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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (20199)	10/18/2004 2:18:05 PM
From: ild	Read Replies (1) \| Respond to of 110194

Date: Mon Oct 18 2004 13:08 trotsky (GFI/HMY/IAG) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved GFI's offer to merge its international assets with IAG can be characterized thusly: they overpay, but it makes good strategic sense, and is a growth oriented move. clearly though, GFI is overpaying for IAG's assets, and this is also why inter alia, Potanin doesn't like the deal. he thinks it dilutes Norilk's pro rata ownership claim on GFI's international assets, and this assessment is correct. the new proposal to merge HMY and GFI makes a lot of strategic sense - from HMY's PoV. they get their hands finally on Beatrix ( the mine in front of which GFI has put a 'not for sale' sign ) , and can realize numerous synergies at the South African operations, plus they get their hands on a big international presence which they didn't have thus far. the combined international ops of HMY and GFI would not only be a major player in Ghana, but also in Australia. of course it does not make sense from the PoV of GFI management's playbook. GFI's plan was to retain the best of the major SA assets ( of which 15% have been hived off to an empowerment group already ) , but pursue expansion exclusively outside of SA, i.e. primarily grow the GFI International side of the business. by merging with HMY the resulting combination would once again be weighed primarily toward SA based assets. it is hard to say which strategy would bring about the better long term benefits. one must however note that HMY would no doubt be the best thing that could happen to GFI's domestic assets - if HMY's management were to concentrate on those while GFI's management continues to concentrate on the international side of the business, the results could be quite spectacular in terms of shareholder value. of course, IAG's shareholders would be stuck with the bag, but not a bad bag, since IAG's assets are quite valuable on their own. but the premium ( the amount of overpayment by GFI for IAG's assets ) would disappear from the share price, or rather, is disappearing already as we speak. it is doubtful whether another suitor would be prepared to pay as much for IAG as GFI would - although Randgold could still emerge as a potential 'white knight' for IAG. there are wider repercussions should the proposed HMY/GFI merger succeed: since the company would be the new number one global producer, we can expect the other big gold groups to accelerate their own consolidation plans. a NEM/PDG combo is a possibility, and imo BGO is also a strong contender ( as a target for any of the major producers, who no doubt are salivating over Kupol ) .