Johannesburg - Harmony Gold Mining, the world's fifth-largest gold producer, might sell its 11.5 percent stake in smaller gold mining company Avgold just three months after buying it, Harmony chief executive Bernard Swanepoel said yesterday.
"There comes a time when we are strategic sellers," Swanepoel told analysts and media attending the September quarter results presentation. "Our small strategic investment in Avgold is positioning us for a specific outcome and as soon as we see there is no longer value we would be willing to sell it off," he said.
Suggesting that he was displeased with Avgold's approach to developing the Target gold deposit in the Free State, Swanepoel said:
"We love the ore body but not the current approach to it. Avgold needs 9g a ton to break even at total cash cost level. That is cause for concern."
The average grade of the Target reserve is 6.7g a ton.
Harmony and ARMgold, which have merged, have an effective 26 percent exposure to Avgold.
Replacing Anglo American as Avgold's largest shareholder, Harmony holds a 14.6 percent effective strategic investment in Avgold through its 34.5 percent ownership in Avgold's parent, Anglovaal Mining (Avmin), and the direct 11.5 percent stake it bought from Anglo American in July.
Harmony paid R7.91 a share for Avgold, a 3 percent premium to the market price on the day.
Now the shares would fetch closer to R10 each.
Viewed as the beginning of value unlocking at Avmin, Harmony's surprise acquisitions were expected to trigger an eventual purchase of the balance of its shares.
But Swanepoel cautioned analysts from speculating "on the wrong side" of its plans.
Avgold announced last week that it had switched strategies for developing the area north of Target. Instead of sinking a R8.5 million twin shaft, Avgold said it would stagger development in three phases. It said the first would cost just R900 million, which could be internally funded.
Proving it was not "married to its assets" as Swanepoel is keen to remind the market, the company realised just under R1 billion through the sale of two stakes.
It sold its 17 percent stake in High River Gold, a Toronto-based company with interests in Russia, for R162 million and its 31.7 percent holding in Russian gold mining company Highland Gold for R830 million. It made a profit of R530 million on Highland.
Swanepoel hinted that Harmony's 32 percent interest in Bendigo in Australia might be the next to go, depending on the outcome of further detailed work, which was scheduled to be completed by December.
Harmony has the option to acquire a controlling stake in Bendigo by exercising its option to acquire up to 51 percent at 38c a share. This option lapses in December.
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