| Mon 29 Nov 2004, 14:46 | | Results of the early settlement offer |
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Harmony - Results of the early settlement offer
Harmony to commence the subsequent offer with 10.8% of Gold Fields
Harmony Gold Mining Company Limited
(Incorporated in the Republic of South Africa)
(Registration number 1950/038232/06)
Share code: HAR ISIN: ZAE000015228
(`Harmony`)
29 November 2004
Results of the early settlement offer
Harmony to commence the subsequent offer with 30,9% of Gold Fields
On 18 October 2004, Harmony announced the terms of a proposed merger between
Harmony and Gold Fields offering 1.275 new Harmony shares for each Gold Fields
share, representing a premium of approximately 29%* and an implied price to net
present value multiple for Gold Fields of 2.4x, a substantial premium to Gold
Fields` peer group. The proposed merger was structured on the basis of an early
settlement offer for up to 34.9% of Gold Fields with a subsequent offer for the
balance of Gold Fields` entire issued share capital.
Harmony is pleased to announce that as at 12.00 p.m. (South African time) on 26
November 2004, the closing date of the early settlement offer, valid acceptances
of the early settlement offer had been received in respect of a total of 53 392
108 Gold Fields shares representing approximately 10.8% of the entire issued
share capital of Gold Fields. Settlement of the consideration due under the
early settlement offer in respect of valid acceptances received on or before the
closing date will be despatched as soon as possible and, in any event, by no
later than Friday, 3 December 2004.
In addition, as previously announced, Harmony has received an irrevocable
undertaking from Norilsk to accept the subsequent offer in respect of 98 467 758
Gold Fields shares, representing approximately 20.03% of the entire issued share
capital of Gold Fields.
Accordingly, Harmony now either owns, has received valid acceptances of the
early settlement offer or has an irrevocable undertaking to accept the
subsequent offer in respect of a total of 151 859 866 Gold Fields shares
representing approximately 30.9% of the entire issued share capital of Gold
Fields.
Harmony is pleased with the support of its proposed merger by Gold Fields
shareholders. Harmony believes that a starting position of 30.9% represents a
strong platform for the subsequent offer. In addition, a significant number of
Gold Fields` shareholders who did not tender or only partially tendered into the
early settlement offer have indicated their support for the proposed merger,
stating their preference to accept the subsequent offer.
Reasons fed back by a number of Gold Fields` shareholders to Harmony for waiting
to accept the subsequent offer, aside from it being common practice, include the
fact that Gold Fields` management has been offering Gold Fields` shareholders a
number of potential inducements to refrain from tendering their shares. To
Harmony`s knowledge, these have included, inter alia:
- a specific buy-back by Gold Fields of Norilsk`s 20% holding in Gold Fields
at a 15% premium to Harmony`s offers, which would require the approval by way
a special resolution of Gold Fields` shareholders in general meeting, at which
Norilsk will be precluded from voting on the matter;
- a potential white knight making an offer for the whole of Gold Fields;
- the potential sale of all or certain of Gold Fields` international assets;
- the potential unbundling of certain of Gold Fields` South African assets;
and
- the revision of the terms of the proposed transaction between Gold Fields
and IAMGold to attempt to address the inequality of the previous agreement by
Gold Fields` management.
Harmony believes that some of these are not capable of being implemented,
especially in a manner that would be considered attractive to Gold Fields`
shareholders and clearly a number of these proposed options are also mutually
exclusive and contradictory. To take one example, the sale of production ounces
for cash, especially in a firesale environment, to raise cash to buy out a
single shareholder at a substantial premium is unlikely to be in the best
interests of all of Gold Fields` shareholders or to meet with the approval of
those shareholders.
Harmony awaits evidence that the Gold Fields` board has a coherent strategy in
place to deliver on any of these promises in a manner that is in the best
interests of all of its shareholders, now including Harmony. Harmony will watch
the outcome with interest.
The first test of Gold Fields` shareholders belief in the Gold Fields` board and
management and their strategy will come on 7 December 2004, when Gold Fields`
shareholders vote on the proposed IAMGold transaction. Harmony is of the strong
view that a board that has a major strategic move rejected by its own
shareholders should consider whether it continues to have the support and
confidence of its shareholders. Harmony is encouraged by the substantial
opposition to the proposed IAMGold transaction which had been expressed during
meetings that Harmony has held with Gold Fields` shareholders. Harmony
considers that Gold Fields` management has already positioned itself for a vote
of no confidence in this major element of its strategy.
At the heart of Harmony`s proposal is what it believes will be the creation of a
highly profitable South African champion that is able to compete internationally
and is positioned to become the leading global gold miner. Harmony is
convinced that, by applying Harmony`s superior and proven operational expertise
and efficiency to Gold Fields` assets, Harmony will build an exciting platform
which would create value for all shareholders. From the outset the enlarged
group would be the largest gold mining company in terms of production, reserves
and resources. Building on this Harmony is committed to also becoming the most
efficient and valuable gold miner worldwide.
