AngloGold bids for Normandy (September 10, 2001)

Moving to expand and diversify its gold portfolio, AngloGold (AU-N) has launched an all-share bid to acquire Normandy Mining (NDY-T), Australia’s largest gold miner.

Creating what it describes as the “first truly global gold company,” the South African giant is offering 2.15 AngloGold shares for every 100 Normandy shares, thus valuing Normandy at A$3.2 billion (A$1.42 per share) or US$1.6 billion, based on AngloGold’s New York close on Sept. 4.

The deal, which will result in the issuance of some 48 million new AngloGold shares, represents a 29% premium to Normandy’s A$1.10 closing price on Sept. 4, though the company often traded above A$1.20 in June and July.

The transaction must meet several criteria, including: acceptance by holders of at least 50.1% of Normandy’s shares; approval by AngloGold shareholders (AngloGold’s 53.3% shareholder, Anglo American [AAUK-Q], will vote in favour of the deal); approval by the South African Reserve Bank; and approval by the Australian Foreign Investment Review Board.

If the bid is successful, the expanded company will be the largest gold producer in both Africa and Australia and will be a significant gold producer in North and South America.

Combined gold production will total an impressive 9.1 million oz. per year, further entrenching AngloGold’s status as the world’s biggest gold producer.

Geographically, gold production will be divided among: South Africa, with a 49.5% share (compared with 67.4% prior to the bid); the rest of Africa, with 9% (11.8%); Australia, with 27.4% (7.2%): North America, with 8.2% (7.4%); and South America, with 5.9% (6.2%).

Total reserves will rise to 106 million oz., whereas total resources are expected to total 434 million oz.

AngloGold expects the transaction to be accretive to its earnings per share and boasts that the enlarged company will have the highest earnings before net interest, taxation, depreciation and amortization in the gold industry.

AngloGold’s market capitalization will be lifted to US$5.5 billion, and its net-debt to total-capital ratio will drop to 25% from 30%.

“By any standards, this is a large transaction,” says AngloGold Chairman Bobby Godsell. “The company will have the most diverse production and exploration activities, producing a risk profile that’s attractive when measured by profit contribution, by geology and mining costs, and indeed by the political geography of the production ounces.”

He also spoke of the benefits of achieving an improved credit rating and seeing better liquidity for shareholders on the Johannesburg and Australian exchanges.

Says Godsell: “In a quite serious way, I’ve been talking with [Normandy Chairman] Robert de Crespigny for over three years about how we can find a way forward for the world gold industry — an industry that has seen the gold price languishing, reduced investor interest and generally inadequate returns. In that context, we’ve been completely [in agreement] that we need fewer, larger, stronger and more global companies that really look after the business in its totality: producing what the market can absorb, building the customer base and delivering the products.

“For me, what ‘synergy’ particularly means [in this deal], is a chance to get assets, whenever possible, into a single ownership or at least a united, coherent and purposeful management structure.”

Godsell singles out Australia, West Africa and South America as the areas most likely to see cost savings.

Regarding Normandy’s operational management, Godsell says it is “solid” and that he is more concerned with improving management structure.

Without being specific, he adds that, if the bid proves successful, Anglogold’s board will be revamped to include participation from Normandy.

While Normandy’s board has not outright recommended acceptance of the deal, the company did issue a press release suggesting it is warm to the offer.

“Normandy has acted as a consolidator in this industry to date, but we recognize that an even larger scale is now required,” Chairman de Crespigny says in the prepared statement.

“AngloGold is one of the leading companies in this industry, and its offer is a logical industry move. It is fair to say that the objectives AngloGold has in this offer are similar to the strategies we at Normandy have expressed for some time. Consolidation in the gold and other commodity sectors is necessary as companies seek to gain critical mass, both operationally and in order to gain more efficient access to capital through greater liquidity and better market ratings.”

To help assess the offer and draft a formal recommendation to shareholders, Normandy has appointed Australia’s Macquarie Bank as advisor.

Normandy shareholders have until mid-November to respond to the offer.

From a Canadian perspective, the most notable Normandy shareholder is Franco-Nevada Mining (FN-T), which recently traded US$48 million in cash, its one producing gold mine, and a package of Australian royalties for a 20% stake in Normandy.

Godsell notes that Franco had not been consulted prior to the announcement of the bid, but adds that, as a positive sign, Franco had “been active in articulating” a need for industry consolidation and that Franco management were “not strangers to South African companies.”

As would be expected in so large an acquisition, there will be a number of loose ends to tie up if the offer is accepted.

First would be the disposal of Normandy’s non-gold assets, which include: a 100% interest in the Golden Grove zinc-copper and precious metals operation in Western Australia; a 63% interest in Australian Magnesium Corporation, which owns significant magnesium resources and wants to produce magnesium metal and alloys for the automotive industry; and a 54% interest in the operationally troubled Kasese cobalt mine in western Uganda.

For the year ended June 30, 2001, Normandy ranked as the world’s seventh-largest gold miner, producing 2.3 million oz. at a cash cost of US$162 per oz. and a total cost of US$224 per oz. Attributable reserves and resources stood at about 26.4 and 59.3 million oz., respectively.

Normandy’s Australian gold assets include: a 50% interest in the Super Pit near Kalgoorlie, co-owned with Homestake-Barrick Gold (ABX-T); a half-interest in the Pajingo mine; an 87.5% interest in the Tanami operations; a 100% interest in the Yandal operations; and a 44.44% interest in the Boddington gold operations, which is joint ventured with AngloGold and Australia’s Newcrest Mining.

Outside its home turf, Normandy owns assets such as: the Midas (Ken Snyder) mine in Nevada; a 67.1% interest in the Martha Hill mine in New Zealand; a 90% interest in the Yamfo-Sefwi advanced project in Ghana; a 51% interest in the Ity mine in Ivory Coast; a 100% interest in the newly operating Ovacik mine in Turkey; and an 80% interest in the Perama project in Greece.

Normandy also has a 49.9% stake in TVX Normandy Americas, which has interests in five mines in North and South America — a 49% interest in the New Britannia mine in Manitoba (51%-owned and operated by High River Gold [HRG-T]); a 32% interest in the Musselwhite mine in Ontario (68%-owned and operated by Placer Dome [PDG-T]); a 50% interest in the Brasilia-Paracatu mine in Brazil (50% owned and operated by Rio Tinto [RTP-N]); a 50% interest in the Crixas (Serra Grande) mine in Brazil (50% owned and operated by AngloGold); and a 50% interest in the La Coipa mine in Chile (50% owned and operated by Placer Dome).

At Dec. 31, 2000, AngloGold’s annual production amounted to some 7 million oz. gold, while reserves were pegged at 88 million oz. and resources at 398 million oz.

AngloGold’s existing portfolio includes low-cost, high-producing operations such as: Great Noligwa, Tau Tona and Kopanang in South Africa; Geita in Tanzania; Morila in Mali; Sunrise Dam in Western Australia; low-cost producers in Brazil and Argentina; and a major expansion project in the Cripple Cree
k & Victor joint venture in Colorado.

Judgment of the deal by the market was swift and clear: AngloGold sank 7%, or US$1.19, to US$16 in New York, and Normandy shot up 21%, or $1.77, to $10.17 in Toronto.