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Gold Fields uses strong results as stick to hit at Harmony
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29th April 2005
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South African gold major Gold Fields yesterday again came out strongly against smaller rival Harmony Gold's hostile all-share takeover bid, ahead of the next round of legal wrangling between the two companies set for next week.

Presenting Gold Fields' results for the quarter ended March 31, CEO Ian Cockerill charged that should a successful bid, which would create the world's largest gold producer, would, in fact, produce the world's biggest “loss-making gold company”.

In what has become a protracted and often-complicated battle between the two, Cockerill again rejected Harmony's contention that its unsolicited all-share offer would create value for Gold Fields' shareholders, especially in light of the smaller group's deepening financial woes. Harmony on Monday reported its seventh consecutive quarterly loss.

Gold Fields chief financial officer Nick Holland told journalists yesterday that there is currently a R17 000/kg gap in cash costs between Harmony and Gold Fields in terms of the two companies' South African operations - Gold Fields puts its cash costs at R70 999/kg, while those of Harmony are said to be R87 233/kg.

Similarly, Holland said that cash costs for group production for the two gold producers stood at R65 000/kg for Gold Fields and R85 000/kg for Harmony.

“Gold Fields has a stable to growing gold production profile, while Harmony is on a downward trend,” he commented, adding that it is expected that Harmony's production profile will slip even further as the group closes unprofitable shafts.

During the March quarter, Holland revealed that 13% of Gold Fields South African operations had been unprofitable, but said the company is in the process of closing down marginal areas at its Beatrix shaft, while Driefontein and Kloof are currently in build-up phases and are expected to reach profitability soon. He stressed that no Gold Fields shafts are currently facing closure and no job losses are anticipated.

In contrast, Holland claimed, some 61% of Harmony's South African operations are currently loss-making, with at least 4 900 workers facing retrenchment.

Next week will see the two miners in court again, as Gold Fields' application against Harmony and the Securities Regulation Panel is set to be heard by the High Court.

Earlier this month, Gold Fields claimed in court papers that Harmony's all-share offer lapsed on December 18 last year and is incapable of revival, Cockerill said.

“The effect of the lapsing of the offer is that any acceptance by shareholders subsequent to December 18, 2004, have now simultaneously lapsed and the offer is now a nullity,” he stated.

In addition, South Africa's Competition Tribunal is also set to hear argument between May 3 and 6 as to whether the proposed merger should be approved in terms of the Competition Act.

Meanwhile, Cockerill also commented on the upcoming wage negotiations within the South African mining sector and called for “realism” in trade unions' demands.

“We don't want to trade off high increases for job losses,” he stated, adding that a figure of a 10% increase has thus far been bandied around – a lower starting point than the unions' demand of 20% at the start of last year's talks.
Edited by: Martin Czernowalow

 

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