On Aug 22, we downgraded our recommendation on gold miner
) to Underperform. Our view reflects high operating costs,
volatility in gold prices and labor issues.
Harmony Gold, on Aug 14, recorded a wider loss of 20 cents per
share for fourth-quarter fiscal 2013 (ended Jun 30, 2013) versus
a loss of 2 cents a year ago and 5 cents in the sequentially
prior quarter. The results were hurt by a hefty impairment charge
and temporary closure of the company's Kusasalethu mine. Lower
gold prices contributed to a double-digit decline in sales.
Harmony Gold is progressing with its cost reduction program in a
weak gold price environment.
Following the release of the fourth quarter results, the Zacks
Consensus Estimate for Harmony Gold for fiscal 2014 went down 42%
to 33 cents per share. The company now retains a Zacks Rank #5
Harmony Gold, which is among the prominent gold miners in South
Africa along with
AngloGold Ashanti Ltd.
), remains one of the highest cost major South African gold
producers. Apart from electricity supply concerns, the company
has labor issues, resulting in high operational costs. Cash
operating costs rose on a sequential basis in the most recent
quarter due to rise in electricity tariffs.
Moreover, Harmony Gold's operations are likely to be impacted by
a slower-than-expected ramp-up in production at mines and gold
price volatility. Weak gold prices coupled with higher costs are
significantly affecting the company's profitability.
Harmony Gold also remains exposed to geopolitical risks
associated with potential mine shut downs and labor strikes.
Labor disruptions at Kusasalethu resulted in a decline in gold
production in fiscal 2013 and cost the company roughly R1.2
billion ($116 million). Harmony Gold faces tough labor and wage
negotiations (with demand for significant wage hike) and the
labor relation environment remains volatile in the gold industry.
Mining Stocks That Warrant a Look
While we prefer to avoid Harmony Gold, other companies in the
mining industry with favorable Zacks Rank are
Avalon Rare Metals Inc.
Denison Mines Corp.
). Both retain a Zacks Rank #2 (Buy).
ANGLOGOLD LTD (AU): Free Stock Analysis
AVALON RARE MTL (AVL): Free Stock Analysis
DENISON MINES (DNN): Free Stock Analysis
HARMONY GOLD (HMY): Free Stock Analysis
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