[miningmx.com] — HARMONY remained undervalued despite the recent 25% rise in price to around R100 a share and was exposed to “corporate action” according to CEO Graham Briggs .
Answering questions after a presentation to financial media in Johannesburg on Harmony’s Wafi-Golpu gold/copper project in Papua New Guinea (PNG), Briggs however added “I can categorically state that no company has approached us to take us over”.
Market speculation on a takeover bid for Harmony has been swirling as the group continued to report excellent results from the on-going exploration drilling work at Wafi-Golpu.
The speculation has also been fanned by a report published by RBC Capital Markets analyst Leon Esterhuizen on March 23 in which he highlighted the rising possibility of a takeover bid for Harmony specifically intended to acquire the group’s 50% stake in Wafi-Golpu.
Esterhuizen picked out Australian mining group Newcrest – which owns the other 50% of Wafi-Golpu – along with Gold Fields and AngloGold Ashanti as the mining groups most likely to bid for Harmony.
Newcrest has a particular advantage in that it owns a pre-emptive first right of refusal over Harmony’s 50% stake in Wafi-Golpu in the event of a sale or change of control.
Should Gold Fields or AngloGold Ashanti want in, they would have to convince Newcrest to let them come on board as a partner.
Asked whether he thought Esterhuizen’s theory was plausible Briggs replied: “Any deal is possible here.
“A key factor would be somebody taking a view on what Wafi-Golpu is worth. You have to ask the question – could Wafi-Golpu become as big as Grasberg which is worth some $20bn to $25bn on its own?”
Grasberg is a much larger copper/gold deposit situated in neighbouring Indonesia to the west of Wafi-Golpu, but located on the same geological formation where other similar deposits have been developed into mines at Porgera, Ok Tedi and Frieda River.
Grasberg – owned by Freeport McMoran – in recent years has produced between two million and three million ounces of gold annually along with up to 700,000t of copper annually.
At this stage Harmony and Newcrest are not giving out definitive numbers on how large they think the mine to be developed at Wafi-Golpu will be.
A prefeasibility study is underway to be completed by the end of the year but exploration drilling work is continuing and it keeps increasing the size of the ore body.
At this stage the current resource indicates a deposit containing between 600 million tonnes (mt) and 800mt of ore which will be mined at a rate of between 20mt and 30mt of ore per year to produce between 300,000oz and 700,000oz of gold annually, along with between 200,000t and 320,000t of copper.
According to Esterhuizen, “these ranges are wide enough to park a bus in there – sideways. Still, we believe current drill intercepts indicate a potential for the ‘magic’ one million ounce per annum gold number.”
Esterhuizen’s theory is that both Gold Fields and AngloGold Ashanti are keen to expand their gold production outside of South Africa as a top strategic priority.
He believed either group would be able to “spin off” Harmony’s South African mines into one or more separate investment vehicles either on their own or in combination with some of their existing SA operations.
Esterhuizen commented: “AngloGold could very rapidly ‘rid’ itself of the South African exposure while, at the same time, significantly enhancing its exposure to international, high margin future growth.
“If it does make a bid, it could purchase Harmony at the point of most vulnerability – before the results started showing – and essentially would be getting it for a bargain.
“But it would very likely also be picking up a much better international rating in the process – potentially enough to even cover most of the probably takeout premium that we believe it would have to offer.”
Esterhuizen concluded that in Wafi-Golpu, “Harmony is sitting on a ‘get out of jail free’ card and we believe this will be played – one way or another.”
– The writer owns shares in Harmony.
