Bitter-sweet liberty for Gold Fields

[] — IT’S hard to believe that Norilsk Nickel’s decision to sell its $2.2bn Gold Fields stake – which Miningmx understands surprised the South Africans – is unrelated to takeover speculation over Lonmin.

In that speculation, Gold Fields was thought to have held talks with Lonmin over a merger between the two companies. The notion was that a combined gold-platinum company would command a premium of its own, realise Gold Fields’ plans for an primary offshore listing, and protect Gold Fields against further takeover attempts of which there have been two in about six years.

In any event, a combination of Lonmin and Gold Fields is not deemed possible, largely because Lonmin would be resistant to such a proposition. “I heavily doubt a company like Gold Fields would come in for Lonmin. If such a deal happens at all, it will be one of the big companies like Xstrata or BHP Billiton,’ said Stephen Roelofse, a fund manager for Sanlam Asset Managers.

The sale of a 20% in Gold Fields, however, does make the gold firm’s share register wide open. The question is whether that is a positive or negative development for management and the shareholders.

There are two sides to open registers worth considering. One is that a cornerstone shareholder is helpful in fighting off hostile takeovers (sometimes, they aid them as Norilsk did in respect of Harmony’s offer for Gold Fields). The other is management has more power over its own destiny.

Ian Cockerill, Gold Fields CEO, may find doing business in Russia more remote without Norilsk Nickel as a shareholder, but he will have greater freedom over the destiny of the company. In the case of Gold Fields, this will be the first time in many years that it will not have to consult another mining firm about its future remembering that Norilsk bought its stake in Gold Fields from Anglo American.

“It’s always good to have a strong shareholder. An open shareholder register could make Gold Fields more vulnerable,’ said Dennis Tucker, a banker with Investec in Johannesburg. He would know. Tucker was integral in Harmony Gold’s bid for Gold Fields last year.

It’s virtually impossible to know what Gold Fields will make of the sale of its shares. The market thinks it’s a negative in the short-term but this is a view squarely based on the potential for an overhang. In the current mining market, with gold clearly supported by investment interest and fundamentals, they’ll be demand for a share like Gold Fields, which is being sold by at $20.50 to $21.50/share in the book-build.

Will Gold Fields seek again to diversify itself? Will perhaps AngloGold Ashanti, given the freedom by Anglo American to forge its own destiny, perhaps look upon Gold Fields with covetous eyes once again? And what of Norilsk Nickel, which was to have reversed the Gold Fields stake into Polyus Gold, scheduled for a listing in Moscow this quarter and possibly a level one ADR in New York before the mid-year?

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“I doubt Norilsk is calling the top of the gold market,’ said Georges Lequime, an analyst for RBC Capital Markets. “Polyus won’t need the cash so maybe they’ll be a nice return to shareholders. Or perhaps they’ll be on the look out for one of the rats and mice,’ he said of Polyus’ future acquisition policy. Perhaps Polyus will launch a takeover attempt of Lonmin on its own?

There were about $48bn worth of mergers and acqusitions in the mining market last year. Not much has changed this year and it’s likely that for Cockerill and his team it will be a case of act, or be acted upon.