Harmony Gold Stock: First Quarter 2022 Production Analysis (NYSE: HMY)


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

1 – Snapshot of 1Q22

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

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

1Q22 Revenue was $ 749 million compared to $ 746 million in the prior quarter. Free operating cash flow fell to $ 63 million this quarter, down 27.6% from 4Q21.

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

In addition, Harmony Gold is active in Papua New Guinea, where it holds the Hidden Valley Mine, an open pit gold and silver mine.

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

2 – Investment thesis

The investment thesis remains the same as my previous article. I see the company as a long term candidate for investors who wish 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 we have reinvested in now represent 62% of free cash flow from operations, while our surface source operations represented 34% of free cash flow from operations this quarter. Assets that have been in Harmony’s portfolio for many years represented only 4% of free cash flow from operations this quarter, illustrating how we have transformed our portfolio through the acquisition of ounces of quality.

However, the gold industry is very unpredictable and I recommend trading LIFO around 40% of your long-term position to take advantage of volatility and reduce your exposure to risk.

3 – Stock market performance

HMY has fallen more than 29% year on year. Equity performance has been disappointing and lags behind both Gold Fields (NYSE: GFI) and AngloGold Ashanti (NYSE: AU).

Data by YCharts

Harmony Gold Mining – Balance sheet at the end of September 2021 and production data – Raw figures

To note: Figures shown are in US $ with a ratio of 14.625x (Rand / US $) for 1Q21.

Harmony Gold Mine 4Q21 1Q22
Total revenues in millions of dollars 745.7 749.3
Adj. EBITDA in millions of dollars 122 106
Cash Operating costs in $ 545.46 583.75
CapEx in $ 103.61 108.76
Free cash flow in millions of dollars 87 63
Gold production in ounces 411,078 413 714
Gold sold in ounces 414 873 417,800
Realized Gold Price in $ / Oz 1,769 1771
AISC 1,607 1,691

The data source: Corporate document

* Estimated by Fun Trading

Balance sheet analysis

1 – 1Q22 revenue (ended September 30, 2021) and other financial indicators

Harmony Gold reported sales of $ 749.313 million in 1Q22, compared to $ 745.712 million in the prior quarter.

The rand / US dollar ratio was 14.63 in 1Q21.

The production forecast for 2022 remains unchanged and is estimated between 1.540 Moz and 1.630 Moz at an all-inclusive sustaining cost between 765,000 R / kg and 800,000 R / kg. The grade recovered underground should be between 5.40 g / t and 5.57 g / t.

Source: Previous presentation

2 – Quarterly analysis of production – historical data

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

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

3 – Free cash flow from operations was $ 63 million in 1Q22 (including the acquisition of Mponeng)

Note: Free cash flow is cash flow from operating activities less CapEx.

Technical analysis and commentary

HMY forms a descending channel pattern with resistance at $ 4.25 and support at $ 3.50. The short term trading strategy involves taking profits between $ 4.25 and $ 4.40 and accumulating to $ 3.50 or less.

However, depending on the strength of the gold price and the Fed’s hawkish stance in 2022, HMY could break through support and retest $ 3. Conversely, if the Fed becomes more accommodating, HMY may jump to $ 4-75.

I recommend trading short term LIFOs of around 35% of your total position and holding a long term base position for a much higher target.

Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The above graph has a possible validity of approximately one week. Remember that the TA chart is only a tool to help you adopt the right strategy. It is not a way of predicting the future. Nobody and nothing can.

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