Peter Steenkamp, CEO Pamodzi Gold
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Harmony takes a third of Pamodzi Gold
Allan Seccombe
Posted: Mon, 25 Feb 2008

[miningmx.com] -- HARMONY Gold will own a 32% stake in Pamodzi Gold in a transaction to sell its marginal Orkney mines. Pamodzi forecasts production of up to 375,000 oz in 2008 year as acquisitions are finalised this week.

Harmony, which was to have received R550m for its Orkney mines in cash, shares and a smelter royalty, will now receive R300m all in shares. Pamodzi will issue 30 million shares at R10 each to Harmony, which is looking to exit its more marginal assets, but retain upside to these mines. The shares are currently trading at R11 each.

"We believe that Pamodzi Gold will be able to extract value from the Orkney assets. By increasing our holding, we will be able to share in the upside of the assets over a longer term, which is line with our existing strategy", said Harmony CEO Graham Briggs.

Harmony is locked into the shares for a year. The change in the price and payment stems from the high level of recapitalisation needed for the mine as well as recent results from the seven shafts comprising the Orkney mines.

Pamodzi, which describes itself as a company in a “start-up phase”, posted a net pre-tax loss of R208m in the year to end-December. It posted a headline loss per share, which strips out exceptional items and their tax effects, of 500 cents for the year against a 65 cents loss in the previous 16 months.

Pamodzi is also acquiring the President Steyn gold mine from Thistle in an all-share transaction that will be concluded on 25 February.

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The addition of these two mines this week, along with the existing opencast Middelvlei gold mine and the underground East Rand gold mine, will ease the negative impact of the hedge book.

The hedge book currently accounts for 38% of Pamodzi’s gold production. With the addition of production from the two newly acquired mines this will fall to eight percent.

“The current marked-to-market value of the hedge is a negative R500m and we could rather spend that on increasing production at the current operations or adding additional assets to our profile and thereby reducing the hedge exposure even more,” said CEO Peter Steenkamp.

Pamodzi made an operational loss of R81m for the December quarter. The hedge book contributed R102m to that loss, he said.

"The President Steyn and Orkney transactions are big milestones towards us getting to a million ounces per annum gold production," Steenkamp said. "If we can do at these two mines what we done on the East Rand I think we will have a huge turnaround on these operations by the end of the year."