Harmony grabs Jipangu’s High River stake

Harmony Gold Mining (HGMCY-Q), South Africa’s third-largest producer of the yellow metal, has agreed to acquire more than 17 million shares of Toronto-based High River Gold Mines (HRG-T) from Jipangu, a gold-investing company based in Japan.

The shares represent 21% of High River’s issued share capital. Harmony will acquire them in return for US$14.5 million, or US85 per share — a 16% discount on the weighted average share price for the 30 days prior to the agreement.

“While this transaction, in terms of timing and pricing, is somewhat opportunistic, Harmony holds High River Gold and its management team in high regard,” states Harmony’s chief executive officer, Bernard Swanepoel.

Jipangu currently owns 32.5% of High River.

High River’s key asset is a 53% fully diluted interest in Russian gold-mining company OJSC Buryatzoloto, which owns and operates the Irokinda and Zun-Holba gold mines in southern Siberia’s Buryatia autonomous region, east of Lake Baikal. Combined, the two mines produced 147,176 oz. gold in 2001 at a direct cash cost of US$143 per oz.

During the first half of 2002, the mines produced 76,036 oz. gold (of which, High River’s share was 42,474 oz.) at a total cash cost of US$191 per oz., compared with 72,891 oz. gold (19,302 oz. for High River) at US$262 per oz. in the first half of the previous year. The cash costs rose because the Russian government eliminated a rebate on exploration expenses.

Buryatzoloto production is essentially unhedged and realized an average of US$299 per oz. during the first half of 2002, up from US$262 per oz. a year earlier.

In all of 2002, Buryatzoloto is expected to produce 150,000 oz. gold.

In July, High River inked a deal to acquire the Berezitovoye gold project in southern Siberia’s Amur region. In return, High River will issue the Russian company Khaikta up to 6.8 million treasury shares and pay a total of US$2.75 million in cash. The final number of shares issued depends on the size of the proven and probable gold reserves outlined in a feasibility study.

The Berezitovoye deposit contains a near-surface resource of 14.1 million tonnes grading 3.05 grams gold and 14.3 grams silver per tonne, plus 0.93% zinc and 0.57% lead, based on a cutoff grade of 1 gram gold per tonne.

Earlier this year, Harmony grabbed a 32% stake in privately held Highland Gold, which owns a package of prospective exploration assets and a gold mine in Russia.

“We continue to be impressed by the highly prospective orebodies and good mining infrastructure in Russia,” says Swanepoel. “Through our participation in both Highland Gold and High River Gold, we will be in a position to identify further growth opportunities available to the company in that country.”

High River also has a half-interest in the New Britannia gold mine in Manitoba. The mine, operated with equal partner TVX Gold (tvx-t), produced 57,847 oz. gold at US$196 per oz. during the first half of 2002, up from 54,278 oz. at US$190 per oz. a year earlier. The mine is well ahead of its 2002 target of 110,000 oz.

The company also has an 80% stake in the Toparko gold project Burkina Faso, West Africa, where it is considering combining operations with Axmin‘s (axm-t) nearby Bouroum deposit.

The deal is slated to close on Nov. 22.

High River’s shares jumped 9 or 5.4% to $1.75 in Toronto following the news. Harmony’s shares fell US36 to US$14.93 on the Nasdaq.

See HARMONY Page 6