Harmony Gold has agreed to buy the Eva Copper project in Australia and its exploration land package in a R4.1bn transaction that seeks to further diversify its revenue base while giving it an opportunity to participate in the global transition to a low-carbon economy.
The proposed deal, which will be funded from cash and a revolving credit facility, will beef up Harmony’s offshore assets.
Gold grades found in the ores mined in SA have been in steady decline for many years due to the depth and age of these mines, while the cost of producing per ounce of gold has been steadily climbing.
Gold miners are also largely beholden to commodity prices, which are determined on world markets. In a higher interest rate scenario, the demand for gold tends to drop as it has to compete with other higher-yielding asset classes.
With the US Federal Reserve and other central banks tightening their monetary policy to fight inflation, the gold price has come under significant pressure, which has left miners of the metal exposed.
But with the Eva Copper project, CEO Peter Steenkamp is looking to mitigate the potential risks while positioning Harmony to benefit from copper, which is listed as one of the world’s critical minerals in the transition to a carbon-free future.
The project, which is scheduled to start in about three years, will add 1.718-billion pounds of copper and 260,000oz of gold to Harmony’s mineral reserves.
“Acquiring Eva Copper is strategically important to our growth journey,” Steenkamp said in a statement on Thursday.
"[It] lowers our risk profile, providing additional scale and meaningful diversification that positions Harmony for the future.”
The Eva copper project has an estimated development capital of $597m, or R10.6bn, Harmony Gold said, citing the studies conducted by the seller, Copper Mountain. However, it is undertaking a review of existing feasibility and will determine how the project will be funded.
Anchor Capital investment analyst Stephan Erasmus said: “Although the acquisition seems strategically sensible, capex inflation seems likely. Harmony shareholders do not need to approve the transaction, which Harmony expects to conclude in early 2023.
“Given that Harmony is undergoing a review, we believe the project capex will likely rise. In a strategic sense, we believe this transaction will enhance Harmony’s investment appeal by diversifying into a low-risk jurisdiction like Australia and geographic and commodity diversification.”
The development capital’s timing will align with its current capital expenditure profile, Harmony Gold said. The peak brownfields expansion, namely Mine Waste Solutions, will have almost been completed by the time construction of Eva Copper begins in three years’ time.
The proposed transaction is still subject to regulatory clearance, including approval from the Foreign Investment Review Board in Australia, as well as Copper Mountain bondholders.
The Reserve Bank has already approved the deal.
SA’s biggest gold producer by volume owns a 50% stake in the Wafi-Golpu copper and gold mine project in Papua New Guinea.
It expects to produce between 1.4-million and 1.5-million ounces of gold in the year to June 2023, at an all-in sustaining cost of below R900,000/kg.
Harmony Gold shares closed 3% higher at R51.16 on the JSE, valuing the company at R31.5bn.
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