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Harmony manages to stem losses in its first half

A phenomenal day but the resource index y/y is still down by about 40% – David Shapiro – Sasfin

SIKI MGABADELI: Let’s check the markets. A good day – the all-share up 2.25% at 49 627. The Top 40 index is up just under 2%. The rand is at R15.83/dollar, R23.03/pound and R17.65/euro.

DAVID SHAPIRO: Siki, I actually, talking elsewhere, said that in the 44 years that I’ve been on the market – I joined in February ’72 – I have never seen a day where we have seen a breadth of double-digit gains like we saw today. In other words, ja, we’ve had a good day on markets, but the heavyweights were down – like British American Tobacco – because of the rand.

SIKI MGABADELI: Mpact 18%, Anglos 17%, Lonmin 16%, ARM 15%, Amplats 19% – it’s just been phenomenal.

DAVID SHAPIRO: An absolutely remarkable day. To put it into perspective and not to put a damper on the kind of gains we’ve seen, the resource index year on year is still down by about 40%. So there is a lot of work to be done. It’s a bounce from a very low level. What’s triggered it is really dollar weakness. That’s actually a negative sign because it shows that people are worried about the US economy and that they won’t raise rates at the pace they have suggested or the market was expecting.

So there is a worry about, No 1, the global outlook and also about the US itself. Some of the data that we’ve been getting – we had durable goods sales today, yesterday it was services – and the kind of economic numbers that are coming out might cause Janet Yellen to hold back.

SIKI MGABADELI: Even with the State President saying that the financial conditions had tightened considerably in the week since the Fed raised rates in December, possibly they might …

DAVID SHAPIRO: In fact Goldman Sachs’ chief economist also came out and said by the end of the year the long bond will be up at 3%. In other words, they will tighten. But what’s happened is that the US treasuries’ – which are the equivalent of government bonds – rates have come back to record low levels.

So it shows you – money is flowing in and, because rates are down, people are taking money out of the dollar and this doesn’t help Europe at all. The euro doesn’t help Europe. They need a weak euro for their export side. The euro is up at about $1 11, close to $1.12 against the dollar, having been $1.09. And at the time that the US started to raise rates, and Draghi was continuing to project further stimulus, the view was that it would go down to parity and that the euro would weaken. The game is not over yet. But that’s what triggered the markets today. So we’ve got the rand at R15.80 or R15.85/dollar.

SIKI MGABADELI: R15.83.

DAVID SHAPIRO: Somewhere there. Go and look at yesterday’s.

SIKI MGABADELI: Yesterday was R16.19 at this time. It’s now R15.83/dollar. It was R23.60/pound this time yesterday, R23.03 as we speak.

DAVID SHAPIRO: It just shows you – in 24 hours the kind of volatility.

SIKI MGABADELI: How healthy is this volatility, though, for an investors who is thinking, okay, let me throw my darts?

DAVID SHAPIRO: You can’t. For traders, for algorithmic traders – those are the computers that we don’t understand – I’m sure it’s very good, but for people trying to get a grip on the market it’s very, very difficult to understand. Can you imagine if you sold out of your Anglos yesterday, worried about what we were talking about, and today they are 15% or whatever up?

SIKI MGABADELI: I’d cry.

DAVID SHAPIRO: That’s the kind of movement.

SIKI MGABADELI: We have to hear from Peter Steenkamp, who is the incoming CEO of Harmony Gold. Harmony managed to stem losses in the first half of this fiscal year, citing greater production and a higher gold price in rand terms as the reason. So Mineweb editor Warren Dick spoke to Steenkamp.

PETER STEENKAMP: Quarter on quarter we’ve seen an improvement in our production and also now are seeing a very, very nice uptick in the grade. These are the things we can control and these are the things that we have to focus on, together with our costs. The price always helps and we are very thankful for the price, but in the things that we can control, we saw some nice improvement in those areas.

WARREN DICK: And I think gold received the big improvement there – that 7% increase in underground recovered grade. Can you just tell us what the company has done specifically to be able to up that on such a big order over the quarter?

PETER STEENKAMP: I think there are two things that actually have an impact on the grade. The first thing is that we were in actual fact able to separate some of the waste out of the grades, specifically at Kusasalethu. The facility that we had in place to have a waste department separately was at that point not working and we fixed that and got it right. So that in itself had quite a good impact in terms of the grade.

The second thing is that we actually started to focus to get our average mining grade closer to the average grade of the reserve above cut-off. In many of our operations we are actually undermining the reserve in the sense that we were mining too low a grade. We got it back and obviously not all of them are there yet because we still sit in a situation where you have to develop some of the areas in making sure that you can mine to the average grade. But it’s a very important planning parameter that we currently have, and we are focusing on getting it right.

WARREN DICK: Outside of the grades, was there anything else that you guys were able to do to lower those costs?

PETER STEENKAMP: Well, the restructuring in Harmony has now been completed. So that in itself has helped a lot. A lot of restructuring has taken place in the last few quarters. That’s now been completed, so that can flow through to the bottom line.

Obviously also in this particular quarter we don’t have the winter tariffs in the electricity, so that also helps a lot, so that also had an impact in terms of our costs.

WARREN DICK: The headline earnings for the quarter were R74m. You are now in the position, I think very fortuitously, that you’ve got a lot of free cash flow that you can use for various projects. As I understand, settling the debt is one of the top priorities.

PETER STEENKAMP: Ja. Settling our debt and getting ourselves into a position where we improve our balance sheet is obviously the focus area for Harmony going forward. If the current gold price prevails then we can do quite well in that regard.

SIKI MGABADELI: That was Peter Steenkamp, income CEO of Harmony Gold.

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