With a gold price that has performed consistently well and a weaker rand during the first quarter, gold companies' earnings have doubled or quadrupled in just six months, figures they have not seen in more than a decade. However, what analysts will be looking for when gold companies report half-year results this week is whether management has used this boon to improve efficiencies, such as cutting operational costs and dealing with labour problems, which need to be addressed to help the sector out of the pit it has been in for the past decade.story_article_left1Harmony Gold CEO Peter Steenkamp, who has just finished his first six months at the company, said what had been most difficult for him was to decide on a gold price to plan for the future."We cannot get confused by the gold price and, therefore, take a conservative view on the gold price used for life-of-mine planning purposes," said Steenkamp. The company's forecast is R475000/kg, a level at which margins will be strengthened and which is considered realistic given that gold has been trading at over R610000/kg.Steenkamp said profits made in this period would go to repaying debt. Harmony isdeveloping the Golpu mine and doing exploration work at Kili Teke in Papua New Guinea. These mines have enabled it to expand its copper portfolio.Harmony Gold said in a trading update on Friday that, due to a 21% increase in the average rand gold price, headline earnings per share for the year ended 30 June are expected to between 207% and 227% higher, compared to a headline loss last year.However, Harmony , which mostly mines at old, costly gold mines in South Africa, needs a higher gold price to be sustainable. Makwe Masilela, an analyst at BP Bernstein, said a company like Harmony Gold would not stand anywhere in the absence of a strong gold price.Since December last year, the gold price has increased by 26% and the JSE gold mining index has outperformed the JSE All Share by 134%. Although a strong gold price has played a key role in increasing company revenues, Ian Cruickshanks, chief economist at the South African Institute of Race Relations, said it was not the only factor contributing to earnings. The ability of companies to quickly switch from mining high-grade to low-grade gold also plays a role.When the price went up, Cruickshanks said, you would expect companies to hold back higher grades for tough times in the future and trade lower grades now, while there is still a profit to be taken, so they can maintain the margin between cost and revenue.Cruickshanks said he expected all gold mining companies to have "sparkling results", provided that they have not switched to much lower grades in this period.He hopes a lot of gold companies have used the six-month respite to "improve efficiencies because they've got greater revenue to put towards implementing those efficiencies. [However,] if they are on the brink of break-even they really can't afford to do anything."AngloGold Ashanti, which has seen its share price rise 155% in the first half, expects its a 141% increase in earnings from the previous year. The company, although struggling with its Obuasi mine in Ghana due to illegal mining, was still able to continue with a feasibility study.Hanré Rossouw, head of resources at Investec, said the key thing to look out for this week was at Obuasi. "It is really just a closure plan that we are looking for there."At South Deep, investors needed to see that the operation has started to break even. Gold Fields' share price has increased 99% since January.Rossouw said: "[At] Sibanye we are looking for the closure of the Rustenburg deal and any further acquisitions."Sibanye's share price has leapt 179% this year, and a fivefold increase in earnings is expected.Rossouw added that investors in gold mining companies will be looking for cash-flow generation to convert into stronger dividends. Gold companies should not believe that it's a structural bull market, "so they don't aggressively reinvest capital into their businesses but instead deal with the balance sheet and return cash to shareholders".Cruickshanks said: "They [gold companies] need to swallow and sort the big take-ons that they've made, and that may take a while, but the improvements in the metal price have justified those investments."A labour analyst, who asked not to be named, said that although the strengthening rand has now worked against gold companies, the three-year wage agreement they signed last year has brought "good news for labour stability" in the sector.But Cruickshanks said electricity and labour would continue to be a threat , despite positive metal prices."Labour demands will continue to rise but not as high as they used to be because there are fewer people in the mines than there were five to 10 years ago and maybe they can see that too."Masilela said companies did well during the six-month period, but operational problems remained.The high gold price will always be a good friend of mining houses but they should ensure that costs are contained or they will bleed cash, Masilela said."If the fortunes of the gold mining houses turn south, they will lose favour with the investors. A mine has a certain life span, hence it is important to make sure that a mining house pays you a good dividend as whatever they mine won't be there forever."mtonganal@sundaytimes.co.za, biyasel@timesmedia.co.za..