Executive Summary

In this report, we review Harmony Gold’s interim results for the period ended 31 December 2024, released in March 2025, alongside the current global macroeconomic environment.
Financial:
•    Gold revenue increased from R29 705 million to R35 447 million, an increase of 19% over the period 
•    Headline earnings per share increased by 33% to 1 270 cents in 1H25, up from 956 cents in 1H24.
•    An interim dividend of 227 cents was reported for 1H25.
•    AISC increased by 20% from $1 403/oz (R843 043/kg) to $1 686/oz (R972 261/kg) mainly due to inflationary cost increases in operations and lower production numbers. The AISC remains well within the guidance provided by management, as outlined below. 
•    The average gold price received improved by 28% to $2 437/oz during the period.

Production:
•    Gold production declined by 4% to 797 854 oz, as expected due to lower recovered grades from certain mines and reduced production from South African optimised operations. 
•    Underground recoverable rates improved by 2% from 6.29g/t to 6.40g/t, slightly offsetting the lower production numbers as mentioned above. 

The gold price has risen by approximately 10% since the last report, prompting an updated valuation to account for a higher gold price. Additionally, we have considered the long-term CAGR in the ZAR gold price to determine the long-term growth rate used in the DCF valuation. This resulted in a change in intrinsic value from R196 to R246. We maintain our hold recommendation.

Analyst thesis

While Harmony is the most attractively priced among its South African gold producer peers (GFI and ANG), it also has the highest exposure to South Africa, where electricity has historically been unreliable and labour costs are unstable. Additionally, Harmony has a high-cost relative to its peers due to its underground mines. The company has mined through high-yield ore bodies, and in the future, we think it will be difficult to grow production due to declining yields. Moreover, Harmony has significantly outperformed its peers, and our view is that the outperformance is unlikely to continue as tailwinds run out. 

Results

Gold Price Run    
The gold price has grown approximately 10% since our last report, breaching the $3 000 per oz mark and reaching new all-time highs. The drive has been marked by various levers:
•    Geopolitical tensions and economic uncertainty: Rising geopolitical tensions, coupled with minimal progress toward resolving the Russia-Ukraine conflict, are prompting investors to shift toward safe-haven assets and reduce exposure to riskier investments. Additionally, the U.S. has begun pulling back military support to Europe, urging European nations to boost their own defence spending.
•    Trade policies and tariffs: During the period, the tariff war intensified as the U.S. and China escalated their reciprocal trade measures. This heightened uncertainty over future corporate earnings is prompting investors to reduce their exposure to direct equities and increase allocations to gold as a safer asset.
•    Central bank demand: Central banks have continued to be net buyers of gold.

•    Interest Rates: Global interest rates have continued to decline globally, except for interest rates in the US. Lower interest rates are usually a positive incentive to hold non-yielding assets like gold. 

•    Inflation concerns: Investors are increasingly concerned that tariffs will significantly impact inflation, as companies may be unable to absorb rising costs and instead pass price increases on to consumers.

•    Dollar Index: The dollar index declined roughly 5%, which is usually a strong driver of demand for precious metals as they become cheaper in dollar terms. 

•    Uncertainty: Many of the above-mentioned points create uncertainty, which has been a strong gold price driver historically. 
Given the inherent unpredictability of the factors mentioned above, their outcomes cannot be forecasted with certainty. Geopolitical tensions, economic policies, central bank actions, and inflationary trends are all highly susceptible to sudden changes driven by evolving global developments.

As a result, market sentiment toward gold remains highly responsive to new developments. Significant changes in geopolitical events, economic policies, or macroeconomic indicators can lead to sharp fluctuations in gold prices. Investors closely monitor these variables, as even minor policy shifts, unexpected conflicts, or changes in economic data can quickly impact gold’s appeal, either boosting demand as a safe-haven asset or prompting declines if confidence in riskier investments improves. These dynamic highlight the inherent volatility of the gold market and the critical importance of staying attuned to global economic trends.

Valuation

Table 3: Valuation

Our valuation of Harmony is based on a discounted cash flow (DCF) model extending to FY29, incorporating the following key assumptions: 
•    a weighted average cost of capital (WACC) of 13.9%, 
•    a USD/ZAR exchange rate for FY25 of R18.10 and beyond of R18.30. 
•    The realised gold price for FY25 of $2 700/oz and into the future of $3 050/oz is used in the valuation. 
•    For the terminal value, we apply a long-term growth rate of 7%.