HAVING spent the last 13 years bringing operational certainty to Gold Fields, its CEO Nick Holland starts his last week in charge in the curious position of knowing the market considers the group’s future as uncertain.
That’s because Sibanye-Stillwater continues to circle the company; its CEO, Neal Froneman, making it clear a gold deal remains among his strategic priorities this year, but stopping short of declaring an outright offer has been made.
But how do-able is a gold merger for Sibanye-Stillwater, especially the speculated three-way combination with Gold Fields and AngloGold Ashanti?
Just as Kinross Gold Corp. seemed to have been lined up by Sibanye-Stillwater last year – only to be frustrated by a shift in valuation brought about by the Covid-19 pandemic – so too might any bid for Gold Fields, or AngloGold Ashanti, evaporate.
One recent investment report on Sibanye-Stillwater’s ambitions questions the business rationale of a gold transaction.
RMB Morgan Stanley analysts Jared Hoover, Christopher Nicholson, and Brian Morgan examined two likely scenarios under which a three-way merger by Sibanye-Stillwater with Gold Fields and AngloGold Ashanti might be contemplated. The first is a merger of equals as demonstrated in the gold industry by Barrick Gold with Randgold in 2019, and Equinox Gold with Leagold Mining Corp in 2020.
They calculated that about $160m of corporate cost savings from the three-way merger is offset by a material one-off charge in control payments equal to six to 30 months of base pay, benefits and bonuses for executive management.
Operational synergies could be derived in running Gold Fields’ and AngloGold Ashanti’s Ghana mines in a single company, but production from Tarkwa and Obuasi would comprise only 15% of total Sibanye-Stillwater group production, and even less of production when factoring in Sibanye-Stillwater’s platinum group metals (PGMs).
The average life of mine of the merged operations would not improve whilst from a jurisdictional risk perspective, RMB Morgan Stanley sees shareholders in Gold Fields and AngloGold Ashanti finding life with Sibanye-Stillwater riskier, especially considering how the two companies sought to limit or remove their South African exposure.
In the event of Sibanye-Stillwater paying a premium, which would appear to be the preferred route given Froneman’s comments in an upcoming Finweek article, this “… could be compelling for ANG/GFI if the exchange ratio accelerates an attractive portion of valuation unlock potential for ANG/GFI relative to their international peers ahead of ANG/GFI’s own respective growth offerings/shift in primary listing over the next one to five years,” said RMB Morgan Stanley.
From a price:earnings and EV/EBITDA basis perspective, however, AngloGold Ashanti and Gold Fields shares were trading at a premium to Sibanye-Stillwater at the time of the report’s publication on March 26.
Another analyst questioned the business rationale of combining the gold firms with Sibanye-Stillwater. A three-way tie-up would result in a group with 30 operations and about five projects in 12 different counties mining PGMs, gold, copper, silver and perhaps in future battery metals.
“Given the complexity of the portfolio, dis-synergies are more likely than synergies,” said a market source.