Foolish Forecast: Harmony Sings

South Africa's Harmony Gold Mining (NYSE: HMY  ) reports Q1 2006 earnings results tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

• Buy, sell, or waffle? Nine analysts follow Harmony, and their ratings are evenly split: three each for buy, hold, and sell.
• Revenues and earnings. Only two of the analysts have submitted profits estimates to FirstCall, and neither one included revenue estimates for the quarter. On profits, they expect Harmony to report $0.04 per share in net earnings, which is much better than last year's Q1 $0.18-per-share loss.

What management says:
CEO Bernard Swanepoel advocates taking a long-term view of his business. In Harmony's last earnings report, he noted that gold had been fetching relatively low prices over the last two years. Even so, "Harmony has stuck to its strategy to invest in [its] growth projects." As a result of maintaining its investments through tough times, Swanepoel says that "the company is now well positioned to pass the benefits from the improved gold price and the increased profitability through to [its] shareholders."

What management does:
What "improved gold price," you ask? Well, in case you haven't noticed, gold is now trading well north of $600 an ounce, hitting its highest price in a quarter century earlier this week. Not that it's helped Harmony much in the process. The company had been posting hefty operating and net losses for well more than a year before finally turning a profit last quarter (indicated below by the slight reduction in the negativity of Harmony's trailing-12-month margins).

Margins %	9/04	12/04	3/05	6/05	9/05	1/06
Gross	6.6	6.5	4.2	0.2	(2)	(1.5)
Op.	(6.6)	(7.3)	(10.4)	(31.9)	(35)	(34.7)
Net	(4.3)	(10.7)	(34.3)	(48.7)	(51.7)	(48.7)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
They say that not all that glitters is not gold. And as much as I admire the sentiment expressed by Harmony's CEO, I've got to be suspicious that the company can capitalize on the rising price of gold -- sufficiently to reward its shareholders, at least. Those margins look awfully negative to me, and even though Harmony has posted positive gross margins in each of the last two quarters, the resulting 6.7% and 17.4% gross margins are not the kind of thing that would ordinarily spark a gold rush.

Harmony's share price has nearly tripled over the last year, even as its cash flow statement shows firmly negative operating cash flow. Call me a pessimist, but I'm, well, pessimistic about how much longer these golden shares will reward investors, absent some green on the bottom line.

Competitors:

• Newmont Mining (NYSE: NEM  )
• DRDGOLD (Nasdaq: DROOY  )
• Barrick Gold (NYSE: ABX  )
• AngloGold Ashanti (NYSE: AU  )
• Gold Fields (NYSE: GFI  )

Fool contributor Rich Smith does not own shares of any company named above.