Patrice Motsepe has potentially positioned African Rainbow Minerals (ARM) for acquisitive growth after the group hedged 24% of its share in Harmony — in a transaction that significantly improves the former’s liquidity.
The transaction, first announced by ARM on Wednesday, will see the company hedge about 18-million of its shares in Harmony. Both companies are chaired by Motsepe. ARM owns about 12% of Harmony — with the latter worth R163bn on the JSE. ARM is worth about R38.5bn.
“Shareholders are advised that ARM has entered into a hedging collar transaction over 18-million ordinary shares of ARM’s equity in Harmony, representing 24% of ARM’s equity in Harmony (‘the collar’) and 2.84% of the issued share capital in Harmony,” ARM said in a statement.
“The collar and related arrangements provide ARM with access to funding in the future on efficient terms, if and when required, for its strategic objectives, while allowing ARM to retain further upside exposure to the Harmony share price, up to the call option strike price. ARM retains full exposure to the residual Harmony shares held by it that are not subject to the Collar.”
A collar agreement is a type of option contract that limits the potential loss of an investment while also limiting its potential gains.
The agreement has two legs. The first will see the purchase of European put option with a strike price of R234.85 per share, with the total notional value of the put option of R4.2bn.
The second leg will be the sale of European call option with a strike price of R562.40 per share, with the total notional value of the call option of R10bn.
ARM mines and beneficiates iron ore, manganese ore, chrome ore, platinum group metals (PGMs), nickel and coal. It also produces manganese alloys, while its exposure to gold is through its investment in Harmony.
The transaction comes at a time when the price of gold is on a record high, with the World Bank expecting it to remain above the $3,000 well into 2026.
The surge in the price of gold has seen Harmony shares surge on the JSE — with its stock up nearly 70% since January.
Harmony noted that ARM still sees it as a strategic investment. “The announcement [by ARM] also stated that ARM remains fully committed to Harmony as a strategic investment and remains confident in Harmony and its management’s ability to drive growth and value for its shareholders,” Harmony said.
Harmony, one of SA’s largest gold mining houses, is under new leadership in the form of CEO Beyers Nel.
He took over the reins at Harmony in January from Peter Steenkamp, who retired at end-December after nine years in the role.
Nel has been with Harmony since 2003 and held various positions, rising to the role of group COO in January 2023.
Robbie Proctor, resource analyst at Anchor Capital, said ARM was leveraging on record gold prices and the group’s close ties to Harmony.
“The collar structure matures in June 2030. ARM’s stake in Harmony currently represents close to half of their market cap. So it is opportunistic to essentially lock in some of the gains without selling the shares plus retaining upside to the call strike price at R562 a share. In my opinion, it does raise the prospects of a M&A,” Proctor said.
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