On Friday, HSBC downgraded shares of Harmony Gold Mining (HAR:SJ) (NYSE: HMY), shifting its stance from "Hold" to "Reduce," despite increasing the price target to ZAR154.00 from the previous ZAR125.00.
The move followed Harmony Gold's report of a solid first half of the 2024 fiscal year, maintaining its full-year all-in sustaining costs (AISC) guidance, which forecasts gold production to be between 1,380,000 and 1,480,000 ounces at a cost of ZAR975,000 per kilogram, or approximately USD1604 per ounce, according to current exchange rates.
The top end of the company's fiscal year 2024 volume guidance suggests a 22% half-on-half decline in production volumes. This is a significant drop compared to the 5-year historical average, which typically sees an 8% decrease in production volumes during the second half of the year.
HSBC's analysis indicates that even with a projected decline in ore grades at the Hidden Valley mine, Harmony Gold's production volumes could surpass the upper end of management's guidance range by 4%.
HSBC's forecasts include a 15% seasonal half-on-half decrease in production volumes, which is 7 percentage points below the historical average. The firm believes that this estimate sufficiently accounts for the typical trend of reduced production volumes in the second half of the year.
Harmony Gold's management has confirmed that, aside from lower ore grades at Hidden Valley and normal seasonal patterns, there are no significant changes expected in the operational performance of the mines for the latter half of the year.
The revised price target of ZAR154.00 reflects an increase from the former target, yet the downgrade to "Reduce" suggests a cautious stance on the stock's potential performance. Harmony Gold's management's guidance and HSBC's analysis both indicate a challenging second half for the company, as it grapples with the anticipated decline in production.
InvestingPro Insights
Harmony Gold Mining (NYSE: HMY) has been catching the eye of investors with its strong performance metrics. The company's P/E ratio stands attractively at 12.27, indicating that the stock is trading at a low earnings multiple, which could be appealing for value investors. Adding to this, Harmony Gold is a prominent player in the Metals & Mining industry, which may offer a sense of stability and potential growth within this sector.
Financially, Harmony Gold's cash flows are robust, with the ability to sufficiently cover interest payments, a reassuring sign for debt holders and investors concerned about the company's financial health. With a revenue growth of 30.66% in the last twelve months as of Q2 2024, the company is showing strong growth potential. Moreover, the company's liquid assets exceed its short-term obligations, which provides a cushion for operational needs or unexpected expenses.
For those interested in market momentum, Harmony Gold has exhibited a high return over the last year, with a price total return of 113.61% as of the latest data. This momentum is also reflected in the strong return over the last three months, with a 62.84% return, signaling investor confidence and market approval of the company's recent performance and future prospects.
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