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Gold Fields, AngloGold merger 'unlikely' Posted: Thu, 28 Sep 2006 [miningmx.com] -- IN typically dry fashion, Bernard van Rooyen, Gold Fields’ non-executive director, quipped that one of the reasons AngloGold Ashanti hadn’t strongly competed for control of the South Deep mine – which Gold Fields bought earlier this month for about $2.5bn - was because it would probably prefer to buy Gold Fields instead. Van Rooyen, who is one of Mvelaphanda Resources’ representatives on the Gold Fields board, has seen a thing or two in his time. But his joke about the merger of South Africa’s gold giants is as amusing as it’s unlikely. Even in these days of near manic gold industry consolidation, the creation of an 11 million oz/year AngloGold Ashanti/Gold Fields combo would make little practical sense, analysts say. In a report dated September 13, JP Morgan’s Steve Shepherd argues never the twain should meet. “To us, such a combination would be a recipe for shareholder value destruction on a potentially grand scale. It would likely give birth to a company that would be, instantaneously, ex-growth. “Such a monster would, in our view, present a huge management challenge, which more than likely would lead to a deteriorating mine operating performances.” Putting together bigger and bigger companies is nonetheless popular globally. The mining industry has recorded $100bn in transactions this year, according to Bloomberg News. AngloGold Ashanti, which was vying for first place with annual production of about 6 million oz/year in 2004, is now relegated third or fourth on a production basis. On a market value basis, AngloGold Ashanti has been eclipsed by companies with smaller production, such as the $8.7bn merger of Goldcorp and Glamis Gold. This puts comments by Bobby Godsell, AngloGold Ashanti CEO, in Vancouver in May 2004 into a different perspective. At the time, Godsell said consolidation involving his company was now probably over. But the acceleration of marriages among his firm’s peers, and Anglo American’s interest in divesting itself of its remaining AngloGold Ashanti’s shares may have tilted Godsell’s world. Consolidation can end up making no sense at all, particularly for AngloGold Ashanti which might have to supplement is more lowly valued paper (compared to North American peers) with cash in a takeover deal. But in the event unexpected conditions force Godsell’s hand, it’s unlikely Gold Fields will become involved. Commenting on an AngloGold Ashanti/Gold Fields combination, Brenton Saunders, a fund manager for Craton Capital says: “The biggest hurdles are the personalities (Godsell and Ian Cockerill, Gold Fields CEO). Strategy, and hedging would also come into it” he says. Saunders can’t dismiss the possibility, but thinks it less likely than AngloGold Ashanti turning its attention to mid-cap targets offshore. Newcrest, an Australian gold producer, is a possible option. “I can’t personally see Gold Fields having the appetite for a massive deal with AngloGold,” says Wayne McCurrie, deputy MD of ADvantage Asset Management. “They’ve got so much on their plate.” Gold industry consolidation of the order of a Gold Fields/AngloGold Ashanti tie-up only makes sense when assets and infrastructure can be economically joined. There’s general support of Gold Fields’ bid for South Deep because it can use a shaft at its Kloof mine to accelerate production from South Deep quicker than previous owner, Barrick Gold. In the main, however, consolidation runs the risk of diluting management attention. Resource replacement becomes difficult, and quite often the driving force behind consolidation is short-term with no asset level synergy. There is, however, increased interest in asset consolidation and cooperation, especially in South Africa’s mature gold industry. “To us, value can be created through cooperation between these two mining giants, rather than marriage. And we have seen this happen in the past, on a small scale,” says JP Morgan’s Shepherd. One possibility would be to combine AngloGold Ashanti’s West Wits mining division, which includes the Tau Tona, Mponeng and Savuka gold mines, with the contiguous Driefontein owned by Gold Fields. Cross-border cooperation between miners has been ordinary business in the platinum sector for several years ever since Aquarius Platinum signed so-called ‘pool and share’ agreements with Impala and Anglo Platinum from 1999 to 2005. The arrangement is to simply pool metal reserves and share in the exploitation of them.Free news alerts: click here to subscribe
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