| Tue 9 Nov 2004, 16:09 | | The Harmony Way? |
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Gold Fields - The Harmony Way? Are there Irregularities in Harmony`s Reserves
and Resource Declarations?
Gold Fields Limited
Registration number: 1968/004880/06
ISIN: ZAE000018123 JSE Code: GFI
(`Gold Fields` or the `company`)
THE HARMONY WAY?
Are there Irregularities in Harmony`s Reserves and Resource Declarations?
The quantity of reserves that any resources or mining company has is the single
most important measure the market has of valuing such a company. Therefore, mis
statements in, or manipulation of, reserve statements are generally viewed in a
very serious light by regulators and shareholders alike. A case in point is
Royal Dutch/Shell which, in recent months, restated its reserves downward
significantly. This downward revision has resulted in fines in excess of US$150
million on Royal Dutch/Shell and the punishing of the company`s share price.
Every ounce of reserves published by Gold Fields is supported by an independent
audit opinion. The same cannot be said of Harmony. It is for these reasons that
we believe that both Gold Fields and Harmony shareholders are owed an
explanation about the material discrepancies in Harmony`s published reserve
numbers. Harmony indicated that they will publish an updated reserve statement
by December. However, given that Harmony`s first stage offer expires on 26
November, this is too late for Gold Fields shareholders who cannot be expected
to make an informed decision on the Harmony offer while discrepancies of this
nature remain unexplained.
In its Annual Reports for 2003 and 2004, Harmony claims to have 62 million
ounces of reserves. Neither of these declarations are supported by an
independent audit opinion.
On 23 March 2004, three months before the date of the 2004 Annual Report,
Steffen, Robertson and Kirsten (SRK) issued `An Independent Person`s Report On
Certain Mining Assets Of Avgold And Harmony Gold Mining Limited` in which it was
stated that the combined Avgold/Harmony proven and probable reserves were 39
million ounces. This report is included in the offering circular sent to Gold
Fields shareholders in South Africa. Also included in the offering circular is a
`Report On Significant Changes To The Operations Since The Publication Of The
Independent Persons Report` referred to above.
On Page 2 of the Report On Significant Changes it is stated that: `As at 30 June
2004, Harmony`s mining operations reported total proven and probable reserves of
approximately 62 million ounces,` in contrast to the 39 million ounces reported
in the SRK report of 23 March 2004. The only explanation for this increase is
given on page 7 of the same report, where it is stated that the reserve position
at the Hidden Valley project in Papau New Guinea is 2 million ounces.
How is it possible for SRK`s Independent Person`s Report on 23 March to
identify only 39 million ounces of reserves, and for Harmony, on 30 June, to
restate (unaudited) their reserves to 62 million ounces without any reasonable
explanation? Where does the additional 23 million ounces come from?
On 4 November 2004 Harmony`s marketing director, Ferdi Dippenaar, was quoted in
the Financial Times responding as follows to the questions raised in this
regard by Gold Fields in its formal response document to the offer: `Harmony`s
reserve figures had been affected by a number of large acquisitions, and had
been audited by industry consultants.`
The truth is, Harmony did not make any large acquisitions between 23 March 2004
and 30 July 2004 and Harmony`s reserve statement of 62 million ounces included
in their 2004 Annual Report and the circular to Gold Fields` South African
shareholders was not audited by industry consultants.
The Evander Reserve Statements Illustrate the Point
To illustrate some of the lack of clarity relating to Harmony`s proven and
probable reserve position it is instructive to take a closer look at the stated
proven and probable reserve position for Evander.
