[miningmx.com] – PATRICE Mostepe, executive chairman of African Rainbow Minerals (ARM), acknowledges the group’s 14.6% in Harmony Gold has become incidental to its valuation, but he resolutely resists taking action.
The fact that investors “never asked’ about ARM’s exposure to Harmony was a positive for Motsepe. “We don’t get value for our investment in Harmony,’ said Motsepe at the group’s results presentation earlier this month “It’s not something people ask us about anymore,’ he said. Yet this apparent tolerance of a loss-maker is odd. Does he get challenged about it at ARM board meetings, one wonders?
He and his team certainly don’t tolerate under-performing assets elsewhere in the group.
Take, for instance, the ferromanganese smelters that seem bound for further restructuring by the year-end. They were once ferrochrome facilities until that business was shut. At least the ferromanganese business contributes to pre-tax earnings whereas gold contributes zip [ARM wrote down its asset]. So why tackle some underperforming assets and not Harmony?
One suspects a sense of loyalty figures in Motsepe’s mind.
He once again took the opportunity at ARM’s year-end results presentation to remind his audience of his and ARM’s business origins: a services entrepreneur given a break in the gold industry which became the successful ARMGold IPO.
An industry source told Miningmx that Motsepe had recently been approached to do something about the Harmony stake, which may prove catalytic to the gold firm’s future, but he “… refused to do so’. It wasn’t the first time.
Motsepe acknowledges having been approached about the Harmony stake. “People have approached us in the past and we have looked at it. We’ve had lots of discussions in the past, but we are not going to sell now.’ he said.
There’s also the view that gold will contribute to the overall portfolio in the long-term. “We never go into an industry with a short-term perspective. We would never sell an asset when the price would make it inappropriate to do so,’ Motsepe said.
Yet will Harmony Gold every do so well as to “move the needle’ for ARM?
That all depends. Motsepe said that in the Golpu copper/gold deposit in Papua New Guinea (PNG), Harmony had an important chip for the future and that it was worth retaining for this alone.
Quite how the Golpu prospect will be turned to account is still a matter for conjecture, however. Graham Briggs , CEO of Harmony Gold, told Miningmx in its Mining Yearbook, published in July, that the Golpu might could be unbundled, a transaction that would leave behind a rump of South African assets, some of them marginal at the current gold price.
Perhaps ARM is waiting for that transaction to materialise. Perhaps, also, Motsepe knows that Harmony has to transform quickly or risk year after year of shrinkage, and that he wants to be part of that.
Yet there are no plans to use this rump to invest in platinum as per Sibanye Gold’s interest in the platinum shafts that Anglo American Platinum, Impala Platinum or Lonmin may want to sell. Both Motsepe and Briggs have said this, quite categorically in the case of the latter. “We’re not going into platinum. Gold is our focus,’ he said.
In comments that could be construed as a more outward-looking view of Harmony’s future, Briggs has recently spoken about buying some African gold resources to replace unprofitable South African ones. But there’s no flesh on the bones on that strategy at this stage.
In the meantime, Harmony remains a business in need of a jump-start. Analysts are net positive on gold stocks for the remainder of the year owing to factors ranging from inflation, geopolitical risk and the possibility of merger and acquisition in the sector, and that may be interesting for Harmony.
