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Harmony prepares ground for split
David McKay and Allan Seccombe
Posted: Wed, 21 Jun 2006
[miningmx.com] -- HARMONY Gold has bought control of listed gold company cash shell, Village Main Reef Gold Mining Company (Village Main), from empowerment firm, African Rainbow Minerals (ARM). The deal, which carries a value of R459,000, appears to advance the gold group’s plans to separately list assets.
“It is a vehicle. It’s an empty shell at this stage. But it could be used as a vehicle,” said Philip Kotze, investor relations GM at Harmony. “It’s certainly the start of a longer term strategy giving us more flexibility,” he said.
In an announcement to the JSE, Harmony Gold said it had bought a 38% stake in Village Main at 20c/share. This represents a massive discount to Village Main’s 50c/share trading level. “We got it cheaper owing to some of the liabilities,” said Kotze.
The company, formerly owned by Avgold, was put into closure mode in the late nineties, but it
has spent years qualifying for a closure certificate owing to the presence of uranium at its Johannesburg-based site.
In terms of JSE requirements, Harmony must now make a mandatory offer to other Village Main shareholders on the same 20c/share terms. This will cost Harmony an additional R755,000 taking the total cost of acquisition R1.2m against a current market value of R3.3m.
"It's a sensible thing to do. It's a much easier, simpler and cheaper way to hive off some assets and list them separately. Harmony can also raise some money this way. They need to raise money," said Nick Goodwin, an analyst at T-Sec.
Harmony CEO Bernard Swanepoel has been talking about placing some of the company's assets into separate vehicles, particularly after Harmony bought a 29% stake in Western Areas. He has said it makes sense to put Target mine into South Deep, the West Rand mine jointly owned by Western Areas and Canada's Barrick Gold.
Other analysts said the later
purchase of a stake in Western Areas by rival Gold Fields might have complicated any plans Harmony might have had there, but they point out Harmony needs to restructure to create clearer investment vehicles. At the moment, Harmony has divided its shafts into three categories: quality, leveraged and growth.
"I would prefer it if Harmony's assets were split up. You don't have any excitement in the market anymore," Goodwin said, arguing it would give investors in gold shares more diversity in their portfolio by offering marginal, growth or quality assets.
Harmony should look for an offshore listing for its assets to really add value, he said.
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