/ 5 May 2006

Optimistic Harmony Gold assesses options

World number-five gold miner Harmony Gold is taking a fresh look at its business model in the light of the prevailing bull market in gold, which is creating a new generation of investors who are keen to invest in bullion, Harmony Gold CEO Bernard Swanepoel said on Friday.

One of the options that Harmony is looking at is to vendor its Target gold mine in the Free State to Western Areas, which has a 50% stake in the South Deep mine near Johannesburg, in exchange for an increase in its stake in Western Areas from 29,2% to a yet-to-be-determined level.

The Target mine and Western Areas both are deep-level, mechanised mines and it makes sense to put the two mines together, Swanepoel said.

The price of the Target mine is under discussion, he added. Swanepoel is taking up a non-executive position on the Western Areas board as a result of the acquisition.

Harmony has met a lot of parties regarding Western Areas, he said.

The world’s largest gold miner, Barrick Gold, owns the other 50% in the South Deep gold mine.

Barrick representatives have come to South African and Harmony has met them, and a Barrick technical team has visited the Target mine, Swanepoel said.

If Harmony’s stake in Western Areas exceeds 35%, then the company will have to make a mandatory offer to Western Areas minorities.

According to Swanepoel’s understanding, Western Areas has a pre-emptive right on Barrick’s 50% stake in the South Deep mine, if Barrick ever chooses to sell its stake in South Deep.

AngloGold Ashanti has expressed an interest in Barrick’s stake in South Deep and Gold Fields has said there is place for cooperation between South Deep and Gold Fields’ Kloof mine.

South Deep has one of the largest gold-ore bodies worldwide with gold-ore reserves estimated at 29,2-million oz and a resource of 67-million oz.

At 2.55pm on Friday, the spot price of gold was quoted at $680,55/oz, up $1,1/oz from the previous close, after climbing to the highest level since October 1980 of $684,69/oz earlier in the day.

A whole new generation of investors is being attracted to the gold market, Swanepoel said.

The rand gold price was last quoted at R131 867 per kilogram — its highest level to date.

The rand gold price is likely to stay above the R100 000-per-kilogram level for the foreseeable future and this has resulted in Harmony rethinking its game plan, Swanepoel said.

From 1995, Harmony has been one of the companies that have played a part in consolidating the South African gold-mining industry.

If the current bull run in the gold price continues for the next 18 months or more, there could be a case for deconsolidation with a possibility of some of Harmony’s growth assets being separately listed, Swanepoel said.

Harmony is currently spending $693-million on six growth projects, with five in South Africa and one in Papua New Guinea.

The six projects are expected to add 19,740-million oz to Harmony’s portfolio and up annual output by 1,828-million oz a year.

“There could be deconsolidation if the gold price continues higher,” Swanepoel said.

For instance, separately listing Harmony’s Tshepong mine, where Harmony is spending $43-million to boost production by 135 000 oz, could unlock value, he added.

There could be a case for Harmony to list some of its projects, Swanepoel said.

However, Swanepoel said that talking about separate listing for Harmony’s projects is premature. — I-Net Bridge