PIC says gold merger must benefit SA and shareholders

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Sibanye-Stillwater CEO Neal Froneman made headlines a fortnight ago when he said that a merger of South African gold companies is in the best interest of the country. He told BizNews editor at large Jackie Cameron, “we’re all going to either get consolidated internationally or we can do the consolidating. The real benefit for shareholders – and it’s not an issue of just size – it’s that bigger companies trade at higher multiples”. While the benefits of a merger for shareholders is clear to see, Mdu Bhulose, portfolio manager for mining and resources at the Public Investment Corp (PIC) has said the potential gold merger must benefit not only shareholders, but South Africa, too. “We look at returns, but also what impact it will have for all other stakeholders,” said Bhulose. Bloomberg says that the PIC looks out for “potential job losses, the welfare of communities in which mining companies operate, as well as the interests of the broader South African economy”. – Jarryd Neves

South Africa’s PIC Says Gold M&A Must Produce Local Benefits

By Felix Njini and Loni Prinsloo

(Bloomberg) – Africa’s biggest fund manager and a key investor in South African gold companies said any consolidation in the sector must benefit the country as well as shareholders.

The Public Investment Corp., which manages R1.91trn ($128bn) of mainly South African government worker pensions, has a broader mandate than purely shareholder returns, said Mdu Bhulose, portfolio manager for mining and resources at the money manager. It also considers potential job losses, the welfare of communities in which mining companies operate, as well as the interests of the broader South African economy, he said. That will affect the way it assesses proposals, he said.

Bhulose’s comments come amid speculation that Johannesburg-based Anglogold Ashanti Ltd. and Gold Fields Ltd., could be takeover targets for foreign buyers because of their relatively low valuations. Neal Froneman, the Chief Executive Officer of South African gold and platinum miner Sibanye-Stillwater, has said the three companies should combine to avoid being bought by companies based elsewhere.

“Is this going to be a value destructive deal for the country?,” Bhulose said of the PIC’s approach to potential takeovers in an interview last week. “We look at returns, but also what impact it will have for all other stakeholders.”

The PIC is the biggest shareholder in AngloGold, holding 11.9%, and the second-largest in Gold Fields with 9.6%. In Sibanye, its 15.9% holding is the biggest of any investor.

Newmont Corp., the world’s biggest gold miner by market value, has a price-to-earnings ratio that’s more than double both AngloGold and Gold Fields, highlighting the discount at which the South African producers trade.

While AngloGold and Gold Fields have shifted their focus to more profitable operations elsewhere in Africa, Australia and the Americas, they retain their primary listings on Johannesburg’s stock exchange.

“If you trade at a discount, somebody that trades at a premium is going to buy you,” Froneman said in an interview earlier this month. “AngloGold, Gold Fields and even us, we are targets for North American producers.”

Gold Fields, founded by Cecil Rhodes in 1897, runs South Deep mine, its sole remaining asset in South Africa. AngloGold, which emerged from a mining empire created by Ernest Oppenheimer a century ago, sold its last mine in South Africa last year and has been mulling moving its primary listing elsewhere.

“If the answer is that you will get more from the assets when you put them together than if they are apart, certainly there is merit to that transaction,” Bhulose said. “We need to evaluate what management teams can prove on paper in terms of creating value, and how they can manage these businesses to deliver more value.”

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