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Why Harmony Gold’s Board Could Consider Paying Dividends Again

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Repayment of debt

Harmony Gold (HMY) recorded net debt of $162 million at the end of December 2015. The company repaid $78 million of its debt in the December 2015 quarter. Repayments consisted of $50 million on its $250 million revolving credit facility and 400 million rands on a facility of 1.3 billion rands. US dollar–denominated debt led to a loss on foreign translation due to the weakening of the rand exchange rate against the US dollar (UUP). The company currently has a net debt to EBITDA ratio of 0.6x, which is quite comfortable at this gold price level.

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Clearing off debt

Management mentioned during the call that paying off debt with cash flow generation will be its first priority. The company is aiming to clear off debt before the end of calendar 2016. It stated that higher rand gold prices should help. Paying off debt would provide the company with financial flexibility and fund part of the Golpu project.

Harmony also stated that, at the end of company’s fiscal year in June, the board could also consider paying a dividend. Harmony hasn’t paid dividends over the last few years due to the volatile gold price (GLD) (IAU) environment.

Weathering the volatile metal price environment

To weather the current volatile metal price environment, reducing debt is the number-one priority for many miners, including Barrick Gold (ABX) and Newmont Mining (NEM).

Investors can consider the VanEck Vectors Gold Miners Index (GDX) to get exposure to publicly traded gold mining companies. ABX and NEM account for 13% of the fund’s holdings. Rather than investing directly in gold miners or GDX, you could also invest in the SPDR Gold Trust (GLD) to get exposure to spot gold prices.

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