Harmony makes cash offer for Hill 50

With the Normandy, Newmont and AngloGold takeover saga commanding the market’s attention, South Africa’s Harmony Gold Mining (HGMCY-Q) is taking a run at Australia’s Hill 50 Gold, which last year produced 200,000 oz.

Harmony has offered A$1.35 cash for each Hill 50 share and A65 for each listed option. Should more than 90% of the Hill 50 shareholders and option-holders accept the offer, Harmony will pay a nickel bonus for each share and option. The offer represents a 15% premium over the weighted average share price for Hill 50 in the week preceding the offer, and a 35% premium over the month preceding the offer.

Harmony has locked up the support of Hill 50’s largest shareholder, Robert Pittorino, who holds 16.4% of the ordinary shares and 12.6% of the listed options.

The directors of Hill 50, which publicly stated their intention to recommend the acceptance of the Harmony offer in the absence of a higher offer, have been advised of the “possibility of an alternative and higher offer” after being approached by advisor RFC Corporate Finance.

The board is now advising shareholders to wait for further advice and to take no action until Hill 50 releases its target statement in the next few weeks.

Hill 50’s primary assets are the Mt Magnet underground and open-pit gold operations in the Murchison belt of Western Australia and the recently acquired New Celebration operation, south of Kalgoorlie.

The Mt Magnet operations produced 201,675 oz. gold for the fiscal year ended June 30, 2001, at a cash cost of roughly US$166 per oz. (A$330 per oz.), compared with 149,705 oz. in the previous year at A$358 per oz. Reserves are estimated at 12.4 million tonnes grading 4 grams gold per tonne, or 1.6 million contained ounces. The measured, indicated and inferred resource totals 32.4 million tonnes grading 3.9 grams, equivalent to 4 million oz.

At the end of June, Hill 50 purchased the New Celebration gold mine operation from Newcrest Mining for A$10 million, plus a A$10-per-oz. future royalty payment on all production above 400,000 oz. The mine is expected to pour more than 90,000 oz. in the current year, boosting Hill 50’s total production to 300,000 oz. per year.

Proven and probable reserves stand at 2.3 million tonnes grading 4.6 grams, or 337,000 oz., while the overall resource totals 67.8 million tonnes grading 1.6 grams, equal to 3.6 million oz.

Harmony believes there are operational and exploration-related similarities between its Jubilee operations and the New Celebration mine in the area south of Kalgoorlie. Jubilee and the Big Bell mine operations were acquired by Harmony in last year’s takeover of New Hampton. The New Hampton assets currently produce 220,000 oz. annually.

Hill 50 also owns the advanced-stage Maud Creek exploration gold project, near the town of Katherine in the Northern Territory. The company acquired the project in June 2001 from Phoenix Mining (previously known as Kilkenny Gold) by issuing 3.5 million of its shares. Previous studies by Kilkenny calculated a global resource of 13.6 million tonnes grading 2.28 grams for 995,000 oz. Within this model, Hill 50 has estimated a higher-grade resource of 2.7 million tonnes grading 6.7 grams, or 580,000 oz. The primary mineralization at Maud Creek is refractory.

Harmony’s offer is subject to receiving regulatory approvals from the Australian Foreign Investment Review Board and the South African Reserve Bank. The offer is conditional on acceptance of at least 50.1% of Hill 50 shareholders on a fully diluted basis. At fiscal year-end, Hill 50 had 126.4 million shares outstanding.

In related news, Harmony has paid A$50 million to acquire an initial 31.1% interest in New Bendigo, an Australian junior that is developing a high-grade underground gold project in Victoria. Harmony’s cash investment will be used to resume underground development work.