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Slim chance of sweeter offer from Gold Fields for Western Areas shares, say analyst
We want cash - Harmony
September 14, 2006
By Justin Brown
Johannesburg - Harmony Gold signalled yesterday that it was unwilling to accept the offer by Gold Fields for its Western Areas shares.
"There will not be many takers for Gold Fields' current offer," Harmony chief executive Bernard Swanepoel said yesterday. When asked what Harmony's plans were after the foiled Western Areas bid, Swanepoel said: "Western Areas is not over."
Gold Fields said on Monday it would buy out Western Areas shareholders in an exchange of 35 Gold Fields shares for every 100 Western Areas shares. It would not pay cash.
South Deep, located near Johannesburg, is a 50-50 joint venture between Western Areas and Canada's Barrick Gold, the world's largest gold mining company.
Swanepoel's comments are a signal that Harmony, which owns 29.2 percent of Western Areas, may be planning to hold out for a revised offer from Gold Fields.
Harmony is one of three parties that is unhappy with Gold Fields' offer, which they say undervalues the company and should include an option for a cash payment.
The other two parties are Cape Town-based fund manager Regarding Capital Management, which owns 5 percent of Western Areas, and Trinity Asset Management, which indirectly has a R200 million shareholding in Western Areas.
Swanepoel said that the Western Areas board should have asked Gold Fields to offer shareholders cash for their shares. A cash offer was attractive as it was clear cut, while an all-share offer was difficult to judge as the market for Gold Fields and Western Areas shares was constantly changing, Swanepoel said.
Given the changing nature of the share market, it was premature to judge the Gold Fields offer, but Harmony would be considering its position over the next three months while the offer was still open.
Regarding Capital Management analyst Roger Walters said the valuation of the Gold Fields offer to Western Areas shareholders was not the same as the price it had offered to Barrick Gold. "If it comes to it, we would like to have cash."
Trinity Asset Management director Quinton George said the price at which Gold Fields bought Barrick's stake implied a value of R72 per Western Areas share when the negative value of the Western Areas hedge book was excluded. "The offer from Gold Fields to Western Areas is not bad, but it is not as good as the price that Barrick has got."
Trinity Asset Management owns between 13 percent and 14 percent of Randgold & Exploration (R&E), which has a claim of up to R5 billion against JCI. R&E could use legal action to stop JCI selling its Western Areas shares if it was not happy with the Gold Fields offer, George said.
"The JCI board swiftly accepted the Gold Fields all-share offer on its merits. Given the appreciation in the Western Areas share price over the past year, accepting the offer was a no brainer," said a JCI spokesperson.
Walters said that exposure to Gold Fields assets would not be of the same quality as the exposure Regarding Capital Management had to the South Deep mine through the Western Areas shares.
A Johannesburg analyst said there was a potential for Gold Fields to sweeten its share offer, but there was a "slim chance" of a cash component to the offer. Western Areas shareholders did not have many options and Gold Fields appeared willing to take its time in buying out the shares completely.
Harmony lost 0.81 percent to close at R90.25, while Gold Fields lost 1.52 percent to close at R129.01 on the JSE yesterday. The gold mining index slipped 1.26 percent.
