business

Harmony Gold Stakes a Bold Claim

The upstart miner has won a huge round in its hostile takeover bid for Gold Fields. It's not money in the bank yet, though

By Steve Rosenbush

Harmony Gold Mining is just six years old, a newcomer in an industry dominated by 100-year-old companies and long-standing family fortunes. But the South African upstart, led by 43-year-old founder Bernard Swanepoel, may soon emerge as the new leader of the international gold mining industry.

The key to the strategy is Harmony's (HMY ) plan to acquire the older and larger Gold Fields (GFI ), an icon in the South African mining world. The combined company would be the largest gold miner in the world, displacing Newmont (NEM ), which is based in Colorado.

The hostile takeover cleared its most challenging obstacle to date on Dec. 7, when Gold Fields investors rejected a plan for Gold Fields to acquire Canada's Iamgold (IAG ) for $2.9 billion. Harmony had made it clear that it would have dropped the bid for Gold Fields had its target proceeded with an Iamgold acquisition.

FACE TIME.

  The vote followed weeks of intensive, behind-the-scenes maneuvering by Swanepoel and Harmony's No. 2 executive, 43-year-old Chief Marketing Officer Ferdi Dippenaar to persuade shareholders to vote against the recommendation of Gold Field management.

Getting investors to go against what the company wants is a tricky business, made even more challenging in this situation by a court ruling that said Harmony's shares in Gold Fields had to be excluded from the vote to avoid a conflict of interest. "Let's say we spent a hell of a lot of time talking to Gold Fields shareholders," Dippenaar says.

The fight has aroused intense passions: Gold Fields has vowed to keep battling the takeover, and Harmony has made it clear that it will cut costs and sweep aside existing management if it's successful in acquiring the company.

SWASHBUCKLING.

  "They will never get the rest of Gold Fields," Gold Fields CEO Ian Cockerill told reporters after the vote, according to Bloomberg News. Some speculate that Gold Fields could auction itself in pieces or bring a friendly acquiring partner into the picture.

Yet Harmony has plenty of fight left in it. It told BusinessWeek Online that it might be prepared to raise the value of its bid at some point in the future. The stock-based offer was originally valued at more than $8 billion. "We're not going to do that at the moment, obviously. But to get control of the company, we might have to. Let's see what happens," Dippenaar says.

Later on, if Harmony gets control of Gold Fields, it might even make a separate bid of its own for Iamgold. "It's not either/or. We can always take Iamgold, but not now," Dippenaar says. That confidence is characteristic of the company, which is bold even by the standards of the swashbuckling mining industry.

GOLDEN MEAN.

  Harmony has grown quickly, thanks to an aggressive acquisition strategy. It now boasts $1.2 billion in annual revenue, after making 17 prior mine acquisitions. But the real secret of its success is known as the Harmony Way, a combination of lean operations and a flatter hierarchy that gives local workers and managers the ability to make decisions on their own.

Harmony has no middle managers. The heads of local mining operations report directly to the CEO and his staff. The company reported a profit of $70 million in 2003, although it lost $75 million in fiscal 2004, mostly due to rising financial charges and higher depreciation costs. Harmony says it can apply its methods to Gold Fields, eliminating $2.8 billion in costs.

Harmony also draws strength from the background of its chief executive, Swanepoel, a former miner himself who grew up in the industry. He was appalled by the mining world's strict hierarchy, which put British managers at the top, Afrikaans technical staff in the middle, and black workers at the bottom rung. Swanepoel says he's committed to overturning that structure, which protected established interests and inefficient business practices.

If he gets his way, the mining world could have a new pecking order. But this promises to be a tough fight before it ends.

Rosenbush is a senior writer for BusinessWeek Online in New York

Edited by Beth Belton

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