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Harmony talks up Western Areas deal Posted: Fri, 05 May 2006 [miningmx.com] -- HARMONY Gold CEO, Bernard Swanepoel, said it made sense to put his Target gold mine into the same company as South Deep, the west Rand gold mine owned by Western Areas. “If I were Western Areas, Target would be top of my list,” said Swanepoel speaking after presenting Harmony’s March quarter financial and operating results on May 05. During the presentation, Swanepoel said; “If Western Areas feels its way forward was from a passive investment structure, Target would be a good way to do it”. South Deep was producing less gold than in its feasibility plans and was being choked by its hedge book, last calculated to be a -R2bn liability. Therefore, Target’s output and exposure to the spot price of gold would be helpful to South Deep, he said. “It would be a good way to tackle the hedge book,” he said of potential corporate action. “But the devil is in the detail.” Swanepoel said he had been in discussions with his shareholders, Western Areas chairperson, Gill Marcus, and Barrick Gold, the new part owner of South Deep. However, he was unlikely to advance Harmony’s 29% stake in Western Areas soon. “I more intend to see the game JCI wants to play,” he said. JCI owns about 24% of Western Areas. The Western Areas shares have been housed in a separate investment vehicle which then could be sold to pay Investec for a R800m loan it provided to JCI. Miningmx quoted Swanepoel earlier this week that he was considering unsolicited proposals to split the firm and drive the higher quality assets into Western Areas. Commenting on the proposals, Swanepoel said it wasn’t necessary to merge with Western Areas in order to split the company. However, the focus in the short-term was to increase the value of Harmony’s shares. Harmony reported a R182m loss in the March quarter against a R22m profit in the December period, a performance which received criticism from analysts. But Swanepoel said the string of poor performances from the group, lasting for three years, was over. “Thank God. This is the lowest credibility I have experienced in 11 years at Harmony; now we’re in a position to regain our credibility.” “He [Swanepoel] was a lot more honest and real about the situation. He’s been long on promises and short on delivery. But he’s rebasing the company,” said an analyst. “They say its darkest before dawn. I think we’ve seen the worst of the worst we’ll ever get from Harmony,” said Leon Esterhuizen, an analyst for Investec Securities. Steve Shepherd, an analyst for JP Morgan, said in a note today, however, that Harmony could be facing a management crisis as suggested by Swanepoel's disclosure that he had been spending time underground working as a "shift boss" in order to understand where mining problems lay. "We were taken aback by this and contemplate what his senior mine management team is doing if he thinks this necessary. Is there a management crisis at Harmony?, is a question that springs to mind immediately," Shepherd said. "This performance highlights the generally poor quality of the assets and raises serious questions in our minds about the efficacy of continuous operations (Conops)," he said. Conops is seven day working week imposed to bring the mines to profitability. Another concern was the low cash balance that Harmony stands to develop by the middle of the calendar year. Currently, Harmony has R1.78bn in cash and near equivalents. But the repayment of a R980m bond in June, potential losses from closing out the company’s Australian hedge book, and the failure of the mines to generate cash could return Harmony to its position of late 2004 when it nearly went broke.Free news
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