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Harmony Gold on Track to Meet 2017 Gold Production Guidance

- By Alberto Abaterusso

On May 9, Harmony Gold Mining Co. Ltd. (HMY) provided an operational update for the nine months ended March 31.

The mid-tier gold mining company headquartered in South Africa reported gold production of 812,192 ounces for the first nine months of 2017.

These results indicate the company is on track with its guidance on gold production. The company guided production of 1.05 million ounces for the year, which ends June 30.

Harmony sustained a cash operating cost of about $996 per ounce of gold.

With the help of short-term gold forward sale contracts, Harmony Gold exposes approximately 20% of its operations to the volatility of the gold market. As a result, the company reported an operating free cash flow margin of 8% for the past three quarters.

Concerning Harmony's third-quarter 2017 results, the company produced 258,330 ounces of gold, a 6.5% decrease quarter over quarter. Total gold production, including the outcome of Hidden Valley, which is in a 50% joint venture with Newcrest Mining Ltd. (NCM.AX), totalled 284,565 ounces, down 22,186 ounces from the total production reported at the end of the previous quarter.

In the first quarter of fiscal 2017, the company reported a cash operating cost of $1,043 per ounce of gold and a cash operating cost of $968 per ounce sold at Hidden Valley. The all-in sustaining cost (AISC) per ounce of attributable gold and per ounce of gold sold at Hidden Valley were, respectively, $1,246 and $1,254. Costs for the quarter ended March 31 were higher than those at the end of the previous quarter.

At the end of the third quarter of 2017, revenue came in at $358.271 million, down 1.5% from the previous quarter. The total volume of 290,224 ounces of gold sold for an average price of $1,287 per ounce.

The free cash flow margin from Harmony's ongoing operations decreased two percentage points to 2% in the third quarter from 4% in the second quarter.

CEO Peter Steenkamp commented on the company's third-quarter results.

"The fundamentals underpinning our mine plans enable us to achieve our annual production guidance," Steenkamp said. "Safety, costs and grade continue to be a focus and higher production in the fourth quarter will drive unit costs".

Harmony Gold is currently at $2.17 per share, up one cent or 0.69% from the previous trading day.

The average target price per share is $2.54, which represents a 17% upside from the current share price. The recommendation rating is 3.3. The rating ranges between 1.0 (Strong Buy) and 5.0 (Sell).

The stock has been downtrending since mid-April and has lost 1.6% year to date. Harmony Gold is trading at 0.41 times the book value and at 3.11 times the Ebitda.

Disclosure: I have no position in Harmony Gold.

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This article first appeared on GuruFocus.