DOING SOME DIGGING – The Golden Rule: Harmony & Gold Fields

Size matters to the world's gold producers. Being No.6 isn't good enough for South Africa's HARMONY GOLD. This week...
Size matters to the world's gold producers. Being No.6 isn't good enough for South Africa's HARMONY GOLD. This week it launched a hostile takeover bid for the fourth largest producer, GOLD FIELDS of the same country.

Let's do the math: Harmony has an annual gold output of 3.6 million oz plus the 4.33 million oz of Gold Fields equals almost 8 million oz annually. That would indeed put Harmony ahead of Newmont and AngloGold, Barrick and Placer Dome.

Hostile takeovers seem to be the rule this season. The planned merger of Canadians WHEATON RIVER MINERALS and IAMGOLD was derailed by hostile counterbids: COEUR D'ALENE MINES for Wheaton and GOLDEN STAR RESOURCES for IamGold. The original merger was thwarted, but neither Coeur nor Golden Star got what they wanted. Wheaton investors approved a plan to spin off that company's silver assets rather than accept the Coeur bid. IamGold found a white knight in Gold Fields. At the end of September the latter two companies signed a definitive deal whereby IamGold will acquire Gold Fields' assets outside South Africa. It looked like the summer's corporate power grabs would come to an end.

Not so. Now Harmony has poked its stick in the spokes of the IamGold/Gold Fields proposal. Harmony is willing to pay between US$7.5 billion and US$8.2 billion for all the outstanding shares of Gold Fields. The offer is conditional on the rejection of the merger with IamGold. Harmony believes its offer is a great deal for all stakeholders.

Gold Fields directors insist that Harmony's offer "significantly undervalues Gold Fields' high-quality portfolio of assets and completely disregards the significant value that will be created from the IamGold transaction." Translation: "Support the merger with IamGold."

In its corner, Harmony has the backing of Russian giant NORILSK NICKEL, which holds 20% of Gold Fields. Even if the other 80% of Gold Fields' shareholders support the IamGold deal, getting it approved without the support of the company's largest shareholder will be a challenge. Unionized South African mineworkers are on record as favouring the Harmony bid on the theory "better the devil you know than the one so far away in Canada."

So the corporate manoeuvring will continue. What started last spring as the merger of two Canadian gold producers has become a soap opera of epic proportions. Stay tuned, there are bound to be more twists in this story as it unwinds. In upcoming episodes: Will AngloGold seek a takeover target to maintain its No.1 status? Will a Canadian company take a run at Newmont to expand? Who will top whom in the ranks of global gold producers?

Remember the golden rule: He who has the gold makes the rules. And the Scales corollary: He who has the most gold makes the most rules.


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