Harmony grabs South Deep stake

Harmony Gold Mining (HMY-N) has taken a 29.2% stake in fellow South African miner Western Areas, co-owner of the South Deep underground gold mine, 45 km southwest of Johannesburg in the Witwatersrand Basin.

Harmony acquired 37.4 million shares from privately owned South African investment house Allan Gray, with another 7.6 million shares picked up on the open market. The price tag rings in at just shy of 2 billion rand — nearly half in cash and the balance funded via a loan from Rand Merchant Bank.

South Africa’s third-largest gold producer says it paid a premium of 7.4% over Western Areas’ 30-day volume-weighted average price share price.

The deal sees Harmony pick up a 14.6% interest in the South Deep gold mine. Earlier this year, Barrick Gold (ABX-T, ABX-N) inherited a half-interest in the mine through its acquisition of Placer Dome.

“We see this as a strategic exposure to one of the best ore bodies in the world and we look forward to working with the board of Western Areas on realizing this assets’ full potential,” said Harmony chief executive Bernard Swanepoel in a prepared statement.

Earlier this year, Western Areas and Placer halved the mine’s reserves following a year-and-a-half review. Proven and probable reserves now total 147 million tonnes running 6.2 grams gold per tonne, for 29.3 million contained ounces.

The reduction in reserves is mostly attributed to a new geological model, an enlargement of regional pillars aimed at improving ground stability, and the inclusion of more low-grade material owing to a change in the mining method in certain parts of the mine.

Many of the trimmed ounces were shifted to the measured and indicated resource category, which now amounts to 109.9 million tonnes averaging 7.3 grams gold per tonne, for 25.9 million contained ounces. The estimates are based on a gold price of US$400 per oz.

In 2005, Placer’s share of production from South Deep was 230,560 oz. of gold produced at a cash cost of US$387 per oz., up from 214,293 oz. at US$394 apiece a year earlier.

The South Deep twin-shaft expansion, which was commissioned in late 2004 after years of delay, is expected to boost total annual production to 750,000 oz. over 70 years.

Placer shares ceased trading on the Toronto and New York stock exchanges on March 8, after Barrick announced that it had taken up a total of more around 94% of placer’s outstanding shares in early February. Barrick is compulsorily acquiring the remaining shares.