In examining the Evander declarations Harmony presents varying proven and
probable reserve declaration numbers, making it difficult to determine the
proven and probable reserve position at this mine. The table below reflects the
declarations for Evander made by Harmony since June 2003:
Date Reserves Gold
(Moz) price
(R/kg)
F2003 annual report June 2003 15.9 93,000
F2003 20-F filing June 2003 15.9 93,000
Avgold/Harmony Competent April 2004 9.0 93,000
Persons Report (CPR)
Avgold/Harmony CPR - April 2004 9.8 93,000
Life of Mine figures
Avgold/Harmony CPR - April 2004 3.5 93,000
Technical Economic Model
F2004 annual report June 2004 15.8 92,000
F2004 20-F filing June 2004 15.8 92,000
In its 2003 Annual Report Harmony stated that Evander had 15.9 million ounces of
reserves, calculated at a gold price of R93,000 per kilogram. This number
appears to include the marginal Rolspruit and Poplar projects. In the same
Annual Report it is stated that the Rolspruit and Poplar projects need a gold
price of more than R100,000 per kilogram before the viability of these projects
could be revisited. Is it correct for the Rolspruit and Poplar projects to be
included in the reserve numbers for Evander in either of the 2003 or 2004
declarations?
To further cloud the issue:
In the Avgold/Harmony CPR published in March 2004, the reserve number for
Evander is 9 million ounces calculated using a gold price of R93,000 per
kilogram. It is also stated that the Rolspruit project is included in the
probable category of reserves (26 million tons at a grade of 7.9 grams per ton
which equates to 6.6 million ounces of gold) and that this project requires
capital expenditure of some R5.2 billion. If, based on the CPR declarations, one
excludes Rolspruit from the Evander reserves, as one would expect, the Evander
reserve position reduces from 9.0 million ounces to 2.4 million ounces of gold.
On the basis that Harmony`s reserves for both the 2003 Annual Report and CPR
were calculated at gold prices of R93,000 per kilogram, and both the Rolspruit
and Poplar projects require a price of at least R100,000 per kilogram before its
viability can be reconsidered, shareholders may be asking whether it is
appropriate for these projects to be included in Evander`s reserve declarations.
Harmony should be clear and explain the real Evander reserve position.
Issued By Gold Fields Limited
9 November 2004
Enquiries: Willie Jacobsz
Tel: +27 11 644-2460
Joint Financial Advisors to Gold Fields Sponsor to Gold Fields
Goldman Sachs International JPMorgan
JPMorgan
Corporate law advisors and consultants
to Gold Fields
Edward Nathan & Friedland (Pty) Limited
Corporate Law Advisors and Consultants
(Registration number 1999/026464/21)
In the United States, Gold Fields Limited (`Gold Fields`) has filed a
Solicitation/Recommendation Statement with the US Securities and Exchange
Commission (the `SEC`) on Schedule 14D-9 and holders of the Gold Fields Ordinary
Shares and American Depositary Shares are advised to read it as it contains
important information. Copies of the Schedule 14D-9 and other related documents
filed by Gold Fields are available free of charge on the SEC`s website at
http://www.sec.gov. Any documents filed by Harmony Gold Mining Company Limited,
including any registration statement on Form F-4 (including any prospectus
contained therein) and related exchange offer materials as well as its Tender
Offer Statement on Schedule TO, will also be available free of charge on the
SEC`s website.
Information included in this document relating to Harmony and its business has
been derived solely from publicly available sources. While Gold Fields has
included information in this document regarding Harmony that is known to Gold
Fields based on publicly available information, Gold Fields has not had access
to non-public information regarding Harmony and could not use such information
for the purpose of preparing this document. Although Gold Fields is not aware of
anything that would indicate that statements relating to Harmony contained in
this document are inaccurate or incomplete, Gold Fields is not in a position to
verify information concerning Harmony. Gold Fields and its directors and
officers are not aware of any errors in such information. Subject to the
foregoing and to the maximum extent permitted by law, Gold Fields and its
directors and officers disclaim all liability for information concerning Harmony
included in this document.
The directors of Gold Fields accept responsibility for the information contained
in this document. To the best of their knowledge and belief (having taken all
reasonable care to ensure that such is the case) the information contained in
this document is in accordance with the facts and does not omit anything likely
to affect the import of such information.
Copies of this document are not being made available, and must not be mailed,
forwarded, transmitted or otherwise distributed or sent in or into Australia,
Canada, Japan, the Republic of Ireland or any other jurisdiction in which it is
illegal to make the offer and persons receiving this document (including
custodians, nominees and trustees) must not distribute, forward, mail, transmit
or send it in or into or from Australia, Canada, Japan, the Republic of Ireland
or any such other jurisdiction.
