Harmony Gold Mining reports 61% operating profit surge but output decline and copper capex weigh on HMY stock

Harmony Gold Mining Company Limited (NYSE: HMY; JSE: HAR) reported interim results for the six months ended 31 December 2025 on 11 March 2026, revealing a company caught between a historic gold price tailwind and the operational drag of lower output, rising costs, and a major capital commitment to copper. Group revenue climbed 20 percent to R44.4 billion as the gold price environment delivered the kind of earnings leverage that shareholders rarely see twice, but the headline numbers masked a 9 percent fall in gold production and an 11 percent decline in underground recovered grade that left analysts and investors focused on the quality trajectory rather than the windfall. Harmony doubled its interim dividend to 530 SA cents per share, triggering a record payout of R3.38 billion, yet the market response was telling: HMY shares fell sharply on results day, with the stock trading around USD 18.40 on the NYSE, off roughly 6 percent on the session and sitting well below its 52-week high of USD 26.06.

Why did Harmony Gold report lower gold output even as the gold price hit record levels in the first half of FY26?

The 9 percent decline in group gold production to approximately 762,000 ounces for the half was partly planned and partly operational. Harmony’s multi-year mine sequencing strategy calls for deliberate grade moderation at several South African underground operations as the company cycles through lower-grade ore blocks before returning to higher-grade faces. Underground recovered grade fell 11 percent to around 5.9 grams per tonne, tracking above the company’s guided floor of 5.8 grams per tonne for the full year but meaningfully below the 6.27 grams per tonne the company delivered in fiscal year 2025. The gap matters because Harmony’s South African underground mines, particularly Mponeng, which ran at an extraordinary 10.54 grams per tonne in the first quarter, are the high-margin engines of the group. When those operations cycle through thinner zones, the unit economics soften regardless of what gold is doing on the spot market.

Hidden Valley in Papua New Guinea added another layer of complexity. A mill motor failure, a deferred gold shipment, and an industry-wide cyanide shortage in South Africa compounded the grade moderation and resulted in lower metallurgical recoveries across parts of the portfolio. Harmony management described these as temporary and noted they are being actively addressed, but the combination of planned and unplanned production headwinds arriving in the same half-year period is precisely the kind of overlap that makes cost forecasting difficult and tests investor confidence in guidance reliability.

How much did costs rise at Harmony Gold in the first half of FY26 and how does that compare with peer gold producers?

All-in sustaining costs for the group increased to approximately R1.107 million per kilogram in the first quarter of FY26, tracking within the guided full-year band of R1.15 million to R1.22 million per kilogram. In US dollar terms, that equates to roughly USD 1,954 per ounce, a figure that reflects both rand cost inflation in the South African operations and the structural cost uplift that comes with integrating a new copper asset and committing capital to Eva Copper. For context, the group’s AISC in fiscal year 2025 was R1.054 million per kilogram or approximately USD 1,806 per ounce, meaning the year-on-year cost escalation is running at around 8 to 10 percent in rand terms.

That escalation is not alarming given the gold price environment. Harmony received an average gold price of roughly R1.818 million per kilogram in Q1 FY26, a 34 percent improvement on the prior year comparable, which means the margin between realised price and all-in sustaining cost remained wide. Operating profit for the half rose 61 percent to R16.1 billion, and basic earnings per share grew 24 percent. The financial picture is strong by most measures. The concern is whether cost discipline holds as the company simultaneously sustains nine underground mines, integrates a new copper operation in Australia, and constructs a greenfield copper mine at Eva in Queensland.

What is the strategic logic behind Harmony Gold’s shift into copper through the CSA and Eva Copper projects?

Harmony completed the acquisition of MAC Copper, owner of the high-grade CSA copper mine in New South Wales, in late October 2025. The CSA mine delivered maiden production for Harmony in the first half of FY26 and adds immediate copper revenue, though the company has not yet published long-term production guidance for the asset and has indicated that comprehensive CSA guidance will come with the full-year results. CSA operates as a cash-generating base while Eva Copper moves toward construction: the board has approved Eva Copper, an Engineering, Procurement and Construction contractor has been appointed, and the project is now being built.

