Harmony Gold Mining Co. Ltd. · JSE:HAR
Harmony Gold Mining — Gold Fields — Merger or Acquisition (November 2004)
31 slides from Harmony Gold Mining's merger presentation, Nov 10, 2004
Slide 1: Harmony's cost per tonne at Evander lower than under Gold Fields
On average over the 5 years post-acquisition, Harmony’s cost per tonne (in June 2004 terms) at Evander was 23% lower than under Gold Fields, and remains at a lower level now than at acquisition Harmony has increased development at Evander to 36km per annum, compared to 18km prior to acquisition. Dev
Slide 2: Considerable scope for improvement in Gold Fields' South African operating costs
There is considerable scope to generate significant improvements in Gold Fields’ South African operating costs Harmony’s cost savings will flow into shareholder value Based upon Gold Fields’ South African operating cost for 2004 of R6.7 billion, a 15% cost reduction equates to R1 billion per annum,
Slide 3: Market value per share of projected cost savings
The market value per share of the projected cost savings attributable to Gold Fields shareholders and shareholders in the enlarged Harmony group is shown below
Slide 4: Harmony's proposed merger creates significant value
Harmony’s proposed merger creates significant value Harmony’s proposed merger will create shareholder value Harmony believes that Gold Fields’ presentation of the financial impact of the proposed merger is misleading since it does not assess any value creation from Harmony’s proposal in terms of pro
Slide 5: Harmony is a more cost efficient underground operator than Gold Fields
Harmony is a more cost efficient underground operator than Gold Fields Harmony’s operating cost performance in South Africa has consistently been superior to Gold Fields’ Over the past 3 years, Gold Fields’ South African underground Rand per kg cost has risen by over 33% In the last quarter, despite
Slide 6: Harmony's cost targets versus Gold Fields' progress
Harmony is confident that its focus on addressing the working cost structure of its operations, including successful implementation of CONOPS, is delivering results and that it is on track to achieve its cost targets of R77,000 per kg by December 2004 and R75,000 per kg by June 2005 In contrast, des
Slide 7: What has Gold Fields' management achieved with its capital expenditure?
Harmony believes that an analysis of Gold Fields’ reserve statement indicates that this level of contribution to profits is unsustainable Harmony is a more cost efficient underground operator than Gold Fields What has Gold Fields’ management achieved with its capital expenditure? They say We say • “
Slide 8: Gold Fields' management has little to show for its major capital outlays
Gold Fields has spent significant levels of capital expenditure in South Africa in the past four years, but has achieved little in terms of: increasing production reducing operating costs increasing reserves Gold Fields’ management has little to show for its major capital outlays Despite high levels
Slide 9: Gold Fields' reef development has decreased by 29%
Over the past year, Gold Fields’ reef development has decreased by 29% Gold Fields has reduced the replacement rate of developed reserves Harmony has maintained or increased its reserve replacement
Slide 10: High capex has not increased production
Gold Fields’ management has little to show for its major capital outlays Despite high levels of capital expenditure, Gold Fields’ South African production has fallen, whilst operating costs have increased Gold Fields’ high capex spend has not increased production Gold Fields’ South African undergrou
Slide 11: High capex spend has not reduced production costs
Gold Fields’ high capex spend has not reduced production costs (even in R/kg terms) relative to Harmony
Slide 12: Despite high capex, Gold Fields' reserves have fallen
Gold Fields’ management has little to show for its major capital outlays Despite high levels of capital expenditure, Gold Fields’ reserves have fallen Despite the significant level of capital expenditure, the level of Gold Fields’ South African reserve base has fallen by approximately 16% since 1999
Slide 13: Gold Fields' reserve grade has followed the gold price
In addition, Gold Fields’ reserve grade has closely followed the prevailing gold price, whilst Harmony has continued to improve its reserve grade over time Gold Fields’ under-developed ore bodies need the gold price to rise in order to sustain grades and tonnes
Slide 14: How does Gold Fields' cost structure impact economic reserves?
Shareholders will reap the rewards of their assets in the hands of the premier South African operator How does Gold Fields’ cost structure impact their economic reserves? They say We say • Over the past five years we have invested, in terms of capital investment, R4.8 billion, essentially in the dev
Slide 15: Gold Fields' South African reserves sensitive to Rand gold price
Gold Fields’ South African reserves are highly sensitive to changes in the Rand gold price How do Harmony’s cost savings impact Gold Fields’ reserves?
