[miningmx.com] –IF the old superstition that disasters come in threes has any validity, then this week’s resignation of Harmony CEO Bernard Swanepoel, hot on the heels of Bobby Godsell (AngloGold Ashanti) and Ralph Havenstein (Anglo Platinum) may be the last for a while.
Analysts must certainly hope so, as these changes have introduced an extra degree of uncertainty into mining markets at a time when the environment is the most volatile it’s been for years, anyway.
Swanepoel’s exit is the most traumatic of the three, given firstly that he is the very epitome of the company he virtually built up from nowhere, and secondly that his departure was pretty much as abrupt as the 30 minutes reportedly accorded Havenstein.
It must have been a far tougher decision for a board to fire Swanepoel than someone like Havenstein, who, while by no means a carpet-bagger, certainly did not enjoy the same identification with the company.
When this is taken in conjunction with the reasons given for the departure, it’s understandable that the share should have gone virtually into free fall, shedding about 30% this week in far higher volumes – topping 10m shares one day – than normal.
For it’s never convincing when the need to restate profits is blamed on a computer problem. The first line of defence is always cash flow, and a finance director doesn’t need a sophisticated computer program to tell him what’s happening to daily cash balances. Not for the first time, we have to wonder why problems were only identified on the eve of planned publication of results, and whether they are of as recent an origin as we are now told.
And even the explanation raises further issues. We are told that large chunks of costs that should have been charged in the March quarter were only brought to account in June, so that we should really look at the six months as a whole, rather than break it in two.
Indeed? Well, reported operating costs in the March quarter were virtually flat, at R104,000/kg, which was already well above the industry average and unsatisfactory. When the delayed June results are published later this month, revealing working costs for the quarter of at least R150,000 – uncomfortably close to the current spot price for gold — it looks as if the average for the six months will come out at between R120,000-R125,000. In round terms, that’s up to R50,000, or 65%, more than industry leaders are achieving.
At Gold Fields, excluding South Deep, June quarter operating costs in South Africa were R89,000; at AngloGold, cash costs are only R76,000, and total costs somewhat higher, but still below R100,000.
Fact is, it’s looking more and more that Harmony has relied far more on the long-term weakness of the rand than the once much-vaunted “Harmony Way” for such successes as it can boast of.
Three months ago Swanepoel said that Harmony had become a different animal, which is why it needed to sell off properties like the Orkney shafts, whose rejuvenation had once been its raison d’etre. This did not convince many analysts; did it mean that Harmony’s core competence had changed so radically, and where was the evidence of its new skills?
Even apart from the share price, the fall-out was immediate and is still spreading.
Fitch, which earlier chopped Harmony’s long-term default rating to BB+, a speculative grade credit assessment, on a negative rating watch, plans to meet management within two weeks. Other rating agencies could well follow suit.
Harmony has warned that it could report a loss of up to R640m for the June quarter, which would be one of its worst ever. Graham Briggs (53) has been brought back from running the Australian operations as acting CE, and clearly Patrice Motsepe’s African Rainbow, the largest shareholder, intends to get more closely involved, with the appointment of its veteran but still youthful mining specialist Andre Wilkens to the Harmony board.
In retrospect, little has gone right for Harmony since its failed bid for Gold Fields, which Swanepoel was able to pass off as a concealed rights issue. He also shrugged off repeated suggestions that Harmony was lacking management in depth, following the departure of key individuals — Ferdi Dippenaar, once Swanepoel’s right-hand man and now running Great Basin Gold, was seen as a particular loss, who must now be thanking his lucky stars that he took the plunge.
Fitch’s down-rating was soon followed by the withdrawal of a planned US$350m debt issue, then presented as a postponement. With what’s since happened to both the company and US debt markets, it must now be dead in the water.
With the benefit of hindsight, maybe we can see this progression of events in a new perspective.
Swanepoel told the Miningmx web site that “I’ve been with Harmony for 12 years and wasn’t sure I wanted to be there for another three or four more.” That flatly contradicts the impression he often went out of his way to create at results briefings, that he enjoyed his job and had no intention of moving until he was carried out on a bier. Nor need we pay more than lip service to Wilkens’ quoted remark that Swanepoel resigned of his own volition.
One can only hope they’re both on firmer ground when they say that Harmony’s recent efforts should make it a much stronger company in three or four years time. But who wants to wait that long?
Harmony is now looking for a permanent new CEO. I doubt that any of those who’ve come on to the market recently would be interested. But whoever (s)he is, they’ll have a tough job both restoring discipline and purpose internally, in a company whose morale must be seriously shot, and externally to the investment community, where its credibility has been largely destroyed.
For once, there can be little doubt that all the share options that will inevitably go with the job will be hard earned.
