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Why Harmony Gold Stock Is Soaring Today

By Matthew DiLallo - Feb 12, 2020 at 3:28PM

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The gold miner sealed a deal to become the top producer in South Africa.

What happened

Shares of Harmony Gold (HMY -4.19%) rallied 10% by 2:30 p.m. EST on Wednesday. Driving up the gold mining stock was a deal to acquire AngloGold Ashanti's (AU -2.41%) remaining assets in South Africa. 

So what

AngloGold Ashanti agreed to sell its South African assets to Harmony Gold. It will pay $200 million upon closing the transaction, along with two potential deferred payments. The sale will enable AngloGold Ashanti to shrink its portfolio so that it can focus on its highest-return assets. 

Gold nuggets on top of cash.

Image source: Getty Images.

Harmony Gold, meanwhile, will become the largest gold producer in South Africa once it closes this deal, which includes the acquisition of the Mponeng mine, the deepest gold mine in the world. In addition to the mines currently producing, Harmony Gold has some untapped upside potential if it develops the mineral rights below the current infrastructure. 

Harmony sees the acquisition as a strategic, financial, operational, and geographical fit. It has the potential to improve the company's cash flow margins while increasing its annual production by 350,000 ounces. 

Now what

Harmony Gold will become the top gold producer in South Africa with this deal. More importantly than growing its size, the transaction improves the company's operations as well as its cash flow profile. Because of that, the stock could have more room to run, especially if gold prices keep rising, as they've done for much of the past year.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Harmony Gold Mining Company Limited Stock Quote
Harmony Gold Mining Company Limited
HMY
$3.20 (-4.19%) $0.14
AngloGold Ashanti Limited Stock Quote
AngloGold Ashanti Limited
AU
$14.97 (-2.41%) $0.37

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