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Why Harmony Gold Mining Co.'s Stock Soared More Than 20% in February

What happened

Shares of Harmony Gold Mining Co. (NYSE: HMY) took off last month, rising 20.2% after reporting strong fiscal first-half results.

So what

In an operations update in early February, Harmony Gold Mining said that an improvement in its operational performance would likely yield a 40% to 60% year-over-year increase in earnings when the company reported results later that month. That forecast came to fruition when the company announced that it earned $0.17 per share during the first half of its fiscal year, which was up 49% from the year-ago period. Driving the increase was the combination of higher production and ore grades with lower costs. Overall, production rose to 560,000 ounces during the first half of its fiscal year, up 4,000 ounces versus the year-ago period. As a result, the company remains on track to hit its full-year production guidance.

Image source: Getty Images.

In addition to those strong results, Harmony Gold also said that it had received approval from the South African government to begin mining its recently acquired Moab Khotsong mine. The company paid $300 million to buy that mine from AngloGold Ashanti (NYSE: AU). The deal enabled AngloGold Ashanti to reduce debt, which aligned with its commitment to improve its strategic and financial flexibility. Meanwhile, for Harmony Gold, the deal "will enhance the quality of our asset portfolio and increase our profit margins," according to CEO Peter Steenkamp, with the company estimating that it will boost operating cash flow by 60% as well as provide "substantial cost savings."

Now what

Harmony Gold believes it's on track to deliver solid results in 2018, highlighted by improving earnings and free cash flow thanks in part to its ability to make needle-moving deals like the one with AngloGold Ashanti. That said, it's still a relatively small gold company, which makes it a higher risk option for investors, who might want to consider a stronger gold stock instead.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.