JOHANNESBURG (miningweekly.com) – The operating free cash flow margin of gold mining company Harmony Gold more than doubled in the nine months to March 31, to 13% from 6% in the corresponding period last year.

This was due largely to a 21.6% increase in the average rand gold price received for the period to R704 965/kg, the JSE-listed company stated in a release to Mining Weekly on Wednesday.

Operating free cash flow increased by more than 100% to R3-billion from R1.3-billion in the same period of last year.

Total gold production was 8.5% lower at 30 814 kg or 990 691 oz, affected by South Africa's Covid-19 national lockdown regulations, compliance with which resulted in six full days of operation lost at the company's nine South African underground mines at the end of the reporting period, and load-shedding by Eskom earlier in the quarter.

The average underground recovered grade was 3.6% lower at 5.40 g/t, due primarily to the negative impact of Kusasalethu's previously reported geological challenges and seismicity.

Quarter-on-quarter, however, Kusasalethu mined above the planned grade, reporting an increase of 14% to 5.08 g/t, reflecting the positive impact of ongoing remedial actions to address geological challenges and seismicity.

Harmony achieved a recovered grade of 5.68 g/t for its underground operations for the March 2020 quarter. The grade performance at most of the South African operations was good with an overall increase of 0.37 g/t, or 7%, quarter on quarter.

March quarter production at Hidden Valley in Papua New Guinea was impacted by a 14-day mill stoppage in January 2020, owing to a fault in the mill's electronic management system, which has since been resolved.

For the nine months, Harmony's all-in sustaining unit costs were 14.5% higher at R622 458/kg (8.3% higher at US$1 298/oz) due to the lower production recorded.

BALANCE SHEET AND LIQUIDITY

In the nine months, net debt increased by R697-million to R5-billion, taking the net debt to earnings ratio from 0.7 times at the end of December 2019 to only 0.8 times at the end of March 2020.

At the end of the quarter, Harmony had combined cash balances of R1.65-billion ($92-million). In addition, the company drew down R1.8-billion ($100-million) on its existing loan facilities shortly after the March  quarter end to ensure it had sufficient liquidity to see through the disruption caused by the Covid-19 lockdown period.

Harmony has to comply with these bank covenants:

• net debt to earnings must be below 2.5;
• earnings to net interest paid must be above 5; and
• tangible net worth to net debt must be above 4;

Harmony believes that compliance with the first two covenants will be comfortably achieved, as the benefit from the higher rand gold price supports earnings significantly.

Given the volatility in the financial markets, the company is engaging with its lenders to relax the tangible-net-worth covenant as a precautionary measure.

RESPONSIBLE STEWARDSHIP

Harmony stated that its business strategy and decision-making is embedded with sustainable development principles. It stated that responsible stewardship was the fourth pillar of its strategy, underpinning its operating philosophy of profit-with-purpose, which hinged on maintaining strong relationships by engaging and collaborating with stakeholders.

Harmony's response to the Covid-19 pandemic had further demonstrated its commitment to involving all of its stakeholders in risk management and the application of environmental, social and governance practices.

Its own Covid-19 standard operating procedure was aimed at ensuring a safe return to work for each of its employees and meeting the conditions contained in the amended lockdown regulations gazetted on April 16 for the safe resumption of operations.

It had been informed by guidelines provided by the Department of Mineral Resources and Energy, the National Council for Infectious Diseases, the World Health Organisation and discussions with its trade unions and the Minerals Council South Africa.

“We remain committed to protecting the health of our employees and ensuring a safe working environment,” the company, headed by Peter Steenkamp, stated.