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Harmony receives less for its uranium assets
Allan Seccombe
Posted: Fri, 24 Oct 2008
[miningmx.com] -- THE common refrain that markets have changed for the worse was given as the reason for the downward revision of the dollar value Harmony will receive for its uranium assets it vended into Rand Uranium.
Under the terms of the deal announced on 19 December Harmony was to have received $252m from Pamodzi Resources Fund for a 60% stake in Rand Uranium, into which Harmony vended its Cooke uranium and gold tailings and three mine shafts.
The full price of the transaction was then $420m, but this has shrunk to $348m because of the length of time it’s taken to conclude the negotiation and the value Harmony has extracted from the mines in the meantime. The $420m was derived from the value of the assets Harmony put into Rand Uranium.
Harmony will now receive $209m, but Harmony CEO Graham Briggs said in rand terms the company was actually better
off.
“The market has changed dramatically since we did the deal, the gold price, uranium price, the financial markets, the ability to borrow money. Everything has changed a lot and led to a re-negotiation of the deal,” Briggs told Miningmx.
A key component of the transaction was that Harmony was raising capital to repay debt, with a particular focus on a R1.7bn bond due in May 2009.
The restructured deal will ensure that Harmony first receives $40m on the effective date of the transaction – said to be 21 November this year – and then $157m plus interest on 22 April next year and the balance of $12m later.
At today’s exchange rate of just over R11 to the dollar, the $157m translates neatly to R1.7bn.
“That payment was set up specifically to address the bond repayment,” Briggs said.
Pamodzi Resources Fund’s investors and affiliates, First Reserve and AMCI Capital, have both guaranteed the payments and Pamodzi has pledged its
60% stake in Rand Uranium as security on the $209m.
A feasibility study into the production of uranium and gold at Cooke is underway and should be completed around the middle of 2009. The board of Rand Uranium will meet in September or October to make a decision on the project.
The plan is to build a large 500,000 tonnes/month plant. The preliminary costs, which could very well change, are estimated at about R3.5bn.
With a number of projects put on hold or finding themselves in financial trouble, this could free up construction companies and create some competition amongst them for business, possibly bringing prices down, Briggs said.
Under the initial terms of the deal, Harmony would have received just under R2bn but now, at today’s exchange rate, this has ballooned to R2.3bn.
“In essence, in rand terms we are not worse off,” Briggs said.
The plan is to bring the Cooke assets into production ahead of a
listing.
“The partners are gungho on getting this going,” Briggs said.
The preliminary estimates of the cash costs for producing uranium range around $20/lb against a current price of $44.
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