Harmony Gold Cutting Costs

Harmony Gold Mining Co. Ltd. (HMY) is benefiting from higher gold prices. Going forward, Harmony is focused on reducing its overall operating costs through its continuous operations agreement and the shutdown of loss-making shafts. The company is also reducing its headcount to control costs. As a result, we rate the shares a Hold with a target of $11.50.

The company will sell Orkney shafts 2, 4, 7 and 60% interest in its Randfontein operations to Pamodzi Investment Holdings and U.S.-based equity firms First Reserve Corporation and AMCI Capital. In order to optimize value from its low-priority assets, the company also entered into a sale agreement with African Precious Minerals.

The company has a diverse portfolio of gold development projects spread across South Africa and PNG. Harmony expects that all its projects taken together will add over 1.5 million oz per year to its total production. We expect significant synergies in the company's operations following the development of these projects. We remain optimistic that Harmony will attain its target of increasing production to around 3.5 million oz per annum in by 2012.

Moreover, as planned, Harmony introduced Newcrest Mining Limited as a new partner in PNG to reduce the projects funding load and bring in extra mining expertise. The Department of Minerals and Energy has also approved and granted the conversion of its old order mining rights into new order mining rights in terms of the Minerals and Petroleum Resources Development Act (MPRDA).

Harmony has been granted 13 new order mining rights, in terms of the MPRDA, which covers all South African gold mining operations. However, current gold production is lower compared to prior-year levels.

Bayer Risk/Reward Balanced

Bayer AG (BAYRY) has been shifting its focus on the healthcare segment in the past few years in order to maintain solid growth in the long run. However, sales in healthcare segment has stalled from 4Q07 which creates great concern since healthcare business is Bayer's major focus and will be the key growth driver in the future. We maintain our Hold rating for Bayer's shares with a price target of $90.

The acquisition of Schering AG and synergies by the acquisition should accelerate growth in the healthcare segment in the coming quarters. However, sales in the healthcare segment only grew by 0.9% in 4Q07 and 3.4% in 1Q08. The failure of Nexavar for lung cancer and the US court ruling against birth-control pill Yasmin will have negative impact for the growth of healthcare segment. Therefore, we are lowering our estimates for healthcare segment for 2008 and beyond.

The CropScience and Material Science segments should stabilize in the coming quarters. Currently, Bayer stock is trading at 12.1x our 2009 EPS estimate of $7.05 per ADR.