Johannesburg - Harmony Gold Mining has shifted its focus for future growth to seeking out producing assets which it can buy, rather than early stage projects, said CEO Graham Briggs.
Analysts say Harmony should deliver strong cash flows if the rand gold price remains at current high levels, something that sets it apart from many companies in the junior and, in some cases, major sector.
In common with many mining chief executives, Briggs said Harmony is finding the market extremely difficult and now is most certainly not a time to sell assets.
The deterioration in global markets has rendered the junior mining sector ripe for consolidation, said Ernst & Young's Mining Eye report, which monitors London's Alternative Investment Market (AIM).
"Consolidation must also remain an option for the junior miners in a robust enough financial position to execute a deal. But for those unable to raise the cash needed to continue operations, the stark reality is that projects will become stalled and we will see a rise in the number of companies in difficulties," said Michael Lynch-Bell, head of metals and mining at Ernst & Young.
Harmony has dropped the price for uranium and gold assets at its Cooke mines and tailings project, which it is selling to Rand Uranium. Pamodzi Resources Fund is the 60% partner to Harmony's 40% stake. The transaction was unveiled in December 2007 but has taken some time to conclude, forcing its revision.
The difficulties the Australian junior mining sector finds itself in due to the economic environment were made all too apparent to Harmony, when the sale of its Mount Magnet operation fell through earlier this year.
'Tricks up our sleeve'
But Harmony is seeing growth opportunities in these tough times.
"We've always got a few tricks up our sleeve. We are busy looking at a few things," Briggs told Miningmx.
"The shift has been that probably 12 months ago we were looking at exploration properties and early projects. Now our shift is looking more towards the production side of things," he said.
"There are quite a few companies and projects that are under a bit of stress, battling to raising money and so on."
Harmony has put together a new business team with representatives in Australia and in South Africa, who are "regularly doing due diligences".
"We are looking around. There are opportunities in this market. We're not sure how to take advantage of them. If something suitable does come up, we'll look at it a little more earnestly," he said.
The sale of the Cooke assets will enable Harmony to repay a R1.7bn bond due in May 2009 as well as reduce debt levels. A large flow of capital into the Hidden Valley project in Papua New Guinea has been stemmed with the introduction of Australian partners Newcrest, who will fund the project to completion and bring it into production by mid-2009.
Harmony shares have been one of the strongest performers on the South African bourse's gold sector because of its exposure to the rand gold price, which has hit record levels as the rand weakened against the dollar.
JP Morgan said in an October 8 note there were prospects of short-term gains in the South African gold sector, picking out Harmony and the riskier DRDGold because all their gold is produced in South Africa.
Enviable position
The rand gold price is currently about R260 000 per kg, off the high of R277 000 when the JP Morgan report came out.
"Harmony looks set to deliver substantial cash flow if the current rand gold price remains in place. Note that its capex spend on the new Hidden Valley mine is over - the balance must be funded by JV partner, Newcrest," said JP Morgan's Steve Shepherd and Allan Cooke.
"Harmony prior to the JV had been expending about R400m per quarter or about R1/share/quarter. Meanwhile, under new management costs seem to be coming under control, with the added benefit of higher ore grades in prospect as local projects begin to deliver."
Harmony will be in a position the juniors aren't: that of generating cash internally. It also has the skills to take on assets, something many juniors don't have.
"It is clear that the situation for many of AIM's miners is nearing critical," said Tim Williams, a director of Mining & Metals at Ernst & Young.
"In just three months, the value of AIM's mining universe has more than halved and access to new capital for those without great projects is, at least for the time being, closed," he said.
"The financial crisis has had devastating consequences for share prices and new investment in a market where buyers are scarce and trading volumes are low."
- Miningmx.com
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