A reverse-takeover deal between
The merger and two related transactions will consolidate the two companies into a single unit, while disentangling it from South African mining powerhouses
According to Gold Fields Chairman Chris Thompson, the deal was structured to ensure minority shareholders were given a voice. “We didn’t want them to feel railroaded into this deal,” he says.
“This deal” is the last of a complex package of share swaps and purchases designed to simplify the ownership of South African gold mines by eliminating the widespread cross-holding of shares among the mining houses (such as Anglo and Gold Fields) and the producing companies (such as Driefontein) that actually own the mines.
In the first deal, Gold Fields will trade 2 million shares of Anglogold to Anglo American and to the Anglo subsidiary Anglo American Gold Investment, or
The transaction will separate Anglo American and Amgold from Gold Fields.
Anglo’s stake in Gold Fields will drop to 14.5% from 18.3%, while its interest in Anglogold will rise to 53.7%.
In the second transaction, Anglogold will sell Gold Fields 44 million shares in Driefontein, bringing Gold Fields’ total interest in the company to 58.5%. Gold Fields will pay US$219 million for the shares, including US$100 million lent by Anglogold. Anglogold will use funds from the transaction to expand.
Once that transaction is complete, Gold Fields intends to distribute its entire interest in Driefontein to shareholders. Under the plan, each shareholder will be entitled to 51.41 shares per 100 Gold Fields shares.
The 40% minority shareholders of Driefontein will then become the sole owners of the company, and will have the sole vote to approve Driefontein’s plan to acquire Gold Fields.
Driefontein has offered 103.59 shares for every 100 shares of Gold Fields.
Overall, shareholders will receive 155 shares of Driefontein for 100 shares of Gold Fields, representing a 17% premium. Upon completion of the merger, Driefontein would change its name back to Gold Fields Limited.
The new Gold Fields comes out of the merger as a larger, financially robust company with an increased market liquidity. The new company should also attract greater international interest, as well as a higher rating.
Gold Fields and Driefontein have considered the transaction for some time now. “It’s the last remaining vestige of South Africa’s mining house system,” says Thompson.
Originally, Gold Fields proposed to take over Driefontein, but Driefontein suggested an in-house reverse-takeover.
“We were conflicted,” Thompson says, adding that independent evaluators ultimately decided that Driefontein should absorb Gold Fields. The evaluation panel consisted of: David Brink, executive chairman of engineering and construction firm Murray & Roberts; Rory Knight, the dean of business at Oxford University; and Rick Menell, executive director of Avgold.
The panel concluded that Gold Fields’ share price was undervalued compared with that of Driefontein, and that Gold Fields risked dilution if the deal were to go the other way.
The deal has advantages for Driefontein, whose sole operation, its namesake mine in Gauteng province, is getting on in years. Although it still has reserves of 39 million oz. gold, the company plans to cut production to 1 million oz. annually from 1.5 million oz. in the next few years. With the merger, it maintains growth potential through a more diversified company.
Regardless of how Driefontein shareholders vote on the plan to acquire Gold Fields, the swaps between Gold Fields and Anglo American and Anglogold will go through.
Robert Godsell, chief executive of Anglogold, says his company will not stand in the way of the merger since it no longer requires a significant stake in Driefontein to ensure access to the Western Ultra Deep deposit.
That occurrence lies beneath the Driefontein mine at a depth of 4 km.
Anglogold is confident it can reach a deal with Gold Fields to get the access it needs.
The new Gold Fields should have a market capitalization of US$2 billion, with 447 million shares outstanding. Anglo American would retain an 11.8% stake in Gold Fields after all transactions are complete.
Gold Fields will become the world’s third-largest producer behind Anglogold and Newmont Mining, with reserves of 96 million oz. gold.
In 1999, the company expects to crank out 4 million oz. at a cash cost of US$190 per oz.
Aside from Driefontein, Gold Fields’ other core assets are the Beatrix mine, in Free State province, and the Kloof complex in Gauteng province. The company also owns the Oryx mine and a 54% interest in the St. Helena mine, both of which are in Free State.
In the long run, Gold Fields will expand beyond South Africa, says Thompson.
Currently, its only non-South African assets are a 70% interest in the Tarkwa mine in Ghana and a 40% stake in
Growth will come through acquisition. “The juniors are a fertile market,” he says.
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