The bid by world number-six gold miner Harmony for world number-four gold miner Gold Fields remains too close to call, with both groups of shareholders likely to make their final decision to vote for or against the merger on the day of the shareholder vote, investment market players said on Tuesday.
Harmony shareholders vote on the Gold Fields bid on Friday November 12, while Harmony’s early settlement offer for 34,9% of Gold Fields closes on November 26.
Harmony’s subsequent offer for the whole of Gold Fields closes on February 4 next year.
“The bid is going to be very close. Harmony’s management has been very aggressive and has gone all out with its bid for Gold Fields. On the other hand, Gold Fields’ management could have been more aggressive in their defence. The bid is going to go to the wire,” a market player said.
On October 18, Harmony announced it was making a bid for Gold Fields, seeking to create the world’s largest gold-mining group, with Harmony offering Gold Fields shareholders 1,275 Harmony shares for every Gold Fields share held.
“The key aspect of Harmony’s bid for Gold Fields is whether Harmony’s offer to Gold Fields’ shareholders has value and if there is enough of a premium offered by Harmony,” a fund manager said.
“The other question is whether Harmony’s cost-cutting measures, which it has planned for Gold Fields’ South African operations, are realistic and achievable,” he added.
On Tuesday, Harmony chief executive Bernard Swanepoel in a presentation on Harmony’s bid for Gold Fields, also aimed at refuting Gold Fields’ claims, said that Harmony will be able to achieve total projected savings of R1,035-billion, or 15,38%, of Gold Fields’ total costs of R6,729-billion.
“The R1-billion in savings is achievable,” Swanepoel said from New York where he is meeting shareholders.
The R1,037-billion will be achieved by saving R98-million at Gold Fields’ head office, R264-million by shedding management jobs, R66-million by cutting blue-collar jobs and R264-million from reduced stores costs.
Other cost savings will see R132-million saved in electricity and water, R297-million in other costs and R66-million from reducing contractor costs. Additional development will increase costs by R150-million, Swanepoel said.
Harmony has implemented continuous operations at its South African gold mines. Continuous operations increases the number of days worked at the group’s operations from 273 days to 353 days, with only the 12 mandatory public holidays not worked.
Harmony has claimed that continuous operations will result in a 25% increase in labour required at the stope, as well as 5% to 8% reduction in unit costs per tonne.
Gold Fields doesn’t have continuous operations at its three gold mines in South Africa — Driefontein, Kloof and Beatrix.
Harmony will implement continuous operations at Gold Fields’ mines after negotiations with all stakeholders, Swanepoel said.
Gold Fields claims discrepancy
Earlier on Tuesday, Gold Fields said it has uncovered what appeared to be a 22,843-million troy ounce (oz) discrepancy in Harmony Gold’s proven and probable reserves statement.
Harmony’s 2004 annual report indicates proven and probable gold reserves of 62,26-million oz. On the other hand, Harmony’s bid document to Gold Fields shareholders in South Africa indicates that it has proven and probable reserves of 39,417-million oz, which have been audited by consultants Steffen, Robertson and Kirsten (SRK).
Swanepoel said the 62,26-million oz in reserves, over and above the 39,42-million oz audited by SRK, was made up of 14,4-million oz in inferred reserves based on the life of Harmony’s mines.
In addition, another 8,44-million oz came from mine planning issues, vamping gold, less depletion by mining, conversion of probable to proven reserves, acquisitions in Papua New Guinea — which added 2,04-million oz — and an extra 1,20-million oz from its Free State growth operations.
“At the end of the day, gold reserves and resources are estimated figures that can be revised and altered. Harmony’s reserves are a bit of an issue, but it is not a key issue,” a fund manager said.
“Harmony is saying that it has been conservative with its reserves, while Gold Fields is saying that Harmony has overstated its reserves. It’s difficult to know who is right,” he added. — I-Net Bridge