Shares of South African mining leader Harmony Gold Mining (HMY -1.10%) rose over 12% Wednesday after the company announced solid results through the first half of its 2018 fiscal year. The company reported a 55% jump in earnings per share (EPS) in U.S. dollars compared to the first half of fiscal 2017. During the same period, South African mining assets reported a 6% increase in production, all-in sustaining costs (AISCs) dropped 2%, and upgrades at the all-important Hidden Valley mine were completed ahead of schedule.
Despite the strength of its operations, Harmony Gold Mining also warned investors that the rand, South Africa's currency, could create difficult operating conditions in the year ahead. Investors seemed unfazed by the warning. As of 1:07 p.m. EST, the stock had settled to a 11.3% gain.
Investors may want to take management's warning a bit more seriously. The strong first half of fiscal 2018 was in large part due to favorable exchange rates between the U.S. dollar and the South African rand. When the rand is weaker, Harmony Gold Mining usually performs better because the price per ounce of gold denominated in the currency of the company's home country boasts an advantage to U.S. dollar-denominated gold prices.
In recent months, the rand has soared 17.5% compared to the U.S. dollar following the results of a closely watched election, which is widely considered to have increased the political stability of South Africa and its attractiveness as a destination for foreign investment.
The good news is Harmony Gold Mining continues to make moves to grow the business and cut costs, although an AISC of $1,100 per gold ounce is relatively high compared to industry peers. Nonetheless, the recent purchase of the Moab Khotsong mine could ultimately allow it to grow operating cash flow by 60%.
It seems investors are simply happy that management is corralling the factors within its control. Wall Street also seems pleased with growth plans at both Hidden Valley and Moab Khotsong. While a rising exchange rate between the South African rand and the U.S. dollar is not ideal, it's also something that Harmony Gold Mining has no control over. Besides, who knows, perhaps the recent election will provide benefits to the company and its operations in the long run that outweigh short-term concerns over currencies.