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Harmony buys 29% stake in Western Areas
Allan Seccombe
Posted: Thu, 09 Mar 2006
[miningmx.com] -- Harmony Gold has bought a 29% stake in Western Areas for R900m cash and R1bn debt, Harmony CEO Bernard Swanepoel told Miningmx on Thursday.
Harmony bought investment manager Allan Gray's 24.5% in Western Areas, with the remainder of the shares being bought on the open market, he said, adding the average price of the transaction was R44 per share.
"We used R900m from our R2.9bn of cash, so that sits very comfortably. A billion rand loan was arranged through Rand Merchant Bank," he said. Twenty five percent of the 29% shares acquired were put up as security.
There are no immediate plans, he said, to increase the stake in Western Areas, which has as its primary asset half of the South Deep joint venture mine it shares with Barrick.
"Western Areas was a value proposition, we liked the price. It was available. On approaching the people they were
prepared to sell," he said. "We effectively established some decent exposure to a great ore body."
"Having had exposure to an orebody not too dissimilar, and a mining method not too dissimilar, to our own Target mine, we like these types of orebodies," he said.
South Deep is a deep-level mechanised mine. The orebody is seen as one of the last great untapped gold deposits. In February, South Deep revised its reserve estimate down to 29.3 million ounces from a previously reported 55.6 million ounces. The mine has a 25 year life.
Asked whether Harmony would increase its stake, Swanepoel said: "It is simply premature to comment. We've just built up this stake. We are very happy with this stake. We'll engage with the company and see if there's anything we can do."
"There are no immediate plans to go beyond this," he added.
Harmony has not had any talks with Barrick, which recently acquired Canada's Placer Dome. Placer Dome and Western Areas
set up the South Deep joint venture in 1999.
Development of the mine, which is 45km southwest of Johannesburg, was marked by strong differences of opinion between Western Areas management and that of Placer Dome. The project overran on budget and time.
Brett Kebble, the controversial businessman shot dead under mysterious circumstances in September, was CEO of the company until he stepped down in August last year.
Former deputy finance minister and South African Reserve Bank deputy governor Gill Marcus was appointed as chairwoman of the company in November and has led a vigorous corporate restructuring.
"The reason why we can get involved in Western Areas now is because the appointment of Gill Marcus was a huge step forward. We are very impressed with what has happened in the past few months," Swanepoel said.
"The ore body is really valuable, but in the past it was completely messed up by the corporate structure. We like the cleaning
up that has been taking place there. There are clear improvements in corporate governance and structure. It's one of the reason's we're comfortable enough to buy a stake," he said.
One of the crippling legacies left by Kebble was a disastrous hedge book. The gold price achieved because of the hedge book during the whole of 2005 was R69,000/kg against an average gold spot price of R92,000/kg for the year. The hedge book cost Western Areas R23,000/kg.
Harmony is an ardent non-hedger, but it will take the pain of the hedge book along with other Western Areas shareholders, said Swanepoel.
"This was a particularly bad hedge. We had to bring that into the valuation. We used all the publicly available information and determined the negative value of the hedge book and used that in determining the value," he said.
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