JOHANNESBURG - Harmony Gold Mining Company will reach its target of becoming a 1.5 million ounce gold producer a year by 2019 after it acquired AngloGold Ashanti's Moab Khotsong operations in the North West for R4 billion ($300 million).
Harmony said the transaction signalled the growth of its domestic underground resource base by 17.5 million ounces or 38 percent. The Moab Khotsong is South Africa’s newest underground mine and has been operating since 2006.
It incorporates the Great Noligwa underground mine and related infrastructure. “Buying Moab Khotsong means we boost cash flows by more than 60 percent and increase its average underground recovered grade by 12 percent,” Peter Steenkamp, Harmony chief executive said.
Steenkamp said that the transaction was a “win-win” for all stakeholders. “It creates value for our shareholders, preserves jobs and sustains the surrounding communities with the potential to significantly extend the life of mine of Moab Khostong operations. We believe the South African gold mining environment creates opportunities which Harmony has chosen to capitalize on,” said Steenkamp.
Around 6 500 employees from the Moab Khotsong and Great Noligwa mines would be transferred to Harmony once the deal was sealed. Moab was expected to be Harmony’s most profitable mine producing more than 250 000 ounces a year, said Steenkamp.
Harmony operates the Doornkop, Kusasalethu Mine and Joel mines among others in South Africa. It also runs the Hidden Valley Mine in Papua New Guinea.
In terms of financing the transaction, out of the $300 million, $100 million would be settled from Harmony’s existing $350 million senior secured term and revolving credit facility.
The remaining $200 million would be funded through a fully underwritten bridge loan facility, and the company was assessing alternatives to repay the bridge, including a potential rights issue.
Harmony’s financial director, Frank Abbott, said the company was expected to launch a rights offer by February next year for the deal.
“We will send out a circular at the beginning of December for a shareholder meeting in January for shareholder approval,” he said. “The last time we went to the market for capital was 10 years ago,” he said.
“We will determine the size of the capital raising, the maximum is $200 million or it could be significantly lower.
The company said African Rainbow Minerals its 14.44 percent shareholder had provided a letter in support of the deal.
The transaction was subject the Section 11 approval from the Department of Mineral Resources and competition authority approval. The deal will see Harmony take over Moab Khotsong mine, which incorporates the Great Noligwa mine and related infrastructure. It will also take over AngloGold’s entire interest in Nuclear Fuels Corporation of South Africa, and AngloGold’s entire interest in Margaret Water Company.
“This transaction is in line with our capital allocation strategy and our aim to effect the improvement of our global portfolio, through projects that extend mine lives, enhance margins and provide quicker cash turns on investment,” AngloGold Ashanti chief executive Srinivasan Venkatakrishnan said.
AngloGold, the world's third-biggest gold producer, also said yesterday that China’s Heaven-Sent SA Sunshine Investment Company had agreed to take over its Kopanang mine for R100 million.
The announcement comes after speculation about the owners of Moab Khotsong.
AngloGold said in June it would place on care and maintenance the Kopanang mine, in the Vaal River region, and the Savuka section of the TauTona mine, as part of a restructuring plan in a bid to safely turn around the performance of these loss-making operations.
The Harmony share declined 2.52 percent to R22.82 a share.
An analyst who spoke on condition of anonymity said this was because of the negative perception for South African mines.
"There is always negative sentiment towards South African assets. South African assets are received to be expensive to run. However, the two assets (Moab Khotsong and Great Noligwa ) are not bad.
Their all-in sustaining costs are below $1 000. There is an opportunity for Harmony to restructure," he said.