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Harmony listing ventures shelved

Publication: Miningmx
Journalist: David McKay

A lesser explored aspect of Harmony Gold’s recently unveiled plans to sell its marginal mines and collect royalties from production is whether there’s any potential to separately list the revenue.

In one iteration of that strategy Harmony planned to create a company – Harmony Capital – and float it in London. But for now the revenues will be housed in the company’s international division, said Harmony CEO Bernard Swanepoel.

“It’s not in our current thoughts to list it. But if the gold price goes to where my shareholders think it’ll go, it would be great exposure,” Swanepoel said.

A listed gold royalty company – with no operational commitments – is hardly new. Franco-Nevada, a Canadian-listed business, was perhaps the best exponent of the model before Newmont Mining absorbed it as part of the buyout of Australia’s Normandy Mining.

“I don’t have a handbook of how Franco-Nevada went about things,” said Swanepoel, implying that a listing requires more thought. The royalty company also needs fleshing out.

So far, only Harmony’s Orkney-based shafts have been sold (to Pamodzi Gold), with a 3% net smelter royalty attached on the revenue. It’s not clear what other assets will be on the block, although Swanepoel indicated the Australian assets would likely be sold.

In that regard, Swanenpoel believes the disinvestment of Canadian firm Barrick Gold from Western Australia has created a number of junior mining firms that would be interested in buying Harmony’s assets.

But Swanepoel’s reticence to speak of listing the royalty company is interesting, considering that last year he twice weighed and ditched plans to separately list part of the business. Those listing plans were for the marginal South African mines in which the JSE-listed Village Main was to be the vehicle; and a separate listing of the Papua New Guinea project Wafi/Golpu exploration venture, possibly in Toronto.

Said Swanepoel: “We aren’t looking for a separate corporate vehicle for our assets in PNG. An initial public offering is do-able but our combined balance sheets (the project’s and Harmony Gold’s) can fund development of the mine.”

Incidentally, Swanepoel also fought shy of adding to Harmony’s PNG projects by buying the assets in Emperor Mines, the Australian-listed business in which DRDGOLD has a 78% stake. “We did look extensively at a corporate play,” said Swanepoel. “But if we’d won, we’d have lost.”

That’s because bidding for the key asset in DRDGOLD’s distressed Emperor Mines – a 20% stake in PNG’s Porgera mine – was led by none other than Barrick Gold, which owned the other 80% stake.

Why the reticence to list? One view is that so much hangs on Swanepoel’s ability to bring Harmony Gold itself back to full working order that listing a second business would be viewed by shareholders as an unwanted distraction. Even the current plan of selling the marginal assets has been met with suspicion by fund managers in South Africa, some of whom believe it akin to financial engineering.

However, selling the marginal mines – and retaining a royalty – has some support. “Quality should improve,” said Steve Shepherd, an analyst at JPMorgan. “Criticism has been levelled that this type of deal sacrifices the group’s leverage to the gold price. We see it another way, bearing in mind that the gold price can also go down.”

Georges Lequime, a gold analyst at RBC Capital Markets who will be leaving the Canadian stockbroker to head Harmony’s marginal strategy, said it’s also wrong to believe Harmony is just disposing of assets. “The plan isn’t just to sell the assets but to look at what capital has been tied up there and how best to manage it. We’ll also be looking at joint ventures and partnerships.”

That’s why some attention will be focused on mothballed mines in which Harmony had previously sunk capital and that could now be again opened at a higher gold price. Having spent money already it’s far less risky for Harmony to have another party take the risk of reopening an old shaft. Said Lequime: “The details of the strategy are purposely loose at the moment. What we’re saying is let’s do some brain-storming.”

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