Company Ltd 30 October 2016 Jomari Swarts MBA 2016 Keitumetse - - PowerPoint PPT Presentation

GNAM Investment Competition

Harmony Gold Mining Company Ltd

30 October 2016 Jomari Swarts – MBA 2016 Keitumetse Bolata – MBA 2016 Raymond Greig – MBA 2016

Shareholders

• New experienced CEO
• African Rainbow Minerals Ltd.,
• Allan Gray Proprietary Ltd,
• Van Eck Associate Corporation and
• Retail Investors (North America)

Company Overview

2

Listed on JSE, NYSE & BSE in Mining sector

Operations

• South Africa

– 9 Operations – 1 open pit mine

• Papua New Guinea

– 1 open pit mine – Exploration sites

Tech

• Investment in;

– ice plants – rail-veyor for semi-automated

Strategy

• Competitive, value focused gold

mining company

• Higher production goals for 2017
• Identifying acquisition targets

(outside South Africa) –JV with Hidden Valley mine

• Currency hedge (90% of operations

in SA)

• 1st dividend pay-out in 4 years

Market

• 3rd Largest Minining Co& in SA
• 13th largest in the world
• Competitors;

– AngloGold Ashanti and – Gold Fields

Customers

• China, India, USA

Demand for

• Jewellery,
• Technology,
• Investment and central banks

Macroeconomic Analysis

• Hillary Clinton most likely to be the

next US president

US elections

• Expect to be downgraded to non-

investment grade

SA’s credit rating decision in Dec ’16

• Expect interest rate hike in the short-

term

US Fed interest rates

• Over supply in the market
• Demand down in 2016
• Forecasted demand to increase in Asia
• Increase in western investment

interest

Gold

3

Gold price for past 1Y (USD/oz): Open (30 Oct ‘16) 1 276 High 1 367 Low 1 054 Gold price forecast for 2017 (USD/oz): Average 1 420

Macro-economy effects on Harmony

4

Forecast (2017) Justification Effect on Harmony Gold Gold Increase to $1,420 an

• unce

demand for jewellery in Asian and investments in the West  revenue US dollar Strengthen  global confidence in US economy  earnings Revenue earned in US dollars SA rand Weaken SA downgrade to junk status  earnings SA mines’ costs are in SA rand US Fed int. rate Increase Attempt to boost US economy Dampen gold price rally Increase in rand gold price => Rally in Harmony share price

Group Performance vs Competitors

18,461,615,024 R42.20 328.86% 19.1 3.37% Billion Operating Margin Billion Operatin Operating Margin Billion Operating Margin Billion Operating Margin

5

Harmony AGA Sibanye Gold Fields Pan African

Market Cap 18,461,615,024 75,308,871,871 34,674,059,662 45,915,462,994 6,762,358,808 Share price R42.20 R184.49 R37.53 R55.89 R 3.48 Change in 2016 328.86% 56.71% 61.21% 52.04%  87.1%  P/E 19.1 37.4 21.32 25.51 11.5 ROE 3.37% 4.57% 1.23% 7.97% 16.89%

Despite low ROE’s the SA gold industry is on treading upwards

Data sourced from on 29/10/2016 http://www.moneyweb.co.za/tools-and-data/click-a-company/

Performance over the last year

6

Strong performance for South African gold companies due to strong Rand gold price

0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00

• 100%

0% 100% 200% 300% 400% 500% 600% 700% Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16

Share price against the SA rand gold price

Sibanye Harmony Gold AngloGold Ashanti DRD Gold Limited Gold Fields Limited Gold Price/oz

Company Analysis: Financials

Profitability

• Revenue ↑18.8%
• Gross margin ↑13.9%
• Operating costs ↓17.1%
• ROE increased 20.33 % points

7

Liquidity and cash flow

• Current ratio at 1.71
• Acid ratio at 1.13
• Increased cash from operations
• Sufficient liquidity to cover short-

term borrowings

Leverage

• Debt ratio ↓ to 23.9%
• Debt to Equity ↓ to 31.4%
• Interest cover ↑ at 5.81 times
• Lower financial risk in

macroeconomic environment

Efficiency

• Collection period ↓4.62 days
• Settlement period ↑7.3 days
• Operating cycle ↓9.69 days
• Increased ability to generate

profits using assets

• 100.0%
• 50.0%

0.0% 50.0% 100.0% 150.0%

• 40.0%
• 20.0%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0%

Reaction to the All Share index

% change in Harmony Gold share price % change in volume traded % change in ALSI

Market sentiment

• PE at 19.19, below industry average of 31.8
• Dividend declared of R0.50 in 2016
• Share price trending upwards

8

2 4 6 8 10 12 14 16 18 1000 2000 3000 4000 5000 6000 7000

Share Price over the past year

Harmony Gold Price Exchange rate

Warranted price from all valuation methods is below market price

9

Valuation BUY

caused by Incomplete/biased valuation of PNG Operations Conservatively estimated growth

• Harmony has recognised the risks in Southern Africa and is diversifying
• perations by investing in emerging markets
• company, appears to have a good business strategy and is not highly
• leveraged. Harmony should remain a good long term investment

BUT

We recommend revaluing Harmony when the next interim financials are out to confirm whether we have undervalued Harmony’s growth and value of acquisition.

Current Share Price is R42.20 HEPS at 500 R at 10% G at 1% (SA’s GDP growth 2017) ROE 3.% Value per share R47.06 (upside

• f 4.5%)

Thank You

10