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Andre Wilkens, CEO, African Rainbow Minerals
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Why ARM retains grip on Harmony
David McKay
Posted: Thu, 22 Sep 2005

[miningmx.com] -- THERE’s strong business reasons why African Rainbow Minerals (ARM) should seek selling off its 16% stake in Harmony Gold, currently worth R2,76bn.

Firstly, the gold holding doesn’t suit ARM’s profile as an owner-operator of its assets, a feature that defines it from close rival, Mvelaphanda Resources, which only has passive investments.

Secondly, ARM doesn’t attract the traditional gold premium attached to Harmony since it has interests in disparate businesses such as ferrous metals and platinum.

Finally, Harmony isn’t really contributing to the core; in fact, ARM’s Harmony stake cost the empowerment firm about R450m in the year to June owing to losses at the gold firm.

In June, shortly after the conclusion of Harmony’s failed bid for Gold Fields, ARM’s CEO André Wilkens, expressed an interest in reviewing the sense of owning shares in Harmony. “At this stage, we don’t have to do anything with the Harmony stake. But in 12 months, we should at least be at the stage where we can consider that,” he said.

That view has now changed. ARM is keeping its Harmony stake: “The Harmony stake will become diluted as we progress with our plans to build six new mines,” said Wilkens. “But there are no plans to sell our Harmony shares,” he said.

But political reasons inform the change of mind. Not until Harmony wins the remainder of its mining licence applications from the minerals and energy department can it afford ITAL not END ITAL to have ARM as a shareholder. In these applications, Harmony needs to show empowerment credentials of which ARM is an important part.
Motsepe is a gold bull; Harmony stake to become diluted
ARM must also cling on to its Harmony shares until it has completed its own broad-based empowerment deal, in which it is redistributing the lion’s share of Harmony’s stake in it to a consortium.

It’s noteworthy that Harmony CEO Bernard Swanepoel, is a non-executive director of ARM and heads its steering committee. If he was anxious about the possible creation of an overhang in Harmony, he showed no signs of it. “Patrice Motsepe (ARM chairman) is a gold bull,” he said. It’s true, Motsepe is sentimental about Harmony since it represents a period of ARM’s history of which he never tires of expressing.

Then there’s the question of value. There’s probably a better time to sell Harmony shares than now. Harmony’s share price ebbed in May. It has since regained about half its value, but if the gold price continues to climb, so will the value of ARM’s stake in Harmony.