JSE-listed Harmony Gold Mining Company has entered into a binding agreement to acquire 100% ownership of MAC Copper for a total equity value of $1.03-billion, or $12.15 apiece.

Harmony announced on May 27 that its subsidiary in Australia will undertake the R18.4-billion acquisition.

MAC Copper, which is registered in Jersey and listed on the NYSE, has a 100% interest in the CSA copper mine in the Cobar region of New South Wales, Australia. The site is located about 700 km west-northwest of Sydney.

Harmony CEO Beyers Nel says the acquisition of MAC and thereby the CSA copper mine introduces a high-quality and established underground copper-producing asset to the group’s portfolio.

CSA produced 41 000 t of copper in concentrate last year and is one of the highest-grade copper mines in Australia. The mine also has a C1 cash cost of $1.93/lb and an all-in sustaining cost of $2.92/lb, which underpin an operating free cash flow margin of 36%.

The mine currently has a reserve life of 12 years, but higher grades have been intercepted with ongoing drilling.

MAC is also developing the nearby Merrin mine, located north of CSA, to produce first copper and zinc ore before the end of the year.

“The operation is a logical fit with the portfolio given it meets Harmony’s core investment criteria, including increasing free cash flow generation while improving margins at long-term expected commodity prices.

“We believe that Harmony is well positioned to leverage its expertise in underground mining to further enhance operations,” Nel states.

Moreover,  the transaction represents a significant step forward in transforming Harmony into a more derisked, higher-quality, global gold and copper producer through disciplined and effective capital allocation.

MAC's board says the transaction is in the best interest of its shareholders.

"The board believes the transaction provides MAC shareholders with a compelling opportunity to derisk their investment and realise an attractive cash value of $12.25 per MAC share, which is also a premium to MAC’s recent historical trading levels. 

"Additionally, the scheme is subject to limited conditionality, which provides MAC shareholders with a high degree of transaction certainty. The transaction also presents a great outcome for other stakeholders in the CSA copper mine, who will benefit from the stewardship of a well-respected and high-quality operator in Harmony, who is looking to build a copper business in Australia through the acquisition of MAC and the development of its Eva copper project, in Queensland," comments MAC CEO Mick McMullen.

He adds that the MAC board is confident that Harmony will deliver positive outcomes not only at the mine, but also for the wider Cobar community.

The deal remains subject to MAC’s shareholders approving the scheme, which will be garnered during a meeting in the December quarter.  The deal needs to be approved by a majority in number of MAC shareholders representing at least 75% of the voting shares of the group.

The transaction will also be subject to regulatory approvals in South Africa and Australia. Owing to the proposed transaction not being subject to any financing or due diligence conditions, Harmony shareholder approval is not required.

Harmony has successfully acquired and integrated a number of quality operations and projects in recent years, including the Hidden Valley gold and silver project in Papua New Guinea in 2016, the Moab Khotsong gold and uranium project in 2018, the Mponeng gold and Mine Waste Solutions operations in 2020, as well as the Eva copper project, in Australia, in 2022.

Together with the Eva project in Australia, Harmony is poised to become a 100 000 t/y copper producer in the country within the next five years.

DEAL TERMS
The $12.15-per-MAC-share offer price implies a fully diluted equity value for MAC of $1.03-billion.

The transaction will be implemented pursuant to a scheme of arrangement under Jersey law, according to an implementation deed having been entered into between Harmony, its Australian subsidiary and MAC.

The MAC board has recommended that shareholders vote in favour of the scheme in the absence of a superior offer. Each of MAC’s directors, who together hold 2.4% of MAC’s issued shares, have indicated their intention to vote in favour of the deal.

Other shareholders, including Fourth Sail Group, Osisko Bermuda, Sprott Resource Lending II and Victor Smorgon Group, have also indicated their support for the proposed transaction.

Harmony intends to fund the transaction with a $1.25-billion bridge facility together with existing cash reserves. The bridge facility is underwritten by Citibank in London, Citibank in Jersey, JP Morgan Securities, JP Morgan Chase Bank and Macquarie Bank.

Harmony had a record net cash position of $592-million, or R10-billion, as at March 31 and available cash and undrawn facilities of $1.1-billion, or R20-billion. In turn, MAC reported cash and cash equivalents of $75-million and total net debt of $150-million on March 31.

Nel confirms that Harmony has various alternative re-financing options available and that it will, in due course, refinance the bridge facility with the more competitive and value-enhancing terms.

Should the deal proceed, Harmony will assume the obligations of offtake agreements previously entered into between MAC and Osisko and Glencore.

The Osisko agreements relate to 100% of the payable silver production and between 2.25% and 4.8% of the total refined copper produced from CSA.

In respect of Glencore, Glencore’s Australian operations is entitled to a 1.5% net smelter return royalty over the life of the CSA mine. Another sale and purchase agreement between MAC and Glencore relates to $150-million of contingent payments, including a one-off $75-million payment in the event that the copper price averages more than $4.25/lb for 18 consecutive months at any stage during the CSA mine life.

Harmony ultimately expects the transaction to be completed in the December quarter, with MAC to become a wholly-owned subsidiary of Harmony.