Canadian Mining Journal

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DOING SOME DIGGING – Failed takeover hits hard at Harmony

It's over. South African HARMONY GOLD has failed to gain control of rival GOLD FIELDS. The announcement comes after...


It’s over. South African HARMONY GOLD has failed to gain control of rival GOLD FIELDS. The announcement comes after months of legal wrangling and numerous trips to the courts. With share prices taking a beating, Harmony is now laying off nearly 12,000 workers. As if to add insult to injury, Harmony will probably sell its remaining 11.5% stake in Gold Fields.

The Chinese celebrated 2004 as the Year of the Monkey. We in mining circles might have called it the Year of Failed Takeovers. There was a lot of monkeying aroundGlamis and Goldcorp, Coeur d’Alene and Wheaton River, IamGold and Wheaton River, Glamis and Wheaton River, Glamis and Goldcorp, Bema Gold and Arizona Star, Aur Resources and Inmet Mining, China Minmetals and Noranda, Sherritt and Fording, Gold Fields and IamGoldand very little change. Only a few merger plans came off as announced: Alcan took over Pechiney, Wheaton River finally accepted an offer from Goldcorp, and earlier this month Noranda and Falconbridge united.

Harmony’s original offer would have created the world’s largest gold miner. Instead it cost both companies dearly. Harmony shares slid to a four-year low, from US$12.85 in October 2004 to US$6.62 on May 20. Do the math, and this is a whopping 48% loss of value. Gold Fields shares were down 31.12% during the same period, falling to US$9.82 from US$14.56. Both share prices are beginning to rebound this week.

Harmony admitted defeat after the Johannesburg High Court ruled that its offer lapsed on Dec. 18, 2004, and was not legally extended. Any Gold Fields shares acquired after that date must be returned to Gold Fields shareholders. The court also ruled that Harmony cannot make another offer for Gold Fields until Dec. 19 of this year.

Happily I am not an investor in either company, but if I were I would be calling for some very senior management heads to roll.