Paulson may up Gold Fields stake

Allan Seccombe | Wed, 01 Jul 2009 17:46
[miningmx.com] -- PAULSON & CO, a US hedge fund, may want to buy the remaining stake in Gold Fields owned by South Africa’s Mvelaphanda Resources (Mvela).

Paulson & Co, which hit the headlines in March this year when it spent $1.28bn buying Anglo American’s 11.3% stake in AngloGold Ashanti, is snapping up shares in gold firms and buying large amounts of physical gold in the form of exchange-traded funds.

Paulson & Co already owns a three percent stake in Gold Fields. It is not entirely clear if this stake was acquired when Mvela sold a tranche of 11 million shares in South Africa’s second-biggest gold group at the end of March to ease its debt burden.

Mvela took ownership of 50 million Gold Fields shares – or seven percent of the company -- on March 17 as part of the gold company’s empowerment strategy.

JSE-listed Mvela has embarked on a process of unbundling and the remaining 39 million Gold Fields shares will be sold. The shares are currently worth R3.8bn. Mvela has the remainder of its debt of R1bn to pay off by the end of this year, giving a rough time frame by when the market can expect those shares.

Mvela is unlikely to sell the shares soon given a strong rand versus the dollar and the normally quiet period for gold in the northern hemisphere summer. The market for gold traditionally picks up between August and the end of the year, which gives Mvela a five-month window to sell those Gold Fields shares.

There is a rumour in the market that Paulson & Co wants to buy that block of 39 million shares to boost its holding in Gold Fields.

“They’ve picked up some shares when Mvela sold that first lot and now they want the rest of the Mvela stake,” said a reliable market source.

Mvela has yet to decide how to dispose of those shares, whether it will sell them on the open market, book-build, place them or set up a hedging structure around the shares.

If there is a placement or a book build, Mvela could approach Paulson & Co, said spokesman James Wellsted.

LARGE GOLD EXPOSURE

“If we were to decide to go that route we would definitely speak to them,” Wellsted said. “We think there is more upside in these shares and we are not going to be selling at these levels.”

Asked if Paulson & Co had approached the black-owned group to acquire the shares, he said: “I can’t confirm that. We’ve had a lot of interest from fund managers and banks in participating in that stake.”

Gold Fields spokesman Willie Jacobsz said: “We’ve heard the rumour but we can’t confirm or deny it.”

“We have contact with Paulson & Co as one of our larger shareholders, but not around the Mvela stake,” he said.

One of the concerns about placing the shares is that the process generally attracts a discount of between five and ten percent against the market price of the shares, something that would not suit Mvela.

The first tranche was sold on the market and realised a handsome profit for Mvela and did not disrupt the Gold Fields share price.

Armel Leslie who handles media relations for Paulson & Co was not immediately available to comment on the story.

One of the arguments in favour of Paulson & Co increasing its stake by buying this block of shares from Mvela is that if it tries to buy a large number of shares on the open market it could drive the price up.

John Paulson, the founder of the hedge fund, has strong views on the gold price given his concerns about inflation.

Paulson & Co is the largest investor in SPRD Gold Trust (GLD), holding nearly nine percent of the New York-based gold-backed exchange-traded fund (ETF). He is also the largest investor in Market Vectors Gold Miners, an ETF tracking the AMEX Gold Miners Index.

Apart from AngloGold, Paulson also owns 4.5% of Kinross, 20% of Gabriel Resources and around 10% of Centamin, a gold miner operating in Egypt.

John Paulson, a meticulous, self assured man who manages some $30bn, is obviously someone to watch very closely, taking positions in sectors he thinks will make money long before others do.

A good exampled is his Credit Opportunities Fund, which grew nearly six fold in 2007 when he went short, or took a bet that subprime mortgages would collapse, Bloomberg reported.

“He made a name by being able to see the potential for extreme economic events and making bets on those that can pay off,” Bloomberg quoted Michael Dubin, president of New York-based the LongChamp Group Inc., which allocates client money to hedge funds.