Slide 16: Reserves upside under Harmony's management
Gold Fields’ reserves would have significant upside potential under Harmony’s management, who estimate that Harmony’s 15% cost savings would have the same effect on reserves as a 15% increase in the Rand gold price to R103,500 per kg from R90,000 per kg the effect of this would be to increase Gold F
Slide 17: Gold Fields' cash flow from operating activities
Gold Fields’ cash flow from operating activities, Dec 2002 —- Sept 2004 1,500 1,000 Rand (millions) ° -500 71,000 bee Mar June Sopt Dee Mae June Sent zoe = mods} 20000320200 — cash ow fom operating actives Capex —— Cash ow trom operating activities ess capex ‘Source: Gold Fields annual and quarter r
Slide 18: Gold Fields' cash flow indicates a negative trend
Gold Fields’ cash flow indicates a significantly negative trend Gold Fields is painting a misleading picture of Harmony’s balance sheet Harmony operations are no longer absorbing cash: investment over the last few quarters has been maintained to reposition the mines for the strong Rand environment n
Slide 19: Harmony's proposed merger is more than equitable to Gold Fields' shareholders
Harmony’s superior organic growth and upside justifies a higher current rating than Gold Fields’ Furthermore, Gold Fields’ shareholders will avoid the value leakage from the proposed IAMGold transaction Harmony’s proposed merger is more than equitable to Gold Fields’ shareholders Where has Gold Fiel
Slide 20: Capex spent on international asset portfolio
Since late 2003, the vast majority of Gold Fields’ capex has been spent on its international asset portfolio which Gold Fields proposes to sell to IAMGold
Slide 21: Best performing assets are being sold cheaply to IAMGold
The most impressive performing Gold Fields assets are those that are being sold on the cheap to IAMGold Where has Gold Fields’ performance been impressive? Whilst Gold Fields’ South African profit contribution was high from December 2001 to March 2003, its international asset portfolio now accounts
Slide 22: South African reserves fell while international reserves grew
Over the past six years, Gold Fields’ South African reserve base has fallen by approximately 16% while its international reserves have grown by over 700%
Slide 23: Gold Fields' defence of the IAMGold sale is flawed
The most impressive performing Gold Fields assets are those that are being sold on the cheap to IAMGold Gold Fields proposes selling its international assets at a significant undervaluation and its defence is deeply flawed They say We say • “Our shareholders largely feel that the IAMGold transaction
Slide 24: Observation and Harmony's commentary on share prices
Observation Harmony’s Commentary • In the two months following the announcement of the proposed IAMGold transaction, Gold Fields traded in line with Harmony • The uplift observed in the Gold Fields share price from 10 August 2004 to 9 October 2004 was due to sector issues rather than the proposed IA
Slide 25: IAMGold share price needed for Gold Fields shareholders to break even
(1) As disclosed by Gold Fields (2) “See through” calculation based on the proposed 351,690,218 shares to be issued to Gold Fields as per announcement of the transaction multiplied by the C$ price of the IAMGold share on the date, net of the C$0.50 dividend attributed to IAMGold shareholders and con
Slide 26: NUM rejects the proposed IAMGold transaction
Harmony’s proposed merger creates significant value NUM rejects the proposed IAMGold transaction The National Union of Mineworkers (NUM) has made clear its position regarding the proposed IAMGold transaction: “We are very clear about the IAMGold deal. We hate South African companies that want to be
Slide 27: A full and fair, upfront premium
…a full and fair, upfront premium Harmony offers... The premium offered compares favourably to premia paid in the South African market... Harmony offers Gold Fields shareholders a premium greater than the average for public offers in South Africa between 2001 and 2003
Slide 28: Premium compared with offers in the rest of the world
…and in the rest of the world Harmony offers Gold Fields shareholders a premium greater than that paid on unsolicited all share offers in the Rest of the World since January 2001
Slide 29: Premium to trading multiples of comparable gold companies
…a full and fair, upfront premium Harmony offers... Harmony offers Gold Fields shareholders a premium to the trading multiples of comparable gold companies
Slide 30: Premium to multiples paid on recent comparable transactions
Harmony offers Gold Fields shareholders a premium to multiples paid on recent comparable transactions
Slide 31: JPMorgan believes in the value of Harmony's share price
…a full and fair, upfront premium JPMorgan believes in the value of the Harmony share price and Harmony’s operating superiority JPMorgan has supported Harmony in relation to a whole series of transactions for many years, most recently acting as the Lead Manager on the issue of R1.7 billion worth of