Harmony Gold Mining Co. Ltd. (HMY) is benefiting from higher gold prices. Going forward, Harmony is focused on reducing its overall operating costs through its continuous operations agreement or CONOPS and the shutdown of loss-making shafts. The company is also reducing its headcount to control costs. As a result, we rate the shares a Hold with a target of $9.50.
However, CONOPS was terminated at Elandsrand, Evander 2 and 5, Cooke 1, 2, and 3 shafts, Masimong and Tshepong mines during fiscal 2008. We expect these measures to assist in improving the company's profitability. Fiscal 2008 cash operating costs were up 10.8% year-over-year due to lower production and inflationary pressures on salaries, electricity and steel and fuel.
But the management stated that it is actively focused on increasing production and lowering its cost structure, more specifically in the areas of overheads and the services of consultants and contractors.
The company has a diverse portfolio of gold development projects spread across South Africa and Papua New Guinea (PNG). These are Elandsrand, Doornkop, Tshepong and Phakisa in South Africa and Hidden Valley in PNG, which when developed, would deliver up to 1.4 million oz of additional production by 2011. In addition, it has a number of development prospects that are being progressed including surface sand dumps, rock dumps, tailing dams, reviewing the potential of uranium deposits in South Africa, and developing the Wafi Golpu gold and copper-gold deposits in PNG.
These development projects are expected to increase production further up to 1 million oz when the feasibility studies are complete. According to the feasibility study conducted by Harmony at the Hidden Valley project, this property has the potential to produce 300,000 oz of gold and 4.5 million oz of silver.
Read the full analyst report on HMY
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