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Harmony Monitors Barrick-Newmont Talks for Gold Spinoffs

Harmony Gold Mining Co., South Africa’s third-largest producer of the metal, said it’s monitoring a potential merger between Barrick Gold Corp. and Newmont Mining Corp. for opportunities to buy discarded assets.

“Look at the situation in North America where two big guys are talking about getting together with possible spinoffs,” Chief Executive Officer Graham Briggs said today on a conference call. “We see this as maybe a potential opportunity in the gold space.”

Barrick, the world’s biggest gold producer, discussed buying Newmont, the second-largest, last month before both companies said April 28 talks were terminated and exchanged a series of statements accusing each other of scuppering the deal. Barrick is working on plans for a range of market scenarios including trimming, closing or expanding certain operations.

While Harmony would examine potential deals in gold, it won’t follow South African rival Sibanye Gold Ltd.’s plans to bid for platinum assets following a strike in the country that has crippled production for 15 weeks. Anglo American Platinum Ltd., the biggest producer of the metal, has said it will restructure its South African operations after the strike.

“It’s going to be hard yards to get those mines back into production and producing profits so they can pay dividends,” Briggs said. “We’re not in that bidding process of trying to acquire platinum mines.”

Profit Return

Harmony swung to a profit in the third quarter as an increase in higher-quality ore and the bullion price countered lower production that followed accidents and floods. The stock climbed 2 percent to 36.32 rand at 3:16 p.m. in Johannesburg, the highest intraday level since March 24.

Earnings excluding one-time items were $5 million in the three months ended March 31, compared with a $9 million loss in the previous quarter, the Randfontein, South Africa-based company said today in a statement. The average gold price received rose 1 percent to $1,294 an ounce. The grade of underground recovered ore increased for a third straight quarter, climbing 5 percent to 5.1 grams (0.1 ounce) a ton.

Harmony is scaling back its spend on building the Wafi-Golpu mine it joint owns with Newmont in Papua New Guinea. It will require “substantially lower capital because it will be a substantially smaller operation but substantially better in its financial returns,” Briggs said.

Union Issues

A stoppage following a fire that killed nine workers at Harmony’s Doornkop mine, flooding at its Joel operation and slower turnaround at Kusasalethu caused output to fall 12 percent to 269,035 ounces in the period, the producer said.

The company has conducted an independent review into the incident at Doornkop and is awaiting an inquiry by the Department of Mineral and Natural Resources to begin.

Harmony’s all-in sustaining costs rose 7 percent to 426,221 rand ($40,466) a kilogram (2.2 pounds) and were flat in dollar terms.

The Association of Mineworkers and Construction Union, on strike for a 15th week at most South African platinum mines owned by the world’s three biggest producers of the metal, also wants to halt work at gold operations, including Harmony’s Kusasalethu, over pay.

The union is taking a case to the country’s constitutional court after losing arguments at lower hearings. The AMCU has argued that it should be allowed to strike at individual mines where it is the majority labor group even if it isn’t the biggest union at the companies who own them.

If the AMCU wins, “then people would be allowed to strike for any reason and therefore the whole situation of legal and illegal strike will probably disappear,” Briggs said. “It’s going to be a challenge not only for the labor court but the minister of labor.”

In South Africa, workers can’t be fired for striking if a stoppage is declared legal. They don’t get paid when on strike.

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