Gold miner Harmony, which has a strong record of opportunistic
acquisitive growth, believes there is still significant scope for
further consolidation in South Africa, particularly now that the
strong rand is putting the squeeze on gold-mine margins.
Speaking yesterday, CE Bernard Swanepoel argued that there was
“quite a lot of unfinished business” on the
consolidation front and forecast that there would be a number of
deals announced within the next weeks.
He pointed to the Free State, in particular, where he argued vast
synergies remained unexploited.
“The ideal model might be to own everything, but as we have
shown with ARMgold that is not necessary in all cases and it is
possible to realeurope crushers manufacturersise synergies by cooperating.”
He argued further that in any other gold-mining context the
potential synergies between Beatrix, Target, Freegold and Harmony
would have been realised.
“If those operations were in Australia, for instance, we
would have shared mills, shared surface infrastructure and shared
services.
“So I really do believe there is still much potential left to
squeeze synergilargest mill liners in the worldes…because while we have removed farm fences,
this has only resulted in bigger farms.”
Swanepoel also indicated that the consolidation opportunities were
not restricted to the Free State, arguing that “illogical
fragmentations” were evident elsewhere.
“If you work from Randfontein to South Deep, from South Deep
to Kloof, there are a lot of these old historical divisions, which,
in a difmarble crusher plantferent scenario, would not have been logical,” he
said, adding that Harmony’s main area of interest remained
the further consolidation of the South African industry, despite
current difficulties.
Indeed, it is precisely these difficult circumstances that was
providing impetus for this renewed focus on acquisitions at
Harmony, as it was the same sort of environment which saw the
company grow from 600 000 oz/y to three-million ounces.
“We all loved the nice environment, but a tough environment
creates opportunities… and in the next five or six weeks I
think there may be quite a few transactions taking place in South
Africa,” Swanepoel said.
He confirmed that Harmony remained committed to South Africa and
would not pursue a strategy of geographical diversification as
other producers were doing.
“Our decisions to invest in Russia and Australia have never
been driven by diversification, but by a desire to extend
Harmony’s growth to wherever there are value-enhancing
opportunities.
“Whatever transactions and deals we may announce in the next
six months will continue to prove that we are as committed to South
Africa as ever,” he said.
However, Swanepoel did warn that the proposed Royalty Bill, which
suggests a three percent royalty on revenues, could reduce the
competitiveness of South Africa as a gold-mining destination and
force Harmony to seek opportunities abroad.
“If government continues to make the macroeconomic
environment expensive in this country it is going to see
diversification,” he cautioned.
The Harmony approach, he said, was to have maximum exposure to the
gold price and to the rand and to manage the company with a strong
South African focus.
“The strong rand makes it difficult to pursue this strategy
and the Royalty Bill is a significant irritation on top of
that,” he commented.
Meanwhile the difficult gold-mining environment in South Africa,
precipitated by the rise in the rand, took its toll on the
company’s results for the March quarter, with cash operating
profit declining 37% to R478,4-million.
Harmony’s results were also affected by the number of public
holidays over the Christmas and New Year period.
Although recovery grades were at similar levels, the loss of six
working days resulted in an 8% reduction in tonnages from
underground, which translated into a reduction of 1 500 kg or
R142-million in revenue.