Bernard Swanepoel, CEO Harmony
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Harmony vindicated over Bendigo
Brendan Ryan
Posted: Wed, 10 Jan 2007

[miningmx.com] -- HARMONY Gold has taken plenty of flak in recent years so it’s only fair to note the group made the right call in Australia two years ago when it opted out of Bendigo Mining (Bendigo).

Bendigo this week announced it was halting commercial mining operations just three months after it started.

The shut-down also comes barely two months after Bendigo raised $50m from institutional investors through a placement of shares.

The company had invested about A$350m (about R2bn) over the past five years to develop the mine which is situated on the historic Bendigo gold field about 100km north of Melbourne.

This consisted of a $50m investment by Harmony in 2001 followed by two rights issues which raised another $255m. Another $50m was raised in a placing.

Bendigo must now take a "major write down" of between $90m and $210m in the value of its non-current assets.

Harmony had an option to invest another $108m into Bendigo by 2003 which would have given it a controlling 53% stake in the mine. Instead, Harmony declined to follow its rights in Bendigo’s 2004 capital raising and subsequently sold out at a small profit in April 2005.

Harmony CEO Bernard Swanepoel said at the time: "While the Bendigo project has an exciting future it does not fit our long-term business strategy." Harmony opted instead to focus on its projects in Papua New Guinea where it is currently developing the Hidden Valley mine.

The Bendigo share price has imploded. It had already fallen from a 12 month high of $2.60 to around 74c ahead of this week’s bombshell. It is now trading at 30c. The main reason for the collapse of the operation lies in the complex geology of the orebodies targeted which are characterised by erratic gold grades from a mix of low and "bonanza" grade reef sections.

Among the executive victims of the restructuring now being implemented at Bendigo are the chief geologist Garry Johansen and CEO, Doug Buerger, who is a Namibian.

A Bendigo statement said Buerger had decided to resign for personal and health reasons and that Johansen "had ceased employment with the company."

The new CEO, Rod Hanson who was formerly the COO, is taking direct responsibility for exploration which is how Bendigo will deploy its remaining cash in a final attempt to delineate a section of orebody it can mine profitably.

Said chairman Peter McCarthy: "Despite this setback in moving into commercial production, the company is in a strong position to rebuild value over the next 18 months."
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Bendigo had targeted deep-level extensions to the reefs that had been mined in the region for a century up to 1954. It had consolidated the entire former Bendigo gold field and estimated it had a resource of 11 million oz at an average grade of 14.5g/t.

But the average grade from the first three months of operations was just 4.1g/t. Hanson said exploration work will now be concentrated on what is hoped will be "far more productive" sections of the field.

Mining operations were planned to take place at depths of between 1,000m and 1,500m which is shallow by South African standards, but deep in Australian mining.

Owing to this, Bendigo battled at first to find investor support in Australia. The project appealed initially to Harmony because of the potential size of the resource and because the South Africa gold group was unworried by the depth.