[miningmx.com] — YOU win some, you lose some but Harmony executive Alwyn Pretorius has to be kicking himself for selling nearly 30,000 of his Harmony share options a few days too early.
He generated about R2.5m on the sale but, had he waited, he would have pulled in nearly another R300,000 as Harmony shares shot up to R94 from the levels of between R84 and R85 he sold out at on March 17.
The reason for the jump is that investors are finally taking on board the implications for Harmony of the consistently high copper and gold grades being reported from exploration work at the Wafi/Golpu project in Papua New Guinea (PNG).
Harmony CEO Graham Briggs has been highlighting these results since May last year, when he declared Wafi/Golpu to be “a major company maker’.
His comments should have been taken seriously from the outset for two reasons.
The first is that you seldom – in fact, almost never – see a CEO put his head on the block the way that Briggs did with such a definitive forecast. It’s just too risky, given how business conditions can change.
The second is that Briggs has intimate knowledge of PNG. He ran Harmony’s Australasian business until he was appointed CEO of the group to replace Bernard Swanepoel in 2007.
But the share price remained stuck at around R80 until now, when it seems the penny finally dropped for investors following a recent investor roadshow by Harmony in North America.
Briggs presented at the BMO Nesbitt Burns conference in Miami as well as the PDAC conference in Toronto; he also met with investors in Texas and San Francisco and held a string of investor conference calls since returning to South Africa.
Against this background, leading gold analyst Leon Esterhuizen at RBC Capital Markets published a research report on March 23 in which he hiked his price target on Harmony from R90 a share to R130.
Esterhuizen also floated the possibility of another gold major making a takeover bid for Harmony “with the aim of stripping out the PNG assets and relisting the rump as a separate vehicle’.
Harmony executive for corporate and investor relations Marian van der Walt told Miningmx: “There’s no corporate action that we are aware of.’
Esterhuizen said Briggs had implemented a new strategy when he took over, which was to close loss-makers, joint venture high-risk ventures, bolster the balance sheet and invest aggressively to reestablish a better quality asset base.
He said: “Time has passed and the new strategy is now set to deliver a new, less marginal, lower-cost, more diversified Harmony.
“But that is not the end of the story. The “lucky’ part of the equation is really reflected in the outstanding exploration results seen at the Wafi/Golpu deposit in PNG.
“We believe this exploration play is fast becoming a central play in the valuation of Harmony.
“It does not reflect in our earnings forecasts for at least another five to six years but, given the world class size and grade (and it is still expanding), we believe it is starting to have a positive drag on the net asset value and on the potential of another player possibly making a bid for Harmony.
“On our numbers, even on the most conservative basis, Wafi could add in the order of $1.5bn to $2bn to the value of Harmony. This is some 40% of the current market capitalisation of the company.’
Esterhuizen said: “Within a couple of months Harmony is poised to start delivering on a significant promise. We believe this is its most vulnerable moment and potential bidders know this.
“As a result we recommend buying the story now – delivery also appears to have much better potential to succeed now. “
Investors with longer memories will appreciate the significance of this positive assessment by Esterhuizen, given his scathing views on Harmony’s underperformance in the last few years of Swanepoel’s tenure as CEO.
Esterhuizen, who then worked for Investec Bank in Johannesburg before relocating to London to join RBC Capital Markets, feuded regularly in public with Swanepoel at quarterly results briefings.
By the way, don’t feel too sorry for Pretorius. He still doubled his money on his shares, most of which were allocated to him at a strike price of R39 although he got 8,189 of them at a strike price of R66.15.
The writer owns shares in Harmony.
