Why would Gold Fields’ shareholders agree to a merger with Sibanye-Stillwater?

South Deep: There can be only one

IT seems Neal Froneman is on the takeover trail again and, according to Miningmx is looking “… to reboot Sibanye-Stillwater’s flagging gold narrative” through a merger with either AngloGold Ashanti or Gold Fields, or both.

I have a lot to say about that in my capacity as a Gold Fields shareholder which I am declaring upfront because this is an opinion piece and I have strong views on this one.

Why on earth would Gold Fields shareholders agree to a merger with Sibanye-Stillwater? It makes no sense to me. The clear winner in such a deal would be Sibanye-Stillwater because it would get hold of Gold Fields’ successful gold operations in Australia, Ghana and South America.

The clear loser would be Gold Fields because it will be reunited with all those deadbeat South African gold mines it flogged at a knockdown price to Froneman eight years ago to minimise its exposure to the flagging South African gold industry and the negative impact of ANC political ideology on the mining business.

Gold Fields would be also be exposed even more heavily to all that baggage through its share of Sibanye-Stillwater’s platinum mines located in the country.

That possibility reminds me of the classic line in Godfather Three where Michael Corleone hisses in frustration: “Just when I thought I was out … they pull me back in”.

But, I hear you say, Sibanye-Stillwater is a diversified precious metal group. It’s a huge platinum producer and owns the Stillwater palladium mine which is pumping profits. Surely Gold Fields shareholders would benefit from all that?

Yes – but only for as long as platinum group metal prices remain buoyant and if you know your South African mining history, the platinum price, and platinum mining shares have been on a vicious roller-coaster ride ever since geologist Hans Merensky traced out the extent of the reef now named after him back in 1922.

Give him his due, Froneman timed his foray into platinum exquisitely and his shareholders have benefited hugely from the run-up in PGM prices over the past three years. Also to his credit is that he has been the most outspoken of the South African executives in criticising the damage that the ANC has done to the country’s mining industry.

But keep in mind that Sibanye-Stillwater’s platinum operations consist of mines that industry leader Anglo American Platinum decided it no longer wanted to own combined with those that belonged to the former Lonmin – a company I used to describe as the “weakest link” in the South African platinum game.

However, I am not unsympathetic to Froneman’s strategy of creating a South African precious metals mining champion and there is something Gold Fields could do to help and that sells South Deep to Sibanye-Stillwater.

South Deep has been an albatross around Gold Fields’ neck for the past decade and has survived mainly because of CEO Nick Holland’s fanatical devotion to it. Holland goes at the end of March to be replaced by Chris Griffith who may take a different view of the situation.

I reckon now is a good time to sell South Deep. It’s finally making some money and it has this great future exploiting one of the world’s largest remaining unmined gold resources!  Sibanye-Stillwater is making money hand-over-fist so Froneman cannot plead poverty when it comes to paying a market-related price for the asset.

So he gets control of South Africa’s last great gold mine  – if you accept Holland’s assessment – and Gold Fields gets rid of its last South African link which should result in a healthy share price rerating. Sounds good to me.

5 COMMENTS

  1. Once again you miss the point Brendan, or maybe you are trying to miss the point! What Neal & team have managed to do with the assets they got both from Goldfields AND Anglo is EXACTLY why both Goldfields and Anglogold shareholders should see the value for both of them. Assets only make a company if they have the management to bring them to account. Taking out top level management layers that are as thick as they come is an immediate saving. Assets like Western Areas will be properly managed and reap combined shareholders value FINALLY. The only goldfield shareholders who were disappointed with the previous assets they gave to Neal were the ones who sold. Stay outside the fold at your peril! The value of a LARGER company for all three makes a LOT of sense on so many fronts! If it’s a share swap there is no reason to fight over who’s worth more if you believe in an efficient market. At the end of the day if it’s a low ball it opens the door to alternative bids that might be brave enough to offer a cash premium which would not make sense for Sibanye! Don’t stress, if you sell after a merger there will be lot’s of other underperforming gold companies you can choose to invest in as an alternative!

  2. South Deep was / is a dead duck that was bought on ego when Swanepoel chase the price up!.

  3. All credit to Neil for his belief in the South African mining industry & its ability to churn out profit when non patriots like yourself are quick to go offshore for earning with no toil.
    All the projects Neil acquired have geen successfully turned around & are churning out profit which speaks a lot about the executives of such mines.
    I would back Neil in bringing back a South African mining company back to its roots & once again astound the nay sayers.

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