Harmony hot on the acquisition trail
AngloGold Ashanti’s last operation in SA would further entrench Harmony’s exposure to the country
As market speculation intensifies over the possible acquisition by Harmony Gold of AngloGold Ashanti’s Mponeng mine, the SA-based company has said it is on the hunt for quality assets.
In its results briefing for the first half of its 2020 financial year, Harmony CEO Peter Steenkamp would not be drawn on whether the company was looking to buy Mponeng, the deepest gold mine on earth, but said acquisitions would be a key focus for company this year.
Steenkamp said Harmony had previously said it would look at merger & acquisition opportunities. “If it makes sense for us to invest we will do. Obviously it will need to be affordable too,” he said. “We don’t want to talk about any specific opportunity until we get to a point that we have some real clarity.”
The sale of Mponeng will conclude the exit of AngloGold Ashanti from SA, marking the end of an era. Should Harmony acquire the operation, it would further entrench its exposure to SA which is already the highest among JSE-listed gold miners. Harmony is highly experienced in deep-level gold mining and has acquired a number of AngloGold’s older mines.
Harmony swung back into the black for the six months ended December 2019, reporting net profit of R1.3bn, compared with a loss of R19m in the comparative period. This was despite an 8% drop in production and was due to a strong gold price, which climbed almost 10% higher during this period. The results however fell short of market consensus, causing the share price to drop 7.6% on Tuesday.
Steenkamp said Harmony was looking forward to a good quarter, given the fundamentals that support the gold price. These include interest rate cuts by global central banks and geopolitical tension which has helped to propel gold to a record price in rand terms.
Harmony said it would also raise its game as a number of projects were expected to yield results in this financial year. Notably a turnaround plan at its Kusasalethu operation, which was responsible for the bulk of production losses, is expected to yield improvements in the final quarter.
Though not adversely affected by power cuts in the period, Steenkamp said he was worried about continued stage 1 or stage 2 load-shedding, which require the company to curtail its power usage by 10%. “In the past we could make it up over weekends or make it up at night when there is no load-shedding. Having this continuous load-shedding is a problem for us, we need a discussion now with Eskom to see how we can alleviate that.”
Harmony financial director Frank Abbott said paying a dividend remained a long-term intention, but paying down debt would be the priority for now. This could be achieved within two years at current gold prices and production rates, he said.
“When will we be debt free? Of course that will depend on the gold price and production — if it stays where it is — by the end of next year,” he said. “Will we leverage it for future acquisitions? Yes we will.”
A key part of the Harmony investment case is that it is highly leveraged to the gold price.
Steenkamp said however Harmony was not opposed to acquiring assets outside gold, as Sibanye-Stillwater has done, and had been looking at “quite a lot” of opportunities in platinum. “It’s all about price and, obviously, what’s available,” Steenkamp said.
With Karl Gernetzky