‘Check out the new Harmony uranium venture. It’s looking interesting…’ My ears pricked up. It is the most positive thing I have heard from any of my contacts in South Africa for a good few months. As I told Erin, it could not be more up-to-the minute, having both uranium and gold!

A year ago the Miner Diaries noted that uranium was the unexploited opportunity for South Africa’s gold stocks. It is a by-product of the gold mining process, and the price has been rising, so it could solve mounting cash costs. And it is the raw material for increasingly popular nuclear power. Bingo!

The big South African gold miners have been pretty slow to decide the best way to harness this potential. In fact, before Bernard Swanepoel, (Harmony’s last CEO), jumped ship he admitted that Harmony had been sitting on its uranium potential for five years! At one point, Harmony had even considered selling its uranium assets. Fortunately, that was not to be.

Anyway, after mulling for years over how best to exploit this opportunity, the process is over. Last month, Harmony decided to put 40% of its energy – pardon the pun – into a new company.

This is a strategy that mirrors that of Simmer & Jack Mines. It owns 63% of First Uranium. There is also interest from international companies – Australian-listed Mintails wants a slice of South Africa’s yellowcake. And, unsurprisingly, majors Goldfields and AngloGold Ashanti are also considering how to get the best value out of their uranium assets.

The race is on to dominate this new battlefield.

And there is gold here too

Though initially this baby was just referred to as “newco”, Harmony’s new JV now has a name. The guys have kept it simple. Led by John Munro, former VP and head of corporate development at Goldfields, “newco” has been registered as “Rand Uranium”. Logical! After all, the core assets are at Harmony’s Randfontein site, south of Krugersdorp which is West of Joburg.

The remaining 60% in “Rand Uranium” will be held by Pamodzi Resources Fund. This is backed by private equity investors, First Reserve and also AMCI Capital. The t ransaction is said to be worth $420m.

So, unsurprisingly, Harmony is being energetic about the project. In fact, CEO Graham Briggs has been quite clear that he intends to retain that 40% holding even if that means investing more to avoid dilution of its shareholding.

Gold companies in South Africa need all the help they can get. Using Rand Uranium as a platform for growth seems a step in the right direction. The plan is to maximise returns from its uranium assets while not breaking the bank.

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Drilling has already taken place and the reserves fall into the more reliable ‘measured and indicated’ categories. That is a grade of 0.215kg of U308 per tonne of excavated material, versus 0.05 to 0.07kg/tonne at other dumps around South African’s West Rand. By the way, U308 is ‘yellowcake’ – the impure mix of uranium oxides which are obtained while processing uranium ore. It is used to prepare fuel for nuclear reactors.

In addition to those reserves, there is said to be some underground resource which will yield more uranium and possibly gold. Let’s not rush, though. The project is still in the pre-feasibility stage, so any profit or resource projections would be premature.

The measure of the man

Forty-year old Mr Munro has a degree in chemical engineering from the University of Cape Town. Working at Goldfields since 1991, he has worked his way up the ladder to the top. Soon that seemed a bit run of the mill. He wanted to be closer to some real action with visible pay-offs. The energy sector offers that.

Another key attraction was the “private equity angle”. Spared the disciplines of stock market reporting the company can take a softly, softly approach. Absent are the pressures of quarterly reporting.

Before taking the job he spent two months assessing Cooke’s viability. He is pretty confident! Some estimates value Cooke’s resource at US$40/tonne. Gold accounts for $6-7/tonne of that, and uranium for $33/tonne. Very nice! And Munro is confident that whichever way you look it, the margins are “significant”.

And also desirable! First Uranium and Russia’s Renova apparently also tried to bid for Harmony’s assets.

Timing is everything

As an unlisted company with no share price to assess performance, what should Harmony want to see from its new venture? The immediate plan is to bring the existing assets to production. Uranium production will come first, followed by gold.

There are two critical periods ahead. The first is to complete the feasibility study – that should happen by the end of 2008. Then developing production will take a minimum of two years after that.

Once in production, Rand Uranium could qualify as the world’s tenth biggest uranium producer. And in three years time the plan is to list.

Right now the sale may help Harmony to pay down some of its ZAR4bn debt! And it should certainly mean big profits when the company reports in June. (Admittedly an exceptional profit, which won’t affect headline earnings.)

Still, Pamodzi could just be the energy boost Harmony is after.

Keep mining,

Erin and Isabel