Harmony eyes Aussie producer

Vancouver – South Africa’s third largest gold producer took yet another step in an aggressive expansion plan by tabling a friendly takeover offer for Australian-based Hill 50.

Harmony Gold (HGMCY-Q) is offering A$237 million in cash for the company, a modest 19% premium over the average share price before the deal was announced. Harmony has already secured 16% of Hill 50’s shares at A$1.35, plus a further 12.4% of its traded options at A65 apiece are also in the bag. Harmony has also committed an extra A5-per-share sweetener if more than 90% of the shares are tendered.

“For the past six years Harmony has been a vigorous proponent and key participant of rationalisation in the gold sector,” says the company’s Chief Executive officer, Bernard Swanepoel. “Following our achievements in South Africa, Harmony is pleased to give its shareholders a logical and larger exposure to the ongoing consolidation of the Australian gold industry.”

Hill 50 is expected to produce 300,000 oz. of gold this year, mainly from its Mount Magnet mines in Western Australia and the New Celebration operations south of Kalgoorlie. Both mines lie in the same vicinity as Harmony ‘s existing New Hampton mines in Western Australia.

The company’s namesake Hill 50 mine at Mount Magnet began production in 1933 and went on to produce over 2 million ozs. Drilling by Hill 50 has confirmed the continuity of the orebody to depths of at least 500 metres below the current limit of workings. Over the past few years, the operation has been running profitably by mining remnant ore blocks in the upper levels of the mine. By 2004 the company expects to be producing 110,000 oz. per year from material grading 7 grams gold per tonne at the mine.

The Star mine at Mount Magnet currently cranks out 70,000 oz. of gold per year at an average grade of 5 grams gold.

In addition, the Australian company owns the Maud Creek advanced exploration project and is acquiring the Brocks Creek assets in the Northern Territory.

Harmony’s New Hampton operations include the Big Bell and Jubilee mines, which produce about 220,000 oz. of gold per year.

The offer is subject to regulatory approvals and the minimum acceptance of 50.1% of Hill 50 shares on a fully diluted basis. The deal will be financed from Harmony’s existing cash resources and from an acquisition facility being arranged by Citibank NA.