Harmony

Jun-YE

2017

2018

2019E

2020E

2021E

Income statement

Revenue

19,264

20,358

27,113

27,910

26,450

Underlying EBITDA

4,452

5,356

7,836

9,552

7,856

Underlying EBIT

1,933

2,786

3,623

5,719

4,133

Other items

-2,292

-6,862

-1,672

-1,378

-1,375

Net interest

233

-669

-455

-335

-73

Taxation

510

234

-451

-1,166

-764

Net profit for the year

362

-4,473

1,069

2,840

1,920

Headline earnings

1,306

763

1,067

2,840

1,920

Headline EPS, ZAR

2.98

1.71

2.01

5.34

3.61

Thomson Reuters consensus HEPS, ZAR

1.92

3.72

3.05

DPS declared, ZAR

0.85

0.35

0.00

0.00

0.00

Production EBIT

1,768

2,432

3,186

4,787

3,142

South Africa underground

EBIT margin

11%

14%

15%

21%

15%

South Africa Surface

174

235

225

345

224

EBIT margin

10%

12%

10%

18%

12%

Hidden Valley

-9

119

146

531

595

EBIT margin

-1%

29%

4%

15%

18%

Group production EBIT

1,933

2,786

3,623

5,719

4,133

Income statement ratios

EBITDA margin

23%

26%

29%

34%

30%

EBIT margin

10%

14%

13%

20%

16%

HEPS Growth

35%

-43%

18%

166%

-32%

Dividend payout ratio

29%

20%

0%

0%

0%

Input assumptions

Gold, $/oz

1,257

1,298

1,274

1,367

1,308

$/ZAR

13.60

12.85

14.18

14.40

14.41

Calculated breakeven price, $/oz

South Africa breakeven

1,097

1,117

1,100

1,092

1,108

International breakeven

1,168

1,105

782

828

667

Group breakeven

1,193

1,208

1,129

1,125

1,113

Gold production volumes, koz

Kusasalethu

lumes

141

142

156

156

156

Doornkop

lumes

86

110

107

88

88

Tshepong/Phakisa

lumes

284

302

287

290

290

Masimong

lumes

82

84

74

74

74

Target 1

lumes

86

92

95

100

100

Bambanani

lumes

88

91

82

84

84

Joel lumes

72

53

50

72

72

Unisel

lumes

51

41

32

21

0

Moab

lumes

0

106

260

250

250

Surface

lumes

102

115

124

100

100

South Africa Total

lumes

993

1,136

1,266

1,235

1,214

Hidden Valley lumes

84

26

202

180

180

International total

lumes

84

26

202

180

180

Total production

lumes

1,076

1,161

1,467

1,415

1,394

Attributable Cu eq volumes, kt

201

217

274

264

260

Volume growth

-0.5%

7.9%

26.3%

-3.5%

-1.5%

Contribution to FY19E mining EBITDA

Hidden Valley

Kusasalethu

Doornkop

7%

25%

6%

Tshepong/Phakisa

17%

Surface

Masimong

3%

6%

Bambanani

Target 1

Moab

Unisel

3%

7%

24%

2%

Jun-YE

2017

2018

2019E

2020E

2021E

Balance sheet

Net operating assets

28,225

29,794

30,797

31,063

30,649

Investments, net of rehab provision

1,953

496

81

81

81

Equity

29,291

25,382

26,788

29,844

31,981

Minority interest

0

0

0

0

0

Net debt

887

4,908

4,090

1,300

-1,251

Balance sheet ratios

Gearing (net debt/(net debt+equity))

2.9%

16.2%

13.2%

4.2%

-4.1%

Net debt to EBITDA

0.2x

0.9x

0.5x

0.1x

-0.2x

RoCE

6.3%

8.9%

11.2%

17.2%

12.4%

RoIC (after tax)

8.8%

7.3%

9.6%

14.0%

10.3%

RoE

4.5%

2.8%

4.1%

10.0%

6.2%

Cash flow statement

Operating cash flow

5,224

4,811

7,281

8,463

7,236

Capex (net of disposals)

-3,887

-4,571

-4,968

-4,270

-3,474

Other cash flows

317

-5,930

-1,794

-1,162

-1,158

Free cash flow

1,654

-5,690

520

3,031

2,604

Equity shareholders' cash

635

-4,714

607

2,790

2,551

Dividends and share buy-backs

-439

693

211

0

0

Surplus (deficit) cash

196

-4,021

818

2,790

2,551

Cash flow ratios

3

4

4

4

3

Working capital turnover, days

FCF yield

9.3%

-34.1%

2.6%

17.8%

18.0%

Equity shareholders' yield

3.7%

-40.0%

3.9%

17.7%

16.2%

Capex/EBITDA

87.3%

85.3%

63.4%

44.7%

44.2%

Cash conversion

0.5x

-6.2x

0.6x

1.0x

1.3x

Valuation

ZARmn

ZAR/sh

Kusasalethu

627

1.2

Doornkop

737

1.4

Tshepong/Phakisa

5,289

9.9

Masimong

373

0.7

Target 1

262

0.5

Bambanani

1,574

3.0

Joel

509

1.0

Unisel

141

0.3

Moab

5,268

9.9

Surface

2,678

5.0

Hidden Valley

3,506

6.6

Other

-7,633

-14.3

Operating value

13,329

25.0

496

0.9

Enterprise value

13,825

26.0

Net debt as at 30 June 2018

-4,908

-9.2

Minority interest

0

0.0

2,844

5.3

Cash used in share buy-backs during 2019E

211

0.4

Equity value

11,972

22.5

Rounded to

22.0

Share price on 26/3/2019

29.6

Expected share price return

-25.6%

Plus: expected dividend yield

0.0%

Total implied one-year return

-25.6%

Share price range, ZAR:

12-month high on 21-2-2019

32

12-month low on 6-6-2018

19

Price move since high

-6.2%

Price move since low

52.4%

Calculation of WACC

WACC

13.0%

Cost of debt

10.0%

Risk-free rate

9.0%

Tax rate

28%

Equity risk premium

5.0%

After-tax cost of debt

1.1%

Beta

1.00

Debt weighting

15%

Cost of equity

14.0%

Terminal growth rate

6.0%

Valuation ratios

Dec-YE, $mn

2017

2018

2019E

2020E

2021E

P/E multiple

12.9x

13.8x

14.7x

5.5x

8.2x

Dividend yield

2.2%

1.5%

0.0%

0.0%

0.0%

EV/EBITDA

4.0x

3.1x

2.5x

1.8x

1.8x

P/B

0.6x

0.5x

0.6x

0.5x

0.5x

NAV per share, ZAR

66.6

50.7

50.3

56.1

60.1