Gold Fields, Harmony duel to resume

[] — GOLD Fields will hold a board meeting today, ostensibly to discuss its December quarter results. But the meeting is unlikely to skirt the company’s most important issue: how to continue to fend off Harmony Gold’s $7bn takeover, a controversial proposal unveiled last year. The expectation is that the group will plot a course for the future as, indeed it must. Investors will not look kindly on management if it shows to have idled during the Christmas hiatus.

Harmony, meanwhile, is preparing to counter-argue statements that its offer for Gold Fields has destroyed value. That will be an important element of its December quarter presentation later this month. (This is notwithstanding a pre-Christmas peace summit in Moscow, convened by Noril’sk Nickel which is the flywheel in the affair. It offered to use its 20% stake in Gold Fields to support Harmony’s bid, and has enough clout to initiate a compromise).

Ferdi Dippenaar, Harmony’s commercial director, told miningmx this week his company favoured a negotiated settlement. It’s probably becoming obvious to Harmony that it will need considerable powers of persuasion in order to convince Gold Fields shareholders to accept its offer of 1.275 shares for each Gold Fields share. It can’t significantly increase its offer, and if it can’t build a stake large enough to trigger a mandatory offer to shareholders, Noril’sk Nickel will eventually be released from its irrevocable support for the offer due to expire end-March.

Harmony can’t allow nothing to happen because it doesn’t have time on its side. That’s why the several versions of a negotiated settlement circulating in the market, some of them submitted by commission-hungry bankers and company advisors, have the ring of authenticity. These proposals share the common notions of reinvention, asset rearrangement, and the creation of new companies. It’s quite clear that neither Harmony nor Gold Fields can be allowed to stay in their current formats. Such an outcome would mean outright defeat for someone and the personalities in this war, being what they are, won’t allow that.

It’s equally clear, however, that the two sides – while recognising the merits of compromise – are still too far apart on what a final deal would look like. That’s why, at this juncture, there is a touch of the crucible about the Gold Fields, Harmony affair. Harmony, for instance, doesn’t want Gold Fields to exclude its international assets from any compromise arrangement. Gold Fields can’t stomach the incorporation of Harmony’s marginal assets, such as Elandskraal, into its stable.

Another suggestion that Harmony will simply sell its 11% stake back to shareholders for cash must be a non-starter. Such an outcome would be construed as a highly expensive rights offer for Harmony and likely to see the company’s CEO, Bernard Swanepoel, fall under burning, career-damaging, criticism. His shareholders would rightly want to know why the offer was necessary in the first place.

There are other interests too beyond those of Noril’sk Nickel, Gold Fields and Harmony Gold. Take Mvelaphanda Resources, an empowerment company that stands to own 15% of Gold Fields’ South African assets. James Wellsted, Mvela Resources investor relations manager, imparts the interesting thought that the company would consider investing in other industries if Harmony Gold succeeded in its Gold Fields bid (in its current form).

In terms of its arrangement with Gold Fields, Mvela has the option to convert its 15% asset level stake into a 26% equity level deal. But if Harmony’s bid were to succeed, Mvela’s asset level holding would be diluted to 6% and exclude an equity option. “We’d prefer to have some control in the assets in which we invest,’ Wellsted says. And there’s nothing driving Harmony to Mvela’s either since Swanepoel has his own empowerment partner in African Rainbow Minerals.

Expect more attempts by Mvela to drive Harmony and Gold Fields together since so much depends on Gold Fields for the empowerment firm.

The big question is how long the dual between Harmony and Gold Fields can be expected to continue. Most are hoping for a speedy resolution because the South African gold sector is suffering much collateral damage.

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