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Gold companies are overpaying in acquisitions - Stephen Arthur, Absa In an interview on ClassicFM @ 18:35 on 19 February 2007 [miningmx.com] -- GOLD mining companies are overpaying for acquisitions in the scramble to bulk up on increasingly scarce resources, said Stephen Arthur, the head of mining research, Absa Asset Management. His comments come after the UK Sunday Times reported rumours that Russia’s Polyus could buy Anglo American’s 41% stake in AngloGold Ashanti. “Gold mining companies are looking for long-life reserves because there’s a belief that long-life reserves are running out and people want to bulk up,” Arthur said on the Classic Business Day week-nightly radio show. “If you talk about gold assets in particular, I would say they are overpaying,” he said, singling out the Gold Fields purchase of Western Areas for shares and cash. “It’s alright if you merge the companies paper for paper, but when you pay cash for something trading at a 1.6 times net asset value you are destroying money,” Arthur said. “If you look at the Gold Fields and Western Areas deal, you saw how the share price took a knock after that. The market says it’s alright to swap paper, but as soon as you start paying cash, it’s not a good deal,” he said. Anglo has reduced its stake by 10% already and has told the market it wishes to exit AngloGold. The question of how is hanging over the AngloGold share price as is the overhang of those shares. The reason Polyus could be looking to acquire AngloGold Ashanti is that the South African company brings mining expertise to develop mines and it has a global footprint with exploration and production in both underground and opencast mining, he said. Polyus, the former gold division of Norilsk Nickel, has a market capitalisation of $10bn and the figures suggest that there could be some truth to the rumour, he said. “Polyus has about $2.8bn in investments and cash, which leaves them around $2.5bn to finance. If you look at the Gold Fields, Western Areas deal you can raise bridging finance for this amount,” he said. “They’d have to have a rights issue or some injection of their assets into AngloGold and use that vehicle,” he said. Polyus, if it did make an offer for the AngloGold shares, would have to extend that offer to minorities. “There is a view they could come in and make a partial offer and then increase their stake over time once they’re in a better position to do that,” Arthur said.
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