We have retained our Neutral recommendation on gold miner Harmony Gold (HMY). While we are encouraged by its continued focus on improving gold grades, we take a cautious stance considering higher costs and volatility in gold price.
Why Retained?
Harmony Gold, on May 3, reported a loss of 5 cents per share for third-quarter fiscal 2013 (ended Mar 31, 2013) versus earnings of 30 cents per share a year ago. It missed the Zacks Consensus Estimate of earnings of 26 cents.
Revenues fell by double digits on lower gold production due to the temporary closure of the Kusasalethu mine. Harmony Gold, at the third quarter call, divulged its plans to cut capital expenditure following a fall in gold price.
Harmony Gold, which is among the prominent gold miners in South Africa along with AngloGold Ashanti Ltd. (AU), is making good progress in producing better quality gold ounces. It has several world-class mines in South Africa, which together with Hidden Valley and Wafi-Golpu projects in Papua New Guinea (PNG), will be significant contributors to its set production targets.
Harmony Gold is also showing significant progress both in the growth of resources as well as diversity. The company is focused on meeting its long-term targets and maximizing shareholder value. It remains confident in achieving its stated gold production goal of 1.7 million ounces by 2016.
However, Harmony Gold’s operations are likely to be impacted by a slower-than-expected ramp-up in production at mines, higher-than-expected operating costs and gold price volatility.
Harmony Gold is seeing a rise in operating costs. Weak gold price coupled with higher costs is significantly affecting the company’s profitability. Harmony Gold is also exposed to geopolitical risks associated with mine shut downs and labor strikes.
Harmony Gold currently retains a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other companies in the mining industry with favorable Zacks Rank are Sibanye Gold Limited (SBGL) and Lake Shore Gold Corp. (LSG). While Sibanye Gold carries a Zacks Rank #1 (Strong Buy), Lake Shore Gold retains a Zacks Rank #2 (Buy).
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