Frustrations are growing over the slow pace of negotiations with Gold Fields, reports Sechaba ka’Nkosi
New Africa Investments Limited (Nail) directors meet next month to evaluate the ongoing talks with Gold Fields South Africa for a stake in its subsidiary, Asteroid. The meeting will decide whether the negotiations team – led by Nail’s executive deputy chair Cyril Ramaphosa – presses ahead or dumps the process.
Gold Fields’s latest results are not expected to have a significant impact on the talks. In the year to end-June, headline earnings rose 9% from 387c last year to 421c, although pre-tax profits fell to R108-million from R464-million last time. Analysts point out that the results were not unexpected.
BoE NatWest’s Barry Sergeant says even the criticism of Gold Fields’s decision to raise the dividend by 10c to 150c instead of keeping the cash to back the gold price, is misdirected. Sergeant says there is nothing wrong with such a move if the company is in good shape.
Says Sergeant: “The results are fine and particularly good if one takes into account that the company is exposed to the gold price. If they had an overdraft or needed some finance then the criticisms would be justified. At the moment, the company looks very healthy.”
Since the Asteroid talks were publicly confirmed more than three months ago, Nail and Gold Fields have maintained a veil of silence on the state of negotiations. But insiders say the talks have now reached a crucial stage. And this week, Nail confirmed that the negotiations were at a sensitive point, but expressed frustration and disappointment at the pace at which they were moving.
Nail chair Nthato Motlana said he had expected everything to be sealed by now, but the pricing of Asteroid and the subsequent control structure remained crucial areas of conflict between the parties. Nevertheless Motlana remains hopeful a deal can still be signed.
“We are of course a bit disappointed that we are not close to a solution so far. Not much has happened and no final agreement has been reached on matters relating to the pricing and the control of the asset. The board meeting next month will have to take a final decision on the deal,” says Motlana.
Gold Fields Holdings and Driefontein Estates are co-owners of Asteroid, which in turn owns 40% of Gold Fields South Africa equally with the Rembrandt Group. The remaining 20% belongs to Liberty Life. This gives Asteroid an indirect 17,48% stake in the whole of Gold Fields Holdings and its interests in zinc, gold and platinum mines. Analysts say with the market value of Gold Fields at R94 a share, it will cost Nail at least R1,67-billion to acquire a joint controlling stake.
This is where Bruce Williamson of SBC Warburg says negotiations started on the wrong footing. Williamson insists that with the expected results now out, tough times for the deal lie ahead. He argues that because the deal was announced when the price of gold was already tumbling, they must also agree on the medium and the long- term outlook of the commodity.
“The transaction will not be possible until an agreement is reached on control and management of Asteroid, as this would have a direct impact on the ultimate price Nail will pay if it hopes to gain a stake in the mining house.
“I am more interested in what the parties think of the gold price in the next few years. Surely, if Gold Fields is bullish, it will have reason to argue for a higher price and determine the controlling structure of the company. But with the current price and the fact that Gold Fields does not have the best industrial relations in the industry, that price might be too high for Nail,” says Williamson, pointing at current talks between Nail and Rembrandt – confirmed by Motlana this week – as the most likely factor that will determine the price and influence control.
Motlana, however, says Nail’s priority is sealing the deal as soon as possible so that the group can concentrate its energies on consolidating its control over all its assets. Motlana argues that this means even the effect of the fluctuating gold price on the industry in the past year is not an issue. Its interest extends beyond gold, and other commodities in the company have all shown positive results in the past. “This,” asserts Motlana, “makes Gold Fields more important to Nail despite the disappointment at the pace of negotiations.
“Only 40% of Gold Fields is in gold production. There are other assets such as zinc, platinum and metals that we can look forward to taking over. But that will also depend on the kind of structure that we will agree on to control and manage the company.”