Investors tend to assume gold stocks are a safe haven during times of market turmoil. Harmony Gold (HMY) is no exception; hence the reason why this year’s 33% fall in the ADR is so disappointing.

Africa's third largest gold miner managed to pull the rabbit out of the hat by delivering third quarter net income of 490 million rand (USD 40.3 million), recovering from a loss the preceding quarter.

At first blush, the results look respectable after production increased and disposed of assets in Papua New Guinea. This disposal obscures the key take away from the results. The company is shifting its focus from exploration to buying producing assets. This strategy is less risky. That said, it shifts the focus to costs, such as labour and power, which are rising in double digits. In short, it shifts the focus from ‘promise tomorrow’ to ‘predictable cash flow and unpredictable costs’. In a country where the industry is in structural decline, and plagued by safety issues, this is a strategy that will only work with excellent management.

Harmony has a fairly simple business model. The upside is there if the gold price rises from here. More interestingly, it gets additional benefit when surface tailings become profitable to extract. That said, the risks of operational failures should make investors shun the stock in favour of others in the industry with lower-break even on operations. In short, Harmony is not a safe haven.