Great opportunity to lock in higher gold price for future – Harmony

16th September 2020 By: Martin Creamer - Creamer Media Editor

Great opportunity to lock in higher gold price for future – Harmony

Harmony Gold financial director Boipelo Lekubo
Photo by: Creamer Media

JOHANNESBURG ( – The current gold price presents a great opportunity to lock in the higher price for the future, says Harmony Gold FD Boipelo Lekubo, against the backdrop of Harmony’s hedging programme realising gains of R2.2-billion since its inception, but the recent dollar and rand gold prices also negatively impacting on the valuation of the gold hedges.

“We believe that to hedge responsibly with the type of assets that we have remains a good strategy. There have been some swings and roundabouts with our hedging. However, we continue to benefit from hedging only 20% of our total gold production, with 80% of our revenue linked to the actual gold price," says Lekubo.

Year-on-year weakening of the rand against the US dollar negatively impacted on the translation of the company's US dollar facility while also affecting valuation of the foreign exchange derivatives.

“While we recognise that the derivatives recorded a net loss in the financial year 2020, particularly due to the loss on the rand gold derivatives, the hedging programme has realised gains of R2.2-billion since the inception in financial year 2016," Lekubo reports.

Despite the challenges of the last year, Harmony has created balance sheet flexibility by creating adequate headroom and reducing net debt significantly.

In June, Harmony raised $200-million through a share placement to part fund the acquisition of Mponeng and Mine Waste Solutions, Mining Weekly can report.

"This and R6.2-billion that we generated by our operations, was used to significantly reduce our debt and as a result net debt decreased by R3.6-billion to R1.4-billion as at June 30.

"With the headroom that has been created through our agile response to Covid, we’ve increased our balance sheet flexibility in order to support the company's future growth," she says.

The share price of Harmony Gold has risen 248% in ten months, and more than 300% in the last four years, shooting it into the FTSE Top 40 Index.


Harmony’s operating free cash flows are highly leveraged to the gold price.

“You’ll note that for each R100 000/kg increase in the rand per kilogram gold price, there’s almost a R2-billion jump in our operating free cash flow,” Lekubo notes.

This year’s 25% improvement in the rand gold price contributed to the doubling of operating cash flow to R6.2-billion. The 106% increase in the operating cash flow lifted operating cash flow margins to 13% compared with 7% in the year before.


Covid-related capital already spent totals $100-million on mainly quarantining.

“Our capital allocation is aimed at ensuring returns. We prefer a low-risk profile, assessing financial versus safety risks. Some of our mines are older and therefore, realistically, we believe that it should maintain a 5% net cash margin, which is, of course, much higher at the current gold price. But at the 5% level, the mines’ future is obviously at risk,” says Lekubo.

Harmony’s capital is spent at its longer-life mines, with an internal rate of return higher than 15% required for project pursuit. The company prefers a lower-geared balance sheet and keeps its net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) at below one. Net debt to Ebitda is currently at 0.8, normalised for the $200-million share placement concluded in June. Quicker debt is possible at current gold price levels, Mining Weekly can report.

“Our aim is to pay dividends again but, more importantly, sustainable dividends,” says Lekubo.