Harmony Gold Q1 results Friday, October 30
Rand to squeeze South Africa gold miners' profits
Gold Fields Q1 results Thursday, October 29
October 27, 2009
Even though the dollar price of gold has risen, earnings at Africa's top three gold producers will drop sharply in the September quarter due to the rand, which has gained 25 percent to the dollar this year.
The gold price in the third quarter averaged $959 (R7 384) an ounce, up 4 percent on the previous three months, but the firmer rand eroded most of those gains for South African gold producers, which sell their gold in dollars and pay their costs in rand.
Making matters worse for Gold Fields, Harmony Gold and AngloGold Ashanti are wage and electricity tariff hikes.
"Naturally, the combination of a lower gold price and higher costs can only mean lower earnings," Royal Bank of Canada Europe's analyst Leon Esterhuizen said in a note.
"Still, most of the producers should also be able to show slightly improved production levels and this should mitigate some of the margin squeeze."
AngloGold Ashanti, the world's third biggest and Africa's No. 1 gold producer, is expected to make a loss primarily due to the costs of restructuring its gold hedge book.
Gold Fields and Harmony are expected to show earnings declines despite producing more gold.
"Once again the benefits of higher gold production will be more than offset by cash cost inflation (wages and electricity) and a stronger rand/dollar exchange rate," JP Morgan's analyst Allan Cooke said in a note.
"Consequently all of the South Africa gold producers are anticipated to disclose lower quarterly earnings."
ADVERSE EFFECT
AngloGold's received gold price -- guided to a discount of 6 percent to spot average -- will be adversely hit by its hedge restructuring in July that will reduce gold revenue by a further $797 million.
An average forecast by five analysts showed the company will post an adjusted headline loss of 219 US cents per share for the September quarter.
AngloGold, which has around 20 operations across four continents, posted adjusted headline earnings of 47 US cents a share in the quarter to the end of June.
Gold Fields, the No. 4 producer in the world and No. 2 in Africa, is expected to post adjusted headline earnings per share of 93 South African cents for its first quarter to the end of September, from 140 cents in the June quarter, an average estimate of five analysts showed.
Esterhuizen forecast Gold Fields would deliver a flat quarter-on-quarter production level of 975 000 ounces.
Headline earnings are the key profit measure in South Africa, stripping out capital, non-trading and some extraordinary items. Gold Fields earnings are adjusted to exclude the effects of financial instruments and foreign debt.
Harmony, the fifth-biggest producer in the world and No.3 in Africa, will see headline earnings per share slump to 0.4 South African cents for its first quarter to the end of September from 107 cents in the June quarter, according to five analysts.
Unlike AngloGold and Gold Fields, most of its mines are in South Africa and it could bear the brunt of the stronger rand even more than its peers, analysts said.
Below is a summary of analysts' earnings forecasts, in South African cents per share for Gold Fields and Harmony and in US cents per share for AngloGold.
COMPANY SEPT. CONSENSUS RANGE JUNE QTR RESULTS
------- ------------ --------- ---------------
ANGLOGOLD -219 -195 to -275 47
GOLD FIELDS 93 85 to 100 140
HARMONY 0.4 -30 to 16 0.4 - Reuters
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