From financial times, SURVEY - AFRICAN MINING: Gold miner with Midas touch
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SURVEY - AFRICAN MINING: Gold miner with Midas
touch struck the right note: HARMONY GOLD by
Nicol Degli Innocenti: Bernard Swanepoel, chief
executive, has driven his company from the brink
of closure to being the third largest gold producer in
South Africa
Financial Times; Mar 19, 2001
By NICOL DEGLI INNOCENTI
A few weeks ago, Bernard Swanepoel, Harmony Gold's chief executive, turned
down an offer to be chief executive of Impala, the world's second largest
platinum producer.
Mr Swanepoel insists there was never a firm offer on the table but says it
would have been rejected anyway. "I would have turned it down. I believe in
gold and I am a gold miner by choice," he says. Platinum, even though it is
fashionable, profitable and often dubbed the metal of the new millennium, is
not a driving interest.
Mr Swanepoel's passion for gold may go some way towards explaining
Harmony's remarkable ascent through the gold mining ranks, from the brink of
closure five years ago to its position now as the third biggest gold producer in
South Africa, the sixth biggest in the world.
Production has increased from 580,000 ounces in 1995 to 2m ounces last
year, while operating profit has gone from R24m to R461m in the same period.
Cash costs have dropped from a hefty Dollars 360 an ounce in 1995 to Dollars
227 an ounce last year.
Growth has been pursued through an aggressive acquisition strategy, which is
set to continue. Mr Swanepoel is credited with having invented the "Harmony
way" - a combination of strict cost control, hands-on involvement, team
empowerment, focus on productivity and, as he puts it, "a lot less managers
and a lot more geologists". The group has a reputation for turning mines
around, extracting value from those written off by other miners.
In the last of a long string of acquisitions of this kind, Harmony in February
took control of the Elaandsral and Deelkral mines from AngloGold for R1bn in
cash. To secure funding, Harmony had to negotiate with the banks, finally
agreeing to buy put options on gold production from the new mines to the tune
of R20m.
This prompted accusations that Harmony had succumbed to pressure from the
banks and abandoned its anti-hedging principles, an accusation Mr Swanepoel
vehemently denies. "We do not hedge. We have a right but absolutely no
obligation to deliver gold at a specific price. One million ounces of this year's
production are protected from a drop in the price of gold, but we are fully
exposed to any upside."
Mr Swanepoel is confident he will be able to squeeze profits out of the
loss-making Elaandsral and Deelkral mines.
Progress was quickly visible at Randfontein, which Harmony snatched from
Western Areas last year, and which looks set to recoup the R900m
investment in two years. A mine manager at Randfontein's Cooke 2 shaft says
the change of ownership has been drastic. "The way we do things here has
changed completely. Believe me, the Harmony way is not just a slogan."
Mr Swanepoel downplays perceptions that the company's success is entirely
due to him, or that Harmony is a one-man band. "The only good reason I would
see for leaving is so that the rest of the team could get the recognition they
deserve," he says.
But Harmony's ambitions go well beyond the South African borders. The group
owns Bissett in Canada and 20 per cent of Goldfields, the Australian producer.
Last December Harmony launched a hostile takeover bid for New Hampton
GoldFields. And, although the offer was originally rejected, a small increase
has won the recommendation of all but one of the directors.
The group's more prominent international profile has gained the attention of
Japanese investors. Jipangu, a private company, is seeking to buy 8 per cent
of Harmony shares by the end of March at R40 a share, which represents a
premium over the current share price.
Jipangu is also interested in increasing that stake, but Harmony has imposed
a 21 per cent limit to ensure that the company remains independent. "It will
make them a significant shareholder but they will still not be able to call the
shots," Mr Swanepoel says. Seventy-five per cent of Harmony shares are held
abroad, but no other shareholder has more than 12 per cent.
Jipangu's injection of funds will also enable Harmony to become debt-free by
the end of the year, leaving it in a strong position to hunt for more acquisitions.
Given his commitment to gold, Mr Swanepoel was almost embarrassed last
month to have to announce that "promising" deposits of platinum and
palladium had been found at the group's Kalgold operations.
He plays the discovery down, but Harmony is looking for a strategic partner to
take the project forward. "In the future there will be precious metals producers,
rather than just gold or platinum producers," Mr Swanepoel says.
Harmony might just lead the way. |
