cashed up but needs to secure growth options, page-45

From Business Day South Africa and I found it interesting to hear the Harmony Gold reasoning for both the sale and choice of RMS as buyer.

Harmony to pull out of Australia
ALLAN SECCOMBE
PUBLISHED: 2010/07/09 07:35:30 AM
HARMONY Gold has drawn a line under its Australian foray by selling its last asset in that country for R266m as it focuses its attention on Papua New Guinea, where it has a mine and promising exploration targets, giving it much- needed diversification.

This is the second South African company within a week to announce that it is scaling down its presence in Australia.

Retailer Pick n Pay said last week it had sold its Australian operation for R1,4bn.

Harmony is the most exposed to SA of the countrys three big gold miners. CE Graham Briggs spoke this year of possibly restarting the Mt Magnet mine to enhance the companys diversification away from SA, where it is becoming increasingly expensive and difficult to mine.

A study into restarting the mine showed it to be a relatively small, short-lived operation of 100000oz annually over five years. It needed a capital injection of at least R300m to restart it.

The cost of producing an ounce of gold at Mt Magnet was estimated at 720, well above the 500 target Harmony has when judging potential acquisitions.

I could rather use that capital in PNG (Papua New Guinea) on exploration and feasibility studies for longer-life and bigger ounce production than Mt Magnet, Hannes Meyer, Harmonys financial director, said yesterday.

An attempt in 2008 to sell Mt Magnet to junior Australian miner Monarch Gold fell through when that company was put into administration. The price then was A65m, well above the A40m (R264m) Harmony is receiving now.

A number of companies bid for the asset, some with higher offers than the one from Ramelius Resources, which is paying Harmony cash.

These guys have got the cash. Theyve got the approvals and its a quick and safe deal. Theres no deal execution risk. We dont want to be dragged into a lengthy process, Mr Meyer said.

Harmony has a number of small properties left in Australia to dispose of, but Mt Magnet was the last operational asset in Australia left. It bought Mt Magnet as part of the Hill 50 purchase for more than R1bn in 2001.

Harmonys management at the time, led by Bernard Swanepoel and Ted Grobicki, an executive director overseeing the Australian operations, took a view, as did others, that they could buy deposits in that country which local miners might avoid because of the need to mine underground. Harmonys ambitious foray into Australia did not pan out the way management hoped it would.

The biggest upside from the sojourn was Harmony getting its hands on exploration properties in Papua New Guinea, a new frontier in gold mining.

Harmony began building the Hidden Valley copper and gold mine by itself deep in the jungle, but soon ran out of financial steam and brought in Australias Newcrest as a 50-50 partner.