The ghost of Standard Oil??????????
Gold mining industry may face shake-up
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Analysts see Godsell's comments as a sign that consolidation could occur sooner than expected
THE SA gold industry's long-awaited consolidation could occur sooner than expected, if analysts' interpretations of comments by AngloGold CE Bobby Godsell at the weekend are correct.
Godsell, who would be a key factor in such a process as CE of the world's biggest gold mining company, came out strongly on Friday on the need to consolidate the industry along geological boundaries rather than company lines.
"We are out of the superprofit era," he said, referring to the times when gold was trading at more than $600 an ounce and profits were easy to come by. "We need to look at some form of cooperative management."
Godsell said this would probably not mean one company owning all or most of SA's gold mining assets, but would more likely involve joint ventures or toll treatment arrangements ore treatment by a third party for a fee.
His words came with an acknowledgement that there were many dark clouds on the industry's horizon.
AngloGold is cautious in predicting a direction for the gold price, saying the lack of volatility in the past couple of months was not a good sign.
Analysts said the extended bear market in gold could be the catalyst for a major consolidation, possibly even involving SA's two big players.
"AngloGold appears to be positioning itself to engineer a reorganisation of the SA gold industry, and clearly has its sights on Gold Fields," said CIBC World Markets analyst Jack Jones.
It is understood that while such a merger could be positive for the industry and shareholders, regulatory approval would be a key issue.
However, other local gold companies, such as Harmony and Durban Roodepoort Deep, would also be in line to benefit from a redistribution of assets, which might help overcome regulatory objections.
This was because the new group might be smaller in final stages than it would have been had the two companies merged without making provision for possible disposals of nonperforming assets, analysts said.
Analysts also speculated that Harmony would be a prime candidate to take over AngloGold's Elandsrand operation since it has the cash, which is a prerequisite as this is the only kind of deal AngloGold is likely to accept.
Harmony reportedly has a R3bn revolving credit facility in place with a major US bank.
One analyst said the pace of empowerment in the gold mining industry could be accelerated if a merger happened and noncore holdings were passed on to empowerment groups.
ING Barings analyst Joachim Berlenbach does not see a merger as an impossibility, but said it would have to be on a friendly basis for the benefits to be realised immediately and continue into the long term.
He said a positive factor was that the company would significantly increase its market capitalisation, a vital factor for it to register on the radar screens of major international fund managers.
But Gold Fields may have plans of its own. The company has two key mines, Kloof and Driefontein, in its local asset base and Tarkwa as an overseas operation. Although chairman Chris Thompson said that he saw the Franco-Nevada merger as it is proposed now as dead in the water, Gold Fields was still trading under a cautionary notice.
Thus, as Gold Fields and Franco have an agreement in place until the end of the year to merge, and while the proposal was disallowed, a merger on different terms is still possible.
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