The copper pivot reflects a deliberate response to the risk profile of running a large, deep South African gold portfolio. South African underground mining is high-grade and high-margin but also capital-intensive, labour-intensive, operationally complex, and exposed to energy costs, safety stoppages, and regulatory risk. Copper, while cyclical, offers a different demand profile underpinned by electrification and energy transition spending. Eva Copper carries a projected 15-year life, targeting approximately 65,000 metric tonnes of copper production annually in its first five years, with a longer-term average of around 60,000 metric tonnes per year. Capital expenditure guidance for Eva Copper alone is ZAR 5.6 billion, or roughly USD 302 million, for the current financial year, representing a significant commitment from a company still generating most of its earnings from gold.

The capital allocation framework that CEO Beyers Nel articulated at the results media call places safety and sustaining capital first, organic and expansion projects second, and shareholder returns third. That sequencing is prudent given the scale of the copper investment, but it implies that the dividend policy liberalisation may face headwinds if gold prices soften before Eva Copper reaches commercial production and begins generating free cash flow.

Is Harmony Gold’s new dividend policy sustainable, and what does doubling the interim payout signal to institutional investors?

Harmony’s updated dividend framework, which allows for payouts of up to 50 percent of net free cash flow, represents a genuine shift in capital return philosophy from a company that was traditionally more conservative. The interim dividend of 530 SA cents per share, equivalent to approximately USD 0.32, represents a rolling 12-month yield of roughly 2.2 percent at current share prices and compares with the 227 SA cents per share paid in the prior year’s interim. The R3.38 billion payout sets a record for an Harmony interim period.

Whether the policy is sustainable depends almost entirely on gold prices holding at or near current levels while Eva Copper’s construction capital is being deployed. Harmony’s balance sheet is in good shape: net debt to EBITDA stood at 0.18 times at the interim, and liquidity including undrawn facilities was approximately R26.6 billion at the end of the first quarter. The company can absorb the copper capex without breaching its internal threshold of net debt to EBITDA below 1.0 times, but the cushion shrinks if gold prices retreat, if South African underground grades disappoint in the second half, or if Eva Copper construction costs escalate. Mining construction projects, particularly in Queensland where infrastructure, labour, and environmental permitting add complexity, have a well-documented tendency to overshoot initial budgets. Harmony investors would be rational to treat the dividend as generously calibrated for a peak gold price environment rather than as a stable, through-cycle baseline.

How does the market reaction to Harmony Gold’s H1 FY26 results reflect broader investor concerns about quality versus earnings leverage?

HMY traded around USD 18.40 on the NYSE on results day, a decline of approximately 6 percent on the session, and the stock has moved materially lower from its 52-week high of USD 26.06. The 52-week low sits at USD 11.30, meaning the current price remains well above the trough but has given back a substantial portion of the rally that accompanied the gold price surge. A technical sell signal was in place ahead of the results, and the production miss, even though within full-year guidance, appeared to reinforce concerns that Harmony’s volume trajectory does not fully justify the earnings multiple expansion seen during the gold price run.

The divergence between financial performance and share price is instructive. Harmony delivered a 61 percent rise in operating profit, a doubled dividend, and a robust balance sheet, yet the stock fell. The market is pricing two things: the risk that gold prices soften from historically elevated levels, and the execution risk on Eva Copper. A construction-stage, greenfield copper mine in Queensland is a very different risk proposition to the high-grade South African underground assets that investors historically underwrote when buying HMY. The copper optionality is real and the strategic rationale is defensible, but the market is demanding a discount until the capital commitment converts into copper revenue at scale.

Analyst consensus as of the results date remains constructive, with a buy rating and a 12-month price target in the range of USD 16 to USD 27 depending on the house. The wide target spread reflects the binary nature of the copper construction story rather than disagreement about gold earnings quality.

