described liquidity as adequate and reported no breaches of debt covenants in FY2018 or FY2019. Covenants include minimum interest cover of 5x and maximum leverage of 2.5x.
- At June 30, 2019, the US$350 million facility had US$295 million outstanding; a separate US$24 million PNG equipment loan had an outstanding balance of R283 million. The R2 billion rand facility had R600 million drawn under its term loan and R900 million under its revolving facility.
- After year-end, Harmony arranged a US$400 million three-year term and revolving facility. It closed in October 2019 with US$300 million drawn and US$100 million undrawn, according to the filing.
- The R5.2 billion industry settlement of silicosis and tuberculosis class actions was approved by the High Court in July 2019. Harmony’s recorded provision was R942 at June 30, 2019; final costs could differ from the estimate.
- Environmental risks include proposed financial-provision rules that Harmony estimated could increase rehabilitation provision requirements by R2.9–R3.6 billion. No provision for potential liability under those proposed rules had been recorded. The filing also estimated possible electricity-cost impacts from later carbon-tax phases of R100–R500 million annually from FY2023 to FY2030; the ultimate impact is uncertain.
- Wafi-Golpu permitting remained delayed following a legal dispute between PNG government bodies; the project timeline had yet to be reset. Other key exposures include gold-price and currency volatility, South African power interruptions and tariff increases, labor and safety disruptions, reserve-estimation uncertainty, environmental obligations and regulatory changes.
Important facts for investors to verify
- Reconcile the reported revenue growth with acquisition timing, gold and silver volumes, realized prices, and the by-product accounting reclassification.
- Review impairment assumptions and mine-level recoverable amounts, particularly sensitivity to gold prices, grades, costs, capital spending and carbon tax.
- Confirm current debt balances, facility terms, covenant headroom, refinancing status and liquidity, including the post-year-end US$400 million facility.
- Assess the adequacy of the R942 silicosis settlement provision and potential rehabilitation liabilities under evolving regulations.
- Track Wafi-Golpu permitting, financing needs and project economics, as well as FY2020 capital spending against budget.