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JOHANNESBURG - Harmony Gold on Friday raised a red flag on its annual earnings outlook, which it expects to decline by as much as 45 percent, hit by a R5.3 billion impairment charge. 

The lowered forecast comes amid soft gold prices and high production costs, which saw its rival Gold Fields this month announce that it plans to cut 1 100 jobs. 

Harmony’s shares closed 1.16 percent lower on the JSE on Friday at R22.07. 

The gold mining and exploration company said on Friday in its earnings for the year to end June that it would record an impairment of R5.3bn at its Tshepong Operations, Target 1, Joel, Kusasalethu, Unisel, Masimong, Doornkop, and the Target North undeveloped property. 

“The impairments were mainly driven by forecasted cost inflation and a subdued gold price of R535 000/kg ($1 250 at R/$13.30) applied in the company’s life-of-mine plans and the resultant impact on margins,” the group said. 

Annabel Bishop, the chief economist at Investec, last week said metal prices had been afflicted by the strength of the US dollar, while the escalating trade tensions between the US and China showed no sign of coming to an end, and commodity producers worry about an outright trade war. She said commodity prices had declined this year in general, with metal prices down 12.4 percent on December last year. 

“The gold price has largely fallen this year, to $1 187/oz (R17 375) from $1 366/oz in January, on US dollar strength, and is providing little safe haven in the current risk-off environment,” Bishop said. 

Harmony now expects its headline earnings per share (Heps) to decline to between 164 cents a share and 179c during the period, down from 298c compared to last year, representing a decline of between 40 and 45 percent. 

In US dollar terms, Heps were expected to be between 12 and 14 US cents, which was between 35 to 45 percent lower than the headline earnings of 21 US cents compared to last year. 

However, the group said that it had delivered a strong production performance and achieved two significant milestones. 

It said the Hidden Valley re-investment was delivered below budget and ahead of schedule, and pointed to the acquisition of the $300 million Moab Khotsong operations in February from AngloGold Ashanti and its successful integration into Harmony’s portfolio. 

Moab Khotsong had helped Harmony exceed its annual gold production target by 4 percent for the year to end June. Harmony will publish its production and financial results tomorrow.