What are the execution risks for Harmony Gold as it tries to sustain South African underground grades while building a copper mine in Australia?

The operational challenge Harmony faces in the second half of FY26 is straightforward to describe and difficult to execute. The company must recover enough gold in its South African underground operations to meet full-year production guidance of 1.4 million to 1.5 million ounces while underground grades remain under pressure from mine sequencing. Mponeng, the flagship operation with grades running above 10 grams per tonne, carries a disproportionate share of the quality burden. Any safety stoppage, seismic event, or grade disappointment at Mponeng would have an outsized impact on second-half production and earnings.

Simultaneously, Harmony is integrating CSA into group reporting and financial systems while appointing an EPC contractor, mobilising construction crews, and managing procurement and logistics for Eva Copper. Both copper assets sit thousands of kilometres from the South African core, requiring management bandwidth, technical capacity, and capital monitoring that stretch across three countries and two very different regulatory environments. Papua New Guinea adds a third frontier through Hidden Valley and the long-pending Wafi-Golpu special mining lease discussions with the Papua New Guinea government and joint venture partner Newmont Corporation. Progress on Wafi-Golpu remains slow, and no timeline for lease execution has been disclosed, meaning that asset continues to represent unrealised option value that investors cannot currently price with confidence.

The lowest-ever lost time injury frequency rate of 4.29 recorded in the first quarter of FY26, and the achievement of a loss-of-life free quarter, are meaningful safety milestones for a company operating some of the deepest mines in the world. But safety performance in South African deep-level mining is inherently volatile, and a single incident can trigger government-mandated stoppages that derail short-term production and cost profiles in ways that are impossible to anticipate.

Key takeaways on what Harmony Gold’s H1 FY26 results mean for the company, its competitors, and the gold mining sector

• Harmony delivered record interim earnings and a doubled dividend on the strength of a 20 percent revenue increase, but the market sold the stock on concerns about lower gold output and rising costs, reflecting a quality-versus-windfall debate that will define the second half.
• Group gold production fell 9 percent to approximately 762,000 ounces for the half, with an 11 percent decline in underground recovered grade, both in line with guidance but flagging that the high-grade mine sequencing benefit seen in fiscal year 2025 has cycled into a trough period.
• AISC rose to approximately USD 1,954 per ounce, a 15 percent year-on-year increase, with full-year guidance set at R1.15 million to R1.22 million per kilogram, reflecting both rand cost inflation and the structural overhead of integrating two copper assets.
• The new dividend policy, paying up to 50 percent of net free cash flow, is generously calibrated for a peak gold price environment and may prove difficult to sustain at the same payout level if gold prices retreat before Eva Copper generates material free cash flow.
• The Eva Copper project, with ZAR 5.6 billion in committed capex for FY26 alone, is the central strategic bet of the Harmony investment thesis, but greenfield copper construction in Queensland carries execution and cost overrun risks that the current share price discount appropriately reflects.
• CSA delivers immediate copper production but long-term operational guidance for the asset has been deferred to the full-year results, leaving a gap in the investment case that institutional investors and analysts have flagged.
• HMY trades within its 52-week range at approximately USD 18.40, well below the USD 26.06 peak and carrying a technical sell signal, a combination that suggests the market will remain in show-me mode until second-half grade recovery and Eva Copper construction milestones are delivered.
• Competitors including Gold Fields Limited (NYSE: GFI) and AngloGold Ashanti Limited (NYSE: AU) are watching the Harmony copper diversification model closely; if Eva Copper delivers on its life-of-mine projections, it could force a re-rating of mid-tier South African gold producers that have remained more narrowly focused on gold.
• The Wafi-Golpu joint venture with Newmont Corporation in Papua New Guinea remains an unpriced option with no clear lease timeline, representing potential but adding no near-term valuation support.
• For sector investors, Harmony’s half-year results confirm that exceptional gold prices can generate record cash flows even from operationally imperfect portfolios, but they also confirm that capital allocation discipline and construction execution are now the primary drivers of long-term valuation at a company in active diversification mode.