On Nov 14, we reaffirmed our Underperform recommendation on
) factoring in high operating costs, volatility in gold prices
and labor issues.
Harmony Gold saw its profit decline year over year in
first-quarter fiscal 2014 (ended Sep 30, 2013) on lower sales.
The South African gold miner, on Nov 8, logged a profit from
continuing operations of $1 million for the quarter as against a
profit of $51 million recorded a year ago. Lower gold prices and
gold sales contributed to a roughly 22% year over year decline in
revenues to $403 million.
Harmony Gold, a Zacks Rank #4 (Sell) stock, 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 first quarter due to rise in wages and
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 the company's Kusasalethu mine resulted in a
decline in gold production in fiscal 2013. 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
gold mining industry with favorable Zacks Rank are
Pretium Resources Inc.
Golden Star Resources, Ltd.
Lake Shore Gold Corp.
). While Pretium Resources holds a Zacks Rank #1 (Strong Buy),
both Golden Star Resources and Lake Shore Gold retain a Zacks
Rank #2 (Buy).
GOLDEN STAR RES (GSS): Free Stock Analysis
HARMONY GOLD (HMY): Free Stock Analysis
LAKE SHORE GOLD (LSG): Free Stock Analysis
PRETIUM RES INC (PVG): Free Stock Analysis
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