In a deal worth some R1,766-billion, two of South Africa’s leading gold mines, Harmony Gold Mining Company (HAR), listed in New York, and ARMgold (AOD), have merged to create the country’s biggest gold producer.
The merger, combined with the proposed acquisition of a 34,5% stake in Anglovaal Mining Limited (Avmin, AIN) from Anglo American (AGL), will create the fifth largest gold producer in the world, producing approximately 4,1-million ounces per annum.
The merger has also allowed Harmony Gold, in one stroke, to achieve the level of black ownership required to comply with the new empowerment charter for the domestic mining sector.
The merger comes less than a year after ARMgold became the first black-owned company to list on the JSE Securities Exchange SA.
It is intended that the merger will be effected by the issue of two Harmony shares for every three ARMgold shares held. In addition, ARMgold will pay a special dividend of 500 cents per ordinary share prior to implementation of the merger.
The merged company will be known as Harmony with conspicuous and distinctive emphasis on the letters “ARM” to reflect ARMgold”s identity in the merged company.
“This merger will create the largest local producer of gold ounces in South Africa. Harmony will be recognised as a role model in the industry and the country and will be truly representative of the new South Africa,” the mining companies said in a statement on Friday.
“Merging the two companies seemed like the logical next step in both the companies’ growth strategies. We share one of the industry’s best gold assets in Free Gold and from a cultural, operational and strategic perspective, the fit seems natural,” commented Patrice Motsepe, current chairperson of ARMgold, who will become the new non-executive chairperson of Harmony and play an active and extensive role in advancing the long-term interests of the company.
“As an investment alternative, Harmony will now offer a unique opportunity, being the largest, unhedged South African gold producer, exposed to both the US dollar gold price and the volatility of the SA rand.
The new company will have the benefit of more than 45% shareholding in North America with enhanced liquidity on the NYSE (New York Stock Exchange).
The company is now, more than ever, well positioned to continue with its strategy of growth and delivery of shareholder value,” commented Harmony CEO Bernard Swanepoel.
The new company will have operating mines in all the major gold producing regions in South Africa. It is anticipated that most of the synergies, will in the short term, be realised in the Free State, as the region will now be consolidated as one operating unit. Optimal use of infrastructure and exploitation of the orebodies will deliver enhanced returns for the shareholders.
Harmony and ARMgold have jointly acquired Anglo American Plc’s 34,5% stake in Avmin for a cash consideration of R43,50 per share, which gives them a stake in Avgold.
The two mining companies will participate on a 50/50 joint venture basis in a transaction which is valued at about R1,766-billion (a premium of 9% on the 90 day moving average price).
Avgold recently placed 90-million shares to retire offshore debt, decreasing its stake in Avgold to 42%. Avmin, which has a market capitalisation of 3,4-billion rand, holds shares in the following companies: Avgold Limited – 42%; Chambisi – 90%; Assmang ‒ 50,3%; Nkomati Mine ‒ 75,0%; Two Rivers Project ‒ 41,3%.
“The acquisition of the stake in Avmin creates an opportunity for Harmony and ARMgold to participate in unlocking value within that company,” the companies said.
Gold analyst Leon Esterhuizen at Investec Securities said that Harmony paid a small premium with the deal done at market value, while Deutsche Securities gold and platinum analyst Brenton Saunders was quoted on Moneyweb saying the deal appeared to value ARMgold at about R59 a share, “which is a little above the kind of ratio it has been trading at in the market for the last 90 trading days or so”.
Esterhuizen added that he believed it was the best deal ARMgold could have hoped to make. – I-Net Bridge