'Harmony Way' still relevant – Swanepoel
Gold-miner Harmony, whose heavy South African exposure has come under intense scrutiny as rand gold prices have weakened over the last couple of years, believes its business model remains as relevant as ever.
CEO Bernard Swanepoel says the original Harmony competitive advantage of taking South African operations and, through the so-called ‘Harmony Way’, reducing the cost structure of a South African underground gold-mine by 25% to 30%, is a business model that can ‘never die’.
“I think that business model will probably come to its full the day we own every underground gold-mine in South Africa,” Swanepoel quips, pointing out that Harmony currently owns a third and is making a bid for another third through its bid for Gold Fields.
“You can also argue that it is in the strong rand environment when other mines need the ‘Harmony Way’ even more and that it is in the depressed, tough times that South African gold-mines will come up for sale,” he adds.
He says the ‘perfect storm’ of low rand-gold prices and rising costs currently is creating fertile conditions for further consolidation and that it is a ‘pity’ that obvious consolidation opportunities are being obscured by the high-profile struggle between it and Gold Fields, which has made its battle cry ‘No way to the Harmony Way’.
The combination of falling prices, runaway administered costs, higher-than-inflation wage increases and maturing mines is likely to force a serious rethink in the coming months, especially given declining output, which last year fell 8,8% to 342,7 t, the lowest level since 1931.
In an interview with Mining Weekly, Swanepoel called on the industry and government to adopt a ‘holistic’ approach that helps foster a ‘more logical’ grouping of orebodies. He points to obvious mining and processing synergies between Harmony’s Joel mine in the Free State and Gold Fields’ Beatrix, both of which have been dipping in and out of profitability for the past 18 months. He also sees ‘spectacular’ potential underground synergies between Randfontein, Kloof and South Deep, all of which are owned and operated independently. The potential for mine-hospital consolidation was also significant.
The company, which has taken something of a public relations beating since the launch of its hostile bid for Gold Fields in October, is in the throes of its own painful restructuring as a response to the current hostile environment.
It is bidding to reduce its cash cost to R75 000/kg from the current level of over R77 000/kg; is in the process of closing five shafts; and 4 900 of its 48 000-strong workforce could lose their jobs in the next few weeks. Production, which has been on a steady upward trajectory ever since Harmony’s dazzling entry on to the gold-mining stage as an independent company a decade ago, has not only flattened but is expected to fall from the 3,1-million ounce level achieved in 2004.
Swanepoel argues that, while employment could well be affected by another round of consolidation, the status quo is likely to be far more deleterious. He also does not anticipate the evolution of a new breed of bottom feeders (as Harmony was in the 1990s), which could pick up loss-making assets and turn them around.
“All of us have to join forces to optimise what is arguably the last 50 years of a magnificent orebody (the Witwatersrand Basin),” Swanepoel avers.
No retreating from Gold Fields offer But despite Harmony’s troubles, which Swanepoel admits will probably only ease after the June quarter, when it begins realising the benefits of the restructuring exercise, there are no signs of retreat from its current strategy or from the Gold Fields bid.
This strategy, which was initially focused on the acquisition and turnaround of underground South African mines, has been broadened over the years to embrace exploration, mine building in South Africa and Papua New Guinea (PNG) and a serious internationalisation effort. The group is currently spending R100-million a quarter on new-mine construction and recently pushed the button on the Hidden Valley project in PNG. These projects have left Harmony spending more every quarter than it is currently making, but its balance sheet should be strengthened by the R1-billion proceeds from the sales of its African Rainbow Minerals stake. Swanepoel is also adamant that once its costs target is met it will be making a sufficient margin to fund its growth. He also stresses that the Gold Fields acquisition is ‘bang on strategy’, but describes it as a ‘nice to have’ rather than a necessity. Nonetheless, he remains fierce in defence of the bid and the manner in which it has been carried out, although admitting that he would probably have attempted ‘a few more meetings’ with Gold Fields management had he realised just how hostile and personal the defence would become. However, he admits that the premise of the offer, which claims cost-cutting potential of R1-billion at Gold Fields, is immediately ‘impolite’ and that the bid was, thus, always likely to be somewhat unfriendly.
He remains confident of gaining control, despite the ever-widening gap between the share prices of the two companies, which has left many in the market suggesting that the Harmony offer is dead.
“I still back us to get to control, but I am not as confident on a time period,” he says – prior to well-publicised regulatory delays, Swanepoel had set May 15 as the day control would be gained.
He does not dwell on the crucial relationship Harmony has with Norilsk Nickel – the Russian company has given an undertaking to support the Harmony bid until May 20 – suggesting only that it had its corporate objectives for Gold Fields, while Harmony had its own.
‘Time on our side’ Time, which Swanepoel acknow-ledges was against the company in the early stages of the bid, is now, he argues, back on Harmony’s side.
“Once we have cleared all the regulatory hurdles and make our offer unconditional, we then have the option of allowing time play to our advantage.” He said Gold Fields would come under increasing pressure to put its new strategy into the public domain, so that all shareholders, including Harmony, which has more than 11% of Gold Fields, could have an opportunity to decide between the alternatives.
“This alternative may involve another attempt at splitting the company, or even a proposal that gives Norilsk everything it wants, possibly at the expense of other shareholders,” he said, arguing that previous Gold Fields deals had been skewed towards other parties at the expense of its own shareholders, making specific reference to the Iamgold and Mvelaphanda transactions.
Overall, though, Swanepoel argues that the current defence strategy of delay will inevitably have to give way to an alternative strategy.
“I think that, from here on, time is no longer on their (Gold Fields) side and it may become their enemy, because people are now looking for a strategy beyond the delays.” He argues, too, that the ‘war of attrition’ is coming to an end and insists that Harmony’s offer will remain in place once all the legal and regulatory challenges had been overcome – Gold Fields has launched another urgent application to prevent Harmony from accessing information as part of the ‘discovery phase’ ahead of the Competition Tribunal hearing in early May.
“Of course, our offer serves as an underpin for the Gold Fields share price, which is fine with us because we are a R4-billion investor in the company.
“But if something else comes on to the horizon which is so big that we really need to redirect our resources, well, then we become a seller of Gold Fields shares, close our offer and use the money somewhere else,” Swanepoel outlines.
He indicates that its merger and acquisition team remains as active as ever and that it is assessing opportunities in South Africa, PNG, Russia and parts of Asia.
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FINALLY ! 
![:]](https://goldseiten-forum.com/wcf/images/smilies/pleased.gif "Freude"){kind=small}
Remember Bush got a bug name too ! 
