Allan Seccombe | Business Day Live
HARMONY Gold is assessing how best to extract value from its Golpu copper and gold deposit in Papua New Guinea, which is not recognised in its share price.
CEO Graham Briggs said the company was aware that investors in the metals had different strategic requirements. Over and above dealing with ageing, low-grade, deep-level mines in SA, Harmony’s board is weighing various options around the Golpu deposit it shares with Australia’s Newcrest Mining, Mr Briggs said last week.
Shareholders balked at the initial $5bn cost to mine Golpu, forcing the partners to adopt a cheaper, staged plan at a cost of $2.3bn for the first 27-year phase to extract 3.7-million ounces of gold and 2.2-million tonnes of copper. Harmony would need to find R14bn to fund its half of the project, more than twice its R6bn market capitalisation.
The options around Golpu potentially range from an outright sale to unbundling the asset or separately listing it, with the option of Harmony retaining a stake in Golpu.
There is a remote possibility of Harmony retaining the project and other assets in Papua New Guinea and separating the South African mines.
The question is also whether Harmony will bundle all its Papua New Guinea assets, which include wholly owned exploration tenements, into a single vehicle or keep the Hidden Valley mine and other prospects within Harmony.
Splitting Golpu out of Harmony could “release some of the Golpu project’s inherent value”, JP Morgan’s Allan Cooke said.
While Mr Briggs declined to say what options were under consideration by the board, with copper generating 77% of Golpu’s revenue and gold 23%, the thinking was that Harmony needed to tailor its portfolio to cater for gold-focused shareholders and those who wanted copper exposure.
“My view is we have to look at a different structure and one that can finance Golpu.
“My opinion is if we have that different structure with different shareholders, then we’d be able to attract those investors prepared to invest in Golpu,” Mr Briggs said.
“Personally, I believe the South African assets can be restructured in the right circumstances to satisfy the gold investors, who are generally shorter-term, dividend-focused shareholders,” he said.
Harmony has just completed restructuring its Masimong mine after it reshaped its Kusasalethu mine and it is now busy with a similar process at its Doornkop mine as it grapples with soaring costs in SA.
It has closed a number of exhausted mines.
“It’s about looking at investors, the markets and timings to see how we change our strategy to fit the realities we are seeing,” Mr Briggs said.
The board had asked for information before debating options and going into the finer details of the various plans.
“We have not got into the mechanics of what we are going to do and how to do it yet,” Mr Briggs added.
Harmony shareholders had to realise the financial benefit of any disposal of Golpu or the Papua New Guinea assets as a whole because cash generated from the South African mines had funded those assets instead of paying dividends, said an analyst who declined to be named. Mr Briggs said the definitive feasibility study into the first phase at Golpu would be completed by December, which would give potential investors firm data to value Golpu.
“If you were going to split or separate somehow, you could maybe do it when the next project report is out. If you were to do something, that’s the time you’d do it,” Mr Briggs said.
Timing was critical to any decision, he said and pointed to the turbulent nature of the global commodity market, uncertainty about Chinese demand for resources and investors’ appetite for resource companies.