Gentleman, take your partners

[] — THE likelihood of a deal between AngloGold Ashanti and its compatriot gold producer Gold Fields appears to be dwindling, according to public statements by the CEOs of both companies. Speaking to Bloomberg News, AngloGold CEO Bobby Godsell said that the opportunity to combine individual mines in South Africa owned by AngloGold and Gold Fields “had expired’.

In another interview with Reuters, Godsell said he didn’t feel like paying more than market value for gold mining companies. Analysts in South Africa have long surmised that any AngloGold bid for Gold Fields would carry a heavy-duty premium. Why else would Gold Fields, which has generally speaking performed better than AngloGold, accept an unsolicited bid?

Gold Fields CEO Ian Cockerill was the last to comment on a possible combination. “Gold Fields and the board of Gold Fields are never averse to someone making us an offer we can’t refuse… but don’t think you can come and try to steal us on the cheap – it’s not going to happen,’ he told Reuters.

Cockerill also won’t pay up himself. “The ability for Gold Fields to discover value in these markets we’ve got today while not impossible is becoming increasingly difficult.’

Of course, it also sounds like Godsell and Cockerill are negotiating publicly. Godsell won’t be fleeced; Cockerill won’t be skinned. But even if the prospect of a deal between the companies is in flux, it seems as if both could compete for South Deep, an asset shared between Western Areas and Barrick Gold.

Both Cockerill and Godsell, once colleagues at AngloGold, have spoken richly, and suddenly, of their interest in South Deep, a 300,000 oz/year mine that was once forecast to produce 700,000 oz/year at full tilt. Cockerill says that Gold Fields would make its infrastructure available to access deeper parts of South Deep quicker than the mine could manage itself. As for Godsell, he says that AngloGold would be “delighted’ to become owners and managers of South Deep.

“That combined chorus is probably triggered by Barrick going around talking about selling it off,’ says Leon Esterhuizen, a gold analyst at Investec Securities. Last year, Barrick completed the $10,4bn takeover of Placer Dome, which owned 50% of South Deep.

Says Esterhuizen: “I’d be extremely surprised to see Barrick do that. If it did it would cost an arm and a leg.’ Paying over the odds for gold assets as the gold price punches through $650/oz is exactly what Cockerill and Godsell have decried.
Barrick initially expressed its interest in retaining the asset, which comprises 10% of its total group resources. However, it may yet not sell its 50% but could prefer to outsource its mining on a royalty basis. The advantage of such an arrangement for Barrick is that it leaves the individual demands of deep-level mining in South Africa to more experienced operators without having to sell the asset.

“It looks like there’s been due diligence work on the asset, which has given rise to the recent interest,’ says Hugo Nelson, a fund manager at Coronation Asset Management. “Perhaps Gold Fields and AngloGold feel their paper is getting stronger. It’s all very strange.’

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But if AngloGold and Gold Fields were to end up taking a piece of South Deep, they’d have to negotiate with Harmony Gold sooner or later. Harmony owns 29% of Western Areas, which also has pre-emptive rights over a change in Barrick’s ownership.

“Anyone who wants to do a deal on South Deep has to deal with Bernard [Swanepoel, Harmony CEO] first,’ says Stephen Roelofse, at Sanlam Asset Managers.

Says Esterhuizen: “If I were Barrick, I’d approach a company with experience dealing with an asset like South Deep, such as Harmony.’