• South African underground operations drove solid group performance, with 7% increase in recovered grades.
• Investment in high grade ores paying off, with Mponeng's 192% increase in operating free cash flow.
• Electricity challenges in South Africa could impact Harmony's operations, but analysts remain bullish on gold prices.

Harmony Gold Mining Company Limited has released its operational performance update for the nine months ended 31 March 2023. The update reported a strong performance from South African underground operations, with higher recovered grades and excellent mining discipline driving the results.

The average recovered grades at the South African underground operations increased by 7%, driving a solid group performance in 9M FY23. The group revenue increased by 11%, mainly driven by the increase in the average gold price received and the increase in underground recovered grades. Group production also increased by 2%, with cost increases remaining within the company's planning parameters.

Harmony's investment in quality ounces is paying off, as demonstrated by Mponeng's 192% increase in operating free cash flow. Key projects, including the extension of the Kareerand tailings storage facility at Mine Waste Solutions and the Zaaiplaats decline at Moab Khotsong, are also progressing well.

The optimised underground portfolio, consisting of several mines, performed well, while most operations delivered good performances across the key operational metrics year on year. The South African surface operations, which include the Kalgold open pit mine and tailings retreatment operations, had a decline in total production as planned, but the Kareerand extension project and the Franco-Nevada streaming agreement at Mine Waste Solutions are expected to improve free cash flows and margins from Mine Waste Solutions.

Production from the Hidden Valley mine in Papua New Guinea increased by 27%, and work continued on the Eva Project study update. The signing of the non-binding Memorandum of Understanding on the Wafi-Golpu project in Papua New Guinea is a significant milestone towards the project's permitting, setting out key fiscal and non-fiscal terms between the parties to be adopted in the Mining Development Contract.

Harmony has hedged its rand gold book in response to the sharp rise in the rand gold price, with an average forward rand gold price on the hedge book at R1 135 000/kg on a net position of 552 000oz at the end of the third quarter.

Harmony remains confident of achieving its annual guidance for total production, overall AISC guidance, and underground grade guidance for FY23.

Electricity challenges in South Africa will likely have a significant adverse impact on Harmony's operations in the near term, particularly its cost of production. The country has been experiencing frequent power outages due to aging power infrastructure and insufficient capacity, which has disrupted mining operations across board. Recently Implats, a major player in the sector attributed its lower volumes performance to disruptions in production driven by power outages. Another player, Sibanye also highlighted the adverse impact of rollouts on operating performance, painting a bleak outlook on its operations in SA. The country is likely to be battling the rollouts for at least the next 2 years.

On the outlook for gold, Equity Axis analysts remain bullish on the precious metal, with expectations that it will continue to benefit from ongoing economic uncertainty and inflation concerns. As a result, gold prices are expected to remain elevated at above US$1500 per ounce, which should support Harmony's revenue and profitability. Harmony can gain from such developments by continuing to focus on cost management initiatives while also investing in high-grade underground operations and a growing international gold and copper portfolio to create long-term value. Additionally, Harmony can explore opportunities to leverage renewable energy solutions to mitigate the impact of electricity challenges and reduce its operating costs.