Harmony Gold expands with two deals

Denver — When Harmony Gold Mining (HGMCY-Q) says it grows through acquisition, it is not a statement to be taken lightly. In the past five years, the company has made 14 such deals, and now it intends to take over two aging South African mines from AngloGold (AU-N), as well as buy all the shares of Australia’s ninth-largest gold producer, New Hampton Goldfields.

Harmony wants to buy AngloGold’s Elandsrand and Deelkraal mines in the West Witwatersrand basin, west of Johannesburg, for R1 billion (US$130 million), and it has offered A$26.5 per share for all the shares of New Hampton it does not already own.

The underground Elandsrand and Deelkraal mines are 50 km from the Randfontein property, another of Harmony’s recent acquisitions. In January 2000, Harmony made an unsolicited bid for the 800,000-oz.-per-year Randfontein Estates, southwest of Johannesburg, for R913 million (US$120 million).

Elandsrand began production in 1978, and was expected to have been mined out by 2001. However, AngloGold’s acquisition of the nearby Deelkraal mine, combined with commissioning of the sub- vertical shaft in 1984, greatly expanded the life of the operation. Elandsrand employs some 5,900 people, whereas Deelkraal employs 3,200.

Elandsrand posted a total cash cost of US$313 per oz. for the third quarter of 2000, and US$280 per oz. for the first nine months of the year. Gold production at Deelkraal was up in the third quarter, at a total cash cost of US$282 per oz., with the 9-month cash cost totalling US$302 per oz.

The two mines contributed 127,000 oz. in the third quarter and 404,000 oz. during the 9-month period. As a result of the acquisitions, Harmony expects its gold production to rise to 2.7 million oz. from 2.2 million oz. The operations have a total reserve of 41 million tonnes grading 7.7 grams gold per tonne, equivalent to 10 million oz.

“We are about to transform high-cost, mature operations into low-cost, high-productivity producers,” says Harmony’s chief executive officer, Bernard Swanepoel.

The transaction is subject to several conditions, including regulatory and shareholder approval. A commitment from bankers is also required. Harmony plans to finance the acquisition through domestic and international debt markets, through syndicated loans. Harmony hopes to assume control of the mines beginning in February 2001.

Meanwhile, Harmony’s offer for New Hampton is designed to push the company’s gold production closer to the 3-million-ounce mark. New Hampton produced 185,548 oz. in the first six months of 2000 from the Big Bell and Jubilee mines in Western Australia. Reserves at the two operations are close to 1.5 million oz. gold.

Harmony already owns a 19.9% interest in the producer and has entered into an agreement to buy another 19.99% of New Hampton’s shares from a subsidiary of Normandy Mining (NDY-T) at the same rate as the tender offer.

The transaction is valued at A$54.3 million (US$29 million), which represents a 32% premium over the A20 share price on the day prior to the announcement.

New Hampton’s response to the offer has been cool; it has advised shareholders to take no action before the company had a chance to respond.