Feeling its way
Harmony Gold still in flux after failed corporate endeavours
THE END OF MARCH RAISES THE prospect that the large overhang in Gold Fields shares could be released. That’s when Barrick Gold, JCI and Harmony Gold are permitted to sell the Gold Fields shares they were paid for selling their respective interests in the South Deep mine.
One expectation is that Harmony Gold will be the company to sell its Gold Fields shares first, a view partly based on speculation that it’s close to completing a corporate deal. First, however, Harmony Gold must improve the look of its balance sheet, principally a loan of about R1bn provided to the company by Rand Merchant Bank (RMB).
RMB had agreed to roll the loan over, but it’s being thought prudent to remove it and release balance sheet pressure. Harmony Gold CEO Bernard Swanepoel says, however, there’re no immediate plans to sell the firm’s Gold Fields shares.
“I’d be very surprised if we sold our Gold Fields shares soon,” he said in an interview with Finweek. “The current share price doesn’t reflect anything like what we’re after. So I’d have to say we’re pretty comfortable with that stake.”
Harmony Gold owns about 2,6% of Gold Fields, which is equal to about R1,35bn at Gold Fields’ current share price of R123/share.
Rumours continue, however, that Harmony Gold is involved in fresh corporate action of significance, including quite breathtaking speculation that it’s considering a deal with Russian gold producer Polyus Gold. Uncharacteristically, Swanepoel has offered – through his investor-relations officer – a terse “no comment”. It’s difficult to interpret what this is supposed to mean. (Normally, Harmony has not been a company to issue blanket “no comment” statements on corporate action.)
It’s equally difficult to read the direction of Harmony Gold’s broader corporate intentions, partly because it has so many possibilities in play. One is the use of Village Main, in which Harmony has a 37,8% stake (as of June), to separately list a surface retreatment business.
Another is how it intends monetising its uranium slimes near its Randfontein mine on the West Rand.
Harmony has already confirmed it has a heads of agreement with Renova to potentially swap the uranium for exploration properties in Russia. “They’re quite cute assets,” says Swanepoel of the Russian prospects. Due diligences are underway.
Meanwhile, Swanepoel has confirmed having been approached by DRDGOLD, which wants to sell its Australasian assets. Harmony Gold has a strong presence in Papua New Guinea, but Swanepoel says he’s not particularly tempted to deal, although he will consider the possibility.
Another, as yet floating goal, is the potential listing of Harmony’s developing PNG mine, Hidden Valley. Last year, Swanepoel spoke of separately listing the mine in Toronto but then stepped back from the proposal, fearing it was too soon.
In addition to the many corporate options, there are operational difficulties at home, remembering that 95% of Harmony Gold’s 3m oz/year comes from SA.
Swanepoel has promised to continue fixing the SA mines. But again this raises a question over strategy: whether Harmony wants to continue growing expansively, as it has done under Swanepoel for more than a decade, or become more inward-looking than before. And if it’s both, where is the senior management in the company to complete all this work?
“The way I read it at the moment is that Bernard is turning this way and that, and constantly changing his mind,” says an analyst who prefers to be unnamed. For all this, Harmony finds some favour among gold analysts.
Merrill Lynch gold analyst Shaylen Trikamjee said in a report dated 5 March that Harmony Gold was a buy based on the fact the stockbroker was bullish on gold. JP Morgan’s Steve Shepherd and Allan Cooke believe forecasting risk remains high with Harmony but “... there should be an improving operating performance and margins in the medium term as higher-grade projects and accelerated development begin to deliver”.
The corporate options suggest Harmony Gold remains a company in flux, still struggling to come to terms with its failure to buy Gold Fields and, more recently, Western Areas.
No comment. Bernard Swanepoel