The David Gleason Column
First you saw it, now you don’t. Shareholders, investors and analysts alike will be forgiven for being truly nonplussed by the turns of events surrounding Driefontein, one of South Africa’s richest gold mines, and Gold Fields and Anglogold.
One minute Driefontein was the subject of a takeover which would have left it owned 60% by Gold Fields and 40% by Anglogold; the next, Driefontein is craftily poised to buy out Gold Fields. To establish what’s happening it is necessary to dig around in the last years’ trash can.
The 1997 move by Gencor to merge its gold assets with those managed by Gold Fields of South Africa (GFSA) spurred on the massive shake-up already under way in this country’s mining industry. It all looked cut and dried when Gencor chair Brian Gilbertson and GFSA CEO Alan Wright first announced it. Earlier, the two men had taken tea with Anglo chair Julian Ogilvie Thompson whom they left clearly infuriated at having been presented with a fait accompli.
Anglo immediately launched a rearguard action and succeeded in forcing a concession out of Gold Fields (the company which houses the gold mines of GFSA and Gencor) to the extent that the two agreed that Driefontein would be owned by them 60:40. The Anglo agreement was premised on the group’s preparedness to exploit the known but ultra-deep gold resources of the West Wits line; Anglo argues that part- ownership of Driefontein is central to this resolve.
The agreement meant that, between them, Anglogold and Gold Fields had to arrive at a point in time when they would make an offer to minority shareholders to buy their stake and then to delist Driefontein.
The time is here. The deal, however, appears to have been frustrated by minority shareholders who say the asset is worth a lot more than they’re being offered. They have clearly been plaintively beating the tom-toms about the unfair offers being canvassed and the bullying tactics being applied, they claim, by the two houses.
Late last year Gold Fields suggested to Anglogold that their joint desire could be achieved more cheaply – and perhaps more expeditiously -if the deal was turned on its head, if Driefontein bid for Gold Fields instead of the other way round. This method, explains Gold Fields MD Tom Dale, avoids the need to secure the approval of 75% of shareholders – instead a 50% majority is acceptable.
In my view this is a facile explanation if for no other reason than the issue of acceptability really revolves around whether the securities regulation panel rules that interested parties may or may not cast their votes. If a 50% majority on a resolution to buy or sell a company’s major asset is all that’s needed, minorities may still call the shots if the concerned parties are banned from using their overwhelming voting muscle.
And another intriguing aspect is that ever since the announcement on December 21 that Gold Fields might be taken over by Driefontein (which would change its name to Gold Fields) there has been a noticeable increase in the opposition being voiced. A wide range of objections is being noted – these are the alleged bullying tactics described in one instance as “yet another example of arrogant South African mining houses battering minorities”. The corporate governance issue is being played for all it is worth.
Directors of Gold Fields are also directors of Driefontein. However, in these circumstances, can minorities ever expect to be offered a fair deal? “Mining house managers continue to complain indignantly that South African gold shares are seriously undervalued compared with their North American counterparts. But it is behaviour like this which drives the discounts,” says an analyst.
Dale claims it is “quite inconceivable that a deal of the kind being canvassed by Gold Fields will not be executed this quarter”. Anglogold finance director Jonathon Best isn’t quite so sure: “We certainly have to make a decision soon, I guess this quarter. But I must emphasise that all we’re doing is examining all the options open to us.”
An analyst, who insists on anonymity, is nevertheless convinced the end result will be that the Driefontein mineral rights will be divided physically between Anglogold and Gold Fields. Asked to confirm this, Best says it’s a scenario that has never been considered.
Asked for a response to suggestions that Anglogold may end up withdrawing entirely from its stake in Driefontein, Best relies again on the catch-all that every option is being examined -which certainly will leave analysts wondering why Anglogold deemed it so important to secure its stake in Driefontein in the first place. There is a sense about this whole business that something doesn’t sit well.
Minorities seem to be getting the thin end of the stick – again – but against that it needs to be said that speculators always shout loudest when their pockets are about to be hurt. And South African corporate business is always vulnerable to charges that it repeatedly and flagrantly violates the norms of accepted corporate governance.
Billiton is rapidly learning the art of how to handle international investors, analysts and the financial press. This knowledge certainly hasn’t filtered down to Gold Fields yet.
When a major broker issues a report headlined “Incendiary corporate posturing backfires” and then goes on to say that the actions of Gold Fields and Anglogold have “prompted an unhappy backlash in the US market”, it is clearly time to take note.