Harmony has been able to build a substantial, sustainable gold mining business
out of mines that were discarded as unprofitable by its competitors, including
Gold Fields. Harmony attributes its` success to concentrating on basic
management principles known as the `Harmony Way`, which include a strong focus
on cost control and a flat, decentralised management structure that empowers the
people on the ground. Given Harmony`s proven track record in delivering cost
savings, Harmony is confident that, following completion of the proposed merger,
Harmony can achieve sustainable annual cost savings of at least R1 billion, or
15% of Gold Fields` South African cost base.
After initially attacking Harmony`s analysis as unrealistic, Gold Fields`
estimates of potential cost savings are creeping up towards the low end of what
Harmony believes is achievable by applying the `Harmony Way`, an implicit
acceptance of the cost savings opportunities achievable under Harmony`s
management. Furthermore, Harmony questions whether Gold Fields` management is
able to deliver even this lower amount, given its poor performance on cost
management to date. On 28 October 2004, Ian Cockerill confirmed: `A desire to
cut costs has always been a part of the Gold Fields strategy, but the desire to
do something and the ability to deliver can often be two entirely different
things.`
In its analysis of potential cost savings, Harmony is fortunate to be able to
make direct comparisons in respect of the cost levels of assets acquired from
Gold Fields. For instance, in relation to Evander, Harmony has achieved total
cost savings of some 33%. In fact, if Gold Fields still owned Evander today,
with Harmony`s cost structure, Harmony estimates that Evander would be Gold
Fields` most profitable underground operation by operating margin.
Harmony believes that savings of this magnitude would unlock a market value of
at least R17 billion. In addition, due to the current uncertainty in the
market, Harmony is trading at a substantial discount to its fundamental value,
with a price to net present value multiple of only 1.3x. As certainty returns,
Harmony expects this discount to correct itself, further increasing the value
inherent in the proposed merger. Following completion of the proposed merger,
the enlarged group would be the world`s largest gold mining company in terms of
production, reserves and resources, in Harmony`s view a `must have` investment
with substantial index weightings.
Harmony initiated a strong Rand restructuring process some six months ago, which
involved closing down unprofitable operations and streamlining the work force.
This restructuring process has now been completed and some 83% of Harmony
operations are profitable with only a marginal reduction in production.
Harmony`s ore reserves are strong and demonstrate little sensitivity to a lower
gold price. Harmony believes that it is now optimally positioned to face a
sustained strong Rand/Dollar exchange rate.
`We are delighted that we will be starting the subsequent offer with 30.9% of
Gold Fields` shares behind us and consider that this provides strong impetus for
the ultimate success of the proposed merger. We are further encouraged by the
feedback that we have received from Gold Fields` shareholders who have indicated
their ultimate belief in the value proposition that Harmony is offering and
their support for the proposed merger. In addition, a significant number of
Gold Fields` shareholders have expressed to Harmony their recognition that the
proposed IAMGold transaction, which represents the major pillar of Gold Fields`
management`s strategy is value destructive and not in the best interest of Gold
Fields and its shareholders. Now that Gold Fields` management is reaching the
end of its largely unsuccessful attempts to frustrate the proposed merger
through a serious of expensive and technical legal challenges, we look forward
to arguing Harmony`s compelling value proposition based on fundamentals with the
confidence that the various contradictory promises made by Gold Fields`
management will be revealed as both value destructive and ultimately incapable
of implementation in a manner that is either to the benefit of or likely to meet
with the approval of Gold Fields` shareholders.` said Harmony CE Bernard
Swanepoel.
THE SUBSEQUENT OFFER
As set out in the circular to Gold Fields` shareholders dated 20 October 2004,
Harmony irrevocably undertook to make an the subsequent offer on the same terms
as the early settlement offer for the balance of the issued share capital of
Gold Fields not already acquired by Harmony under the early settlement offer.
Accordingly, Harmony will commence the subsequent offer and will shortly post to
Gold Fields` shareholders a supplementary document containing the terms and
conditions of the subsequent offer.
* the 29% premium is calculated by comparing the closing Harmony share price on
14 October 2004 to the average daily volume weighted average price of Gold
Fields shares on the JSE for the 30 business days ending on 14 October 2004, the
last practicable date in accordance with the JSE Listings Requirements prior to
the announcement of the proposed merger.
ENDS
ENQUIRIES
HARMONY
Ferdi Dippenaar +27 11 684 0140 Corne Bobbert +27 11 684 0146
Marketing Director +27 82 807 3684 Investor Relations +27 83 380 6614
HSBC INVESTEC
Adrian Coates +44 20 7991 8888 Dennis Tucker +27 11 286 8725
Andrew Bell George Nakos
Jan Sanders Andrew Brady
Tim Morgan-Wynne Kevin Kerr
Graham Shuttleworth
