Harmony Gold “committed” to $300m Mponeng deal with AngloGold despite lockdown “hurt”

HARMONY Gold said it was committed to completing the $300m acquisition of Mponeng and Mine Waste Solutions from AngloGold Ashanti.

The transaction consists of $200m on deal closure – expected in June – with the balance payable by means of a royalty of $260 per ounce on underground gold mined in excess of 250,000 ounces a year for six years starting January 1, 2021.

According to a report by Bank of America Merrill Lynch (BoAML), the lockdown ordered by the South African government aimed at curbing the spread of the deadly COVID-19 virus, would result in financial “hurt” for Harmony Gold.

The majority of the firm’s gold production was from deep-level underground mines in South Africa which were calculated to have a burn rate of about R1.5bn per month.

This would allow Harmony some 3.8 months of liquidity, although this could be “significantly longer” if the firm was able to cut rand costs and the spot price of gold stayed at current levels, BoAML said.

The bank said that Harmony would not be able to finance the acquisition of Mponeng using its current facilities. A hedging strategy – which has served Harmony Gold well in the past – had also now worked against it given the steep weakening of the rand to the dollar. About 610,000 ounces of gold was hedged at below the spot price, said the bank.

“We estimate Harmony’s net debt to EBITDA at c.3.1x by year end (June 2020),” said Patrick Mann, an analyst for BoAML. Therefore it could not fund the $200m payment – equal to R3.8bn – due to AngloGold on transaction closure using its current facilities. Deal closure had been scheduled for end-June.

“We take note of BoAML’s view and remain committed to concluding the acquisition of AngloGold’s assets,” said Marian van der Walt, a spokeswoman for Harmony. She declined to comment further.

Harmony Gold said absorbing Mponeng and Mine Waste Solutions into its portfolio would add 350,000 oz annually to production which has been guided to about 1.4 million oz in the current financial year.

The deal also increases Harmony’s South African reserves by 8.27 million oz excluding Mponeng’s reserves below existing infrastructure. “Harmony believes that the acquisition is a natural next step following the acquisition of Moab Khotsong in 2018,” it said.

Harmony bought Moab Khotsong for $300m incorporating some 250,000 oz into Harmony’s production for which CEO, Peter Steenkamp, had an aspirational target of 1.5 million oz/year. The group achieved that target last year but given the ageing nature of other mines in its portfolio, production has started slipping again.