Gold Fields in talks with Harmony

In an about-face, Gold Fields (GFI-N) has concluded preliminary talks with Harmony Gold (HMY-N), which had launched a hostile takeover of the South African major.

The weekend meeting in Moscow, which also included Harmony backer Norilsk Nickel, was designed to “explore alternative transactions, which could be mutually acceptable and beneficial to all parties relating to the current offer by Harmony for Gold Fields.”

Gold Fields says any deal would still be subject to Norilsk’s agreement to vote, irrevocably, its Gold Fields shares with Harmony. Norilsk is Gold Fields’ biggest shareholder, with a 20% interest. The Russian company recently helped Harmony quash Gold Fields’ plan to merger its international assets with those of Iamgold (IMG-T).

Harmony has total mineral reserves of 395.5 million tonnes averaging 0.17 oz. per ton, or 66.8 million oz. Excluding 1.7 million depleted ounces and 5.95 million inferred ounces, the total falls to 59.1 million oz. That’s down from the 62.1 million oz. reported last June in the annual report but ahead of an audited total of 39 million oz. reported in March.

Of the total reserves, some 12.5 million oz. are situated “below infrastructure” and access to them would require further development. Excluding those ounces, the reserves are equivalent to 46.6 million oz.

In early November, Gold Fields expressed concern about the discrepancy between the reserves reported in Harmony’s 2004 annual report and the 41 million oz. included in the takeover document.

Gold Fields subsequently included the discrepancy in its barrage of legal challenges to Harmony’s bid; the U.S. Court for the Southern District of New York ruled in Harmony’s favour, noting that Gold Fields’ own expert witness agreed that Harmony’s gold reserve estimate was justified.

Harmony recently acquired 11.8% of Gold Fields’ shares under the early-settlement portion of its takeover bid. The follow-on offer for the balance of Gold Fields’ shares is slated to close in February; Norilsk has committed its shares to that offer. The deal still requires the approval of South Africa’s Competition Commission.

Harmony’s offer remains at 1.275 of its own shares for each Gold Field share.