AngloGold’s last South African mine luring potential buyers

Harmony Gold Mining Co. and Sibanye Gold Ltd. have submitted formal proposals, the people said. The discussions are at an early stage and it’s uncertain that they’ll lead to a deal, they said.

Any acquirer faces additional costs as they bankroll a stake in the mine for employees and nearby communities to comply with a law seeking to address inequities stemming from apartheid. Mponeng’s valuation is also being squeezed by geological challenges: it’s the world’s deepest mine, and requires investment of $1 billion to extend its life beyond eight years, according to JPMorgan Chase & Co.

“You have to ask yourself, why would you buy a mine 4 kilometers deep?” said Peter Major, an analyst at Mergence Corporate Solutions in Cape Town. “It’s a huge risk. Those that are interested will want to get a discount.”

“We remain committed to streamlining our portfolio — guided by our capital allocation priorities — but we don’t comment on deals in process,” said Stewart Bailey, executive vice president, corporate affairs at AngloGold.

Harmony CEO Peter Steenkamp said Mponeng could help his company replace depleting reserves, but added that recent changes to South Africa’s mining laws have raised the cost of doing deals. In particular, an acquirer would have to fund a 10% stake in the mine for employees and communities to promote black economic empowerment.

“You have to build all this into your price,” Steenkamp said on Aug. 20. “That option makes South African projects difficult.”

Sibanye interest

Sibanye is also interested, not least because Mponeng lies adjacent to its Driefontein mine, said CEO Neal Froneman. While the company is subject to a non-disclosure agreement, he confirmed that Sibanye is part of the process.

“Sibanye is well positioned to deliver shareholder value and consider this opportunity,” Froneman said.

There is also interest from Chinese buyers, including Heaven-Sent Capital Management Group, in some of the smaller AngloGold assets, the people familiar said.

Heaven-Sent acquired another mine from AngloGold two years ago and holds mining assets in South Africa through Village Main Reef Ltd.

“We assess possible new acquisitions as opportunities arise; for obvious reasons we don’t go into the specifics of this process,” James Duncan, a spokesman for Village Main Reef, said in an email.

Marian Van Der Walt, a spokeswoman for Harmony, declined to add to the comments made by CEO Steenkamp last month.

For the world’s No. 3 gold producer, there could be far-reaching implications. The sale would complete AngloGold’s withdrawal from South Africa, allowing it to focus on more profitable operations and potentially shifting its primary listing away from Johannesburg to London or Toronto. A South African exit would also remove the discount that AngloGold trades at to global peers such as Barrick Gold Corp., according to RBC Capital Markets.

Structuring deal

A weaker rand, which lowers costs for South African miners, and a higher gold price are burnishing Mponeng’s appeal. In the second quarter, a key measure of costs at the mine fell to $1,174 an ounce, compared with an average gold price of almost $1,309.

While Mponeng would complement their existing operations, neither Harmony, nor Sibanye is flush with cash. Sibanye reported a first-half loss and is burdened by debt piled up during a string of acquisitions in the platinum industry. Harmony reported a loss for the 12 months through June.

AngloGold may be open to receiving part payment in future cash flows from Mponeng — similar to the deal Sibanye concluded when it bought mines from Anglo American Platinum Ltd., said James Bell, an analyst at RBC Capital Markets.

“I think they are willing to be more flexible potentially on valuation but the key message is this is no fire sale,” he said. “If they are getting low-ball offers, I don’t expect them to sell just to get the assets off the books.”

(By Felix Njini and Loni Prinsloo)