As the tit-for-tat war between South African gold-mining giants Harmony and Gold Fields raged on, Gold Fields chairperson Chris Thompson made an impassioned appeal on Tuesday to shareholders to reject Harmony’s hostile bid for Gold Fields, saying it has already destroyed R7-billion in combined potential value for shareholders.
At the same time, Thompson warned that the matter is “far from over” and that the company will protect its shareholders, asserting that Gold Fields neither needs nor wants Harmony, which he accused of being less than transparent.
He added it is believed that fewer than 100 000 of Gold Fields’ 492-million shares have been submitted to Harmony, although it has been more than three weeks since the start of the offer.
“This means only a fraction of 1% of Gold Fields’ shares have been tendered,” Thompson said in a letter to Gold Fields shareholders.
‘Widespread resentment’
He further asserted: “Over the past weeks, your board has spoken to the vast majority of Gold Fields’ larger shareholders, including many of the most highly respected gold investors in the world. I am pleased to report that there is a widespread feeling of resentment towards Harmony’s offer and widespread support for Gold Fields.”
Thompson said the terms that Harmony has offered, combined with the way it has structured its bid, has led these shareholders to recognise that the bid will destroy value for them.
“We believe Harmony has been less than transparent in what it has disclosed. For example, Harmony claims their gold reserves are 62-million ounces whereas their independent reserve auditors say the true figure is less than 40-million ounces. The difference, Harmony says, is largely due to the inclusion of inferred ‘life of mine reserves’.
“This is in clear violation of the established code in South Africa for the calculation of reserves, Samrec, and the principles of Guide 7 in the United States,” Thompson stated.
He added that Gold Fields’ shareholders deserve “clean, clear facts”.
“The value of a mining company is almost entirely dependent on the true extent of its reserves How can you make an informed decision on this offer without an accurate audited reserve statement, which complies fully with Samrec and Guide 7?” he asked.
Destruction of value
What is indisputable, however, is the destruction of value Harmony has inflicted upon shareholders, he said.
“Consider if you will: at 15 October 2004, Gold Fields was trading at $14,94 (ADR) and R94,02 (JSE) and gold was trading at $422,78 per ounce. As of 12 November 2004, gold was at $437,85 per ounce and Gold Fields was trading at R83,50 (JSE). Since Harmony’s bid you have lost 11% in the value of each Gold Fields share you own on a rand basis.
“Harmony, by contrast, has fallen from $12,56 (ADR) and R83,50 (JSE) to $11,05 (ADR) and R65,70 (JSE), a 21% erosion in value for Harmony shareholders on a rand basis.”
According to Thompson, the value of Harmony’s offer to Gold Fields shareholders is now worth R83,77 (JSE) and $14,09 (ADR) per Gold Fields share.
“Their offer is worth much less than the price your shares were trading at before this offer, despite the fact that the gold price has gone up substantially during this period. Your board fears this situation may yet get worse,” Thompson said.
Despite the talk of cost cutting, he added, all Harmony has actually done thus far is lose shareholders of both companies more than R7-billion in combined value.
“It is also far from clear that their proposed cost cuts are sustainable without massive job losses and damage to the life span of some of the finest gold mines in the world,” Thompson said.
“I urge you not to submit your shares or ADRs to this offer, which your board believes is not in your interests and is of questionable value. Furthermore, we are exploring all avenues to protect your interests as a shareholder.
“Gold Fields does not need Harmony, and as we have said many times over the last few weeks, with the offer they have made for our company, Gold Fields certainly does not want Harmony and all of its associated problems.
“This matter is far from over and the Gold Fields management team remains focused on protecting value for all shareholders.”
Thousands of job losses possible
Meanwhile, reports Justin Brown, the successful completion of Harmony’s bid for Gold Fields could result in between 4 000 and 7 000 job losses at Gold Fields’ South African mines, the head of Gold Fields’ South African operations, Mike Prinsloo, said on Tuesday.
In South Africa, Gold Fields employs about 42 000 people. It has three gold mines in South Africa — Driefontein, Kloof and Beatrix.
Harmony has claimed that it will be able to cut R1,035-billion in costs at Gold Fields’ South African mines, or 15,38% of existing annual costs of R6,729-billion.
As part of those cost savings, Harmony is looking to cut R264-million in management costs, by shedding between 1 000 and 1 500 management positions at Gold Fields, and R66-million in labour costs.
Harmony has yet to come clean on the number of workers that it intends to cut as a result of its proposed merger with Gold Fields, Prinsloo said.
Gold Fields has about 104 people employed at its head office in Johannesburg, Prinsloo said.
Harmony has also said that if it wins its bid to take over Gold Fields, it will close down Gold Fields’ head office, which would result in savings of R98-million. — I-Net Bridge
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