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NEWSNAP: Harmony Gold Posts Sharp Rise In Earnings
Monday January 27, 9:02 am ET
By Adam Aljewicz, Of DOW JONES NEWSWIRES


JOHANNESBURG (Dow Jones)--Harmony Gold Mining Co. Ltd., South Africa's third biggest gold producer, Monday reported a sharp rise in fiscal second quarter earnings, in line with market expectations.
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However, the earnings boost afforded by a rise in the gold price was partially offset by a strengthening rand against the dollar and analysts raised concerns over rising production costs.

Net profit rose to 457 million rand ($1=ZAR8.7665) in the three months to Dec. 31, up 57% from ZAR308 million for the corresponding period last year, and up 7.3% on the ZAR426 million posted in the three months to September 30.

Harmony's results equated to 262 South African cents a share, just ahead of market expectations of 255 cents a share.

Harmony's gold production fell 3.0% to 774,121 ounces, down from a record 797, 497 ounces in the previous quarter, although Harmony's chief executive, Bernard Swanepoel, still said he expects the company to boost production to around 3.1 million ounces this financial year.

The gold price is up around 22% from one year ago, and rose to a 7-year high of $372.80 a troy ounce Monday as investors continued to seek a safe haven for their funds in the face of the imminent threat of war in Iraq.

Around 1340 GMT, investors had sent the company's shares ZAR2.00 lower, or 1.3%, to ZAR149.00, on profit taking.

Harmony's cash operating profits fell 20% to ZAR763.0 million in the second quarter, from ZAR950.0 million during the previous quarter, due to a fall in the amount of gold produced as well as a drop in the grade of the gold mined, Swanepoel said.

Analysts have raised concerns that the company, as well as the gold mining sector in general, could face a margin squeeze in the future as yields drop and costs rise.

"If the gold price stops rising the sector is likely to experience a margin squeeze due to cost increases and drop in yields mined," said Leon Esterhuizen, a gold mining analyst at Investec based in Johannesburg, who has a hold rating on the stock.

"To combat this the (gold) miners are increasing volume which ultimately increases work force and costs," he said, adding that wage costs account for around 55% of a gold mining companies total cost base.

South Africa's gold miners annual wages rose 8.2% in 2002, while the average yields mined fell to 3.43 grams a tons, down from 3.58g/ton.

"Harmony managed to contain costs this quarter, but their yields dropped, so the gold actually costs more to produce on an ounce-by-ounce basis," said another analyst.

Harmony's overall cash cost rose to $222 an ounce in the second quarter, up from $204/oz in the first quarter.

Company Web site: http://www.harmony.co.za

-By Adam Aljewicz, Dow Jones Newswires: +27 11 783 7848, adam.aljewicz@dowjones.com
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