Harmony returns to its roots with Anglo deal

One of the bets Harmony Gold is making on its $300m purchase of Great Noligwa and Moab Khotsong from AngloGold Ashanti is that it can extract pillars just like it does at one of its current mines and can strip more costs out of the mines than the current owners have.

Harmony rose from being a single mine to becoming one of the world’s leading gold producers by buying other companies’ old mines, cutting costs, flattening the companies’ management structures and adding years to the lives of these assets.

It is going back to its roots with this AngloGold transaction.

While the Moab Khotsong mine is going to be an attractive cash-generative asset with lots of growth potential due to its undeveloped Zaaiplaats extension, it is the Great Noligwa mine, in North West, where Harmony sees itself doing things differently from the world’s third-largest gold miner.

AngloGold rolled Great Noligwa into Moab and used the latter’s infrastructure to tackle Noligwa’s ore body.

Harmony wants to focus on Great Noligwa’s pillars, particularly those left around the shaft. It has successfully carried out a similar project at its Bambanani mine.

Harmony’s shareholders will vote on February 1 2018 whether or not to approve the transaction, which may entail a private share placement or rights issue of up to $100m towards paying for the cash deal.

It’s highly unlikely the deal won’t win approval because it also brings a tailings retreatment option, a low-cost, safe way to extract gold.

Harmony says this will boost its cash flows — which it will need to pay for its portion of the multibillion-rand development of the Golpu gold and copper project in Papua New Guinea – and “significantly raise” its resource base in SA.

Harmony has the experience of turning second-hand mines to account and there’s no reason it can’t do so again with this suite of assets from AngloGold.

Amid all the gloom on Wednesday about Steinhoff and allegations of accounting fraud, which resulted in the share price plummeting, the market was in dire need of some good news. There was a glimmer of sunshine in Sanlam’s operational update.

Although new business volumes continued to decline in line with the difficult economy, margins and earnings were higher in the first 10 months of 2017, showing that CEO Ian Kirk’s move to more profitable products is gaining traction.

Margins on new business rose to 2.76%, from 2.56%, while normalised headline earnings rose 22% compared with the previous 10 months.

Fewer customers are dumping the insurer – policy lapses and surrenders among lowerand middle-income customers, Sanlam’s largest market, remained in line with the first half of the year, when they fell, compared with 2016.

Analysts said this was a positive story in the sector, considering what was happening to rivals and Steinhoff.

Rival Liberty is still to unveil the details of its turnaround strategy as margins continue to diminish across the business. This number was 0.4% in its last reported financial period.

At Sanlam, only a deteriorating economy and the potential effects of the ANC’s elective conference, set to take place from December 16, could prevent investors from realising these gains in the full year.

The insurer expects to report results in March.