Harmony Gold achieves debt free status ahead of schedule
World No. 5 gold miner, Harmony, has announced that it has now effectively achieved net debt-free status with the receipt of the final tranche of the Rand Uranium deal with Pamodzi Resource Fund.
Author: Lawrence Williams
Posted: Thursday , 23 Apr 2009
LONDON -
mineweb.com
Commenting on an announcement today that Harmony Gold (NYSE:HMY, NASDAQ: HMY, JSE: HAR) has achieved net debt-free status a little earlier than originally promised, CEO Graham Briggs stated "Harmony is in excellent financial health with a strong balance sheet thanks to all the measures that have been taken in the past 18 months. Our focus now remains on achieving our overall targets and delivering consistent results."
Since Briggs took over running Harmony, following the resignation of former CEO Bernard Swanepoel who had built the company up into being one of the world's top gold miners, he has always avowed that he would focus on bringing the company to a debt free status (by June this year) which would then put it into a situation where it could focus on its production targets and future expansion plans.
Two financial transactions have enabled Harmony to reach the debt free status. The first was the completion of a capital raising exercise which generated R938 million (US$105 million) without serious dilution of shareholder interests. 7,540,646 shares (1.9% of Harmony's issued share capital) were placed at an average subscription price of R124.45 a share, which was marginally in excess of the company's weighted share price on the Johannesburg Stock Exchange over the period of the capital raising. The company succeeded in doing this given the relatively favourable market conditions for gold mining companies over the period.
The second major transaction was the closure of the agreements with Pamodzi Resources Fund under which gold and uranium assets from the Harmony controlled Randfontein Estates gold/uranium property were sold into Rand Uranium - a special purpose vehicle - in which Harmony retains a 40 percent interest. Pamodzi was to pay Harmony $209 million for the 60 percent balance, and with an initial tranche of $40 million paid over in November last year, and the balance received on April 20th.
These two injections of capital totalling R2.7 billion ($302 million), together with reasonable operating cashflow helped by the strong gold price and weak rand have enabled the company to achieve its debt free status and will be utilized to repay Harmony's convertible bond (due in May 2009) and its short term debt, leaving a positive cash balance of approximately R1.5 billion ($168 million).
The company will now primarily focus on organic growth through concentrating on cost controls and safety issues domestically, bringing its domestic capital projects to fruition while the Hidden Valley mine in Papua New Guinea is being brought into production by Newcrest, which will earn up to 50% in this and related PNG projects, in the middle of the current year.
Briggs' reckons that the key aims will now be conserving cash and maintain reasonable sales margins, remaining debt free, keeping the company as simple as possible - and finally rewarding shareholders with a return to the dividend list in the 2009/2010 financial year. This is all achievable providing the gold price remains at or around current levels or higher. Acquisitions are not ruled out providing they meet the company's criteria of long life assets with decent margins. |
