Despite meeting its production guidance targets and increasing its underground recovered grade by 8%, gold producer Harmony Gold warned in a trading statement on Friday that it expects its full-year headline earnings per share (HEPS) to be 40% to 45% lower than in 2017.

HEPS for the year ended June 30 are expected to be between 164c and 179c, compared with the 298c reported for the 2017 financial year.

The gold miner further expects to report a loss a share of 995c to 1 011c for the financial year to June 30, compared with earnings a share of 82c reported for the 2017 financial year.

“Harmony delivered a strong production performance and achieved two significant milestones in driving the company’s strategy to produce safe, profitable ounces and increase margins, namely the Hidden Valley re-investment was delivered safely, below budget and ahead of schedule and the acquisition of the Moab Khotsong operations and its successful integration into Harmony’s portfolio.

“These two investments enhance the quality of the company’s portfolio and are already contributing to strengthening Harmony’s results,” the company said in the trading statement.

During the financial year under review, Harmony achieved an all-in sustaining unit cost of R508 970/kg, beating guidance of R520 000/kg and beating the all-in sustaining unit cost of R516 687/kg reported for the 2017 financial year.

However, the company reported several impairments.

The life-of-mine plans form the basis for assessing whether any impairment against the carrying value of an asset is required. These values are informed by a number of factors, including estimates of future gold prices and exchange rates and operating and capital cost estimates, Harmony Gold explained.

“An impairment of R5.3-billion was recorded at Harmony’s Tshepong, Target 1, Joel, Kusasalethu, Unisel, Masimong and Doornkop operations and at the Target North undeveloped property.

“The impairments were mainly driven by forecasted cost inflation and a subdued gold price of R535 000/kg applied in the company’s life-of-mine plans and the resultant impact on margins,” the company informed shareholders.

In the case of Target North and Doornkop, lower resource multiples were applied to estimate the value of the resources.

“The values per resource ounce have decreased substantially as a result of the low levels of merger and acquisition activity of resource companies in South Africa, and more specifically gold mining companies.”

A translation loss of about R669-million was recognised on the US dollar-denominated debt as at June 30, compared with a translation gain of R215-million recorded in the previous comparable period, the trading statement concluded.

Harmony will publish its production and financial results for the year ended June 30 on August 21.