Investing in Highland Gold Mining (HGM) is not so much about betting on the company's fundamentals as about guessing the future direction of the gold price. These first-half results are a case in point. Following their release, Highland's share price slipped 2 per cent - despite impressive operational progress made during the period, whereby gold production rose 4 per cent year on year to 105,630 ounces (oz) year. Moreover, the all-in sustaining cost of production fell 7 per cent to $912 (£570) an oz.
The day after the results, an announcement by the US Federal Reserve saw the price of gold shoot up $60 an oz to $1,360 and sent Highland's shares soaring as much as 10 per cent in intraday trading. The Fed decided not to taper its loose monetary policy just yet, prompting gold bulls to rush back into precious metals and equities.
True, Highland's bottom-line profits have been hit hard by lower metals prices. A higher tax rate of nearly 50 per cent didn't help, either. Yet Highland managed to avoid any impairment charges this period and its balance sheet looks in reasonable shape, with a new debt facility reducing the cost of borrowing.
Broker Numis Securities forecasts full-year gold production of 232,000 oz, generating pre-tax profit of $55.1m and EPS of 10.1¢ (from $157m and 38.8¢ in 2012), rising to 15.7¢ in 2014.
HIGHLAND GOLD MINING (HGM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 79p | MARKET VALUE: | £257m | |
| TOUCH: | 79-80p | 12-MONTH HIGH: | 129p | LOW: 50p |
| DIVIDEND YIELD: | 7.0%† | PE RATIO: | 4 | |
| NET ASSET VALUE: | 244¢ | NET DEBT: | 22%** | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2012* | 161 | 61.0 | 14.8 | nil† |
| 2013 | 157 | 33.2 | 5.20 | 2.50 |
| % change | -2 | -46 | -65 | |
Ex-div: 25 Sep Payment: 18 Oct £1=$1.60 *Restated **Includes $44.1m of financial assets †Excludes 2012's half-year special dividend of 4.8p a share | ||||
