South Africa’s third-largest gold miner, Harmony Gold, is expected to make an offer for Western Areas in the future to increase its stake in the company following its acquisition of a 29% stake, analysts and fund managers said on Friday.
“I think that Harmony could make an offer to Western Areas’ minorities,” an analyst said.
At present, the stake that Harmony has bought in Western Area is a strategic investment for the company and Harmony hasn’t made a decision about whether to increase its stake further, Harmony spokesperson Philip Kotze said.
Should Harmony increase its stake in Western Areas to 35% or higher, then the company would be required to make a mandatory offer to Western Areas’ minority shareholders in terms of Securities Regulation Panel rules.
The acquisition of the stake in Western Areas provided Harmony with a 14,6% interest in the South Deep gold mine, which is a 50:50 joint venture between Western Areas and Barrick Gold.
“South Deep has a great ore body and Harmony wants to be a player in that ore body,” Kotze said.
Harmony bought the Western Areas shares at a 7,4% premium to the 30-day volume-weighted average price of R41,07 at an average of R44 a share.
“I think that Harmony is paying a good price for Western Areas. I think that Harmony would like to take out the rest of Western Areas,” said Regarding Capital Management analyst Piet Viljoen.
In February, Barrick Gold head of exploration Alex Davidson said the South Deep gold mine was a “top-quality asset”.
Speaking at the Mining Indaba in Cape Town, he said Barrick would look at both the short- and long-term potential of South Deep during the integration of Placer Dome into Barrick, which the company recently bought out.
At 3.50pm, Western Areas shares were quoted at R40,20, up 13,8% or R4,87 on the news of Harmony’s purchase. At the start of trade on Friday, Western Areas’ shares climbed as much as 17%.
Harmony might want to buy the complete South Deep mine, as it is a “very attractive asset” due to its “huge reserves”, Viljoen added.
The South Deep mine’s total gold-ore reserves are currently estimated at 29,3-million troy ounces, compared with Harmony’s total estimated reserves at present of 54,1-million oz at the end of June last year.
The acquisition move by Harmony was necessary for the company to increase the life of mine of its assets, a fund manager said.
“I do think that they will increase their stake in Western Areas further,” he added.
Harmony cannot comment on whether it is interested in Barrick’s 50% stake in South Deep, Kotze said.
“What is clear is that Western Areas is more of an attractive asset than many have realised,” Viljoen added.
The transaction will be funded through utilising cash of R985-million and a loan facility of R1-billion provided by Rand Merchant Bank.
Harmony had cash and equivalents of R2,914-billion as stated at the end of the December 2005 quarter.
The only outstanding short-term debt is a bond repayment of R970-million, which is due in June 2006.
One of the key issues at Western Areas is the company’s hedge position.
At the end of December 2005, Western Areas had hedged 1,757-million ounces via put options and 729 948 oz via call options, with a total derivative liability of negative R2,844-billion and the fair value of the hedge’s option premium payable being a negative R939,4-million. — I-Net Bridge