The Harmony/Gold Fields story

MONEYWEB, Alec Hogg, 18 October 2004

David Shapiro: Market watcher

‘We don’t know how it’s going to unfold.’

MONEYWEB: David Shapiro is our market watcher. He works for BJM. But today, I suppose everybody, BJM and everywhere else, were looking at what’s going on with Harmony and Gold Fields?

DAVID SHAPIRO: Alec, if you look at the trade, at 5.00 pm trade was R3bn. But wait, R600m of that was in Gold Fields, and then Harmony at about R380m. So it made up about 30% of the trade on the market today. And I think what Arthur was alluding to earlier is correct – when America opened, I think we saw a lot of American holders selling off those Gold Fields, unhappy about this deal, certainly unhappy.

MONEYWEB: Don’t want Harmony.

DAVID SHAPIRO: Don’t want Harmony, and therefore sold this down, not looking at that arbitrage which I think local traders took advantage of. So they created the gap, which allowed the arbitrageurs to come in.

MONEYWEB: We’re going to have a full look at the whole Harmony Gold Fields story in tonight’s programme, Barry will be here in a moment to give us some background and then Bernard a little later. But, on your gut feel, you’ve seen many of these – is there a way that people who don’t own either of the shares can make money?

DAVID SHAPIRO: No, I think just avoid it. You’re going to get hurt. Leave this to the professionals, because they’re going to play it. And we don’t know how it’s going to unfold. I think it’s going to be a massive battle of wills. You’re going to hear Bernard’s story – why they want it. And obviously I think the interesting part is Norilsk, which is the Russian nickel producer, and its role. Remember, Anglo American sold their stake in Gold Fields to Norilsk. Now Norilsk are siding with Harmony. Its very interesting.

MONEYWEB: It’s a real soapy saga, isn’t it? Anglo American owns 20% of Gold Fields, which is a South African company. It decides, against the advice of its subsidiary. Apparently the AngloGold guys were really cross that they didn’t get a chance to buy that 20%. It sells it to the Russians, the Russians now don’t seem to be too keen with the current Gold Fields management. They find new friends in Harmony, they are supporting Harmony in their hostile takeover battle against Gold Fields. Fascinating.

DAVID SHAPIRO: And just to add, the other leg is that Gold Fields themselves, are doing a deal with their offshore assets with a company called Iamgold, which is a listing in Toronto and on New York. So there are all these different elements that will come into play, and there’s going to be a field day, especially for the media.

MONEYWEB: Well, we’re going to be following that, no doubt, in the days and weeks ahead – in fact the Moneyweb staff have done fantastically well on this, there’s a whole bunch of stories, absolute carpet-bombing of the story. So if you want to know who the fellow is from Russia, the oligarch from Russia, Felicity Duncan has written a complete story on that called Vlad the Impaler. And there is everything you would ever want to know about this soap opera called Harmony versus Gold Fields on the Moneyweb and the Mineweb sites right now. The rest of the market, Dave?

DAVID SHAPIRO: The rand dominating. The dollar came under severe pressure. The dollar against the euro is at levels that we last saw in February, March. A lot of concerns in the United States – the outcome of the election, the high oil price, corporate earnings not living up to expectation. So a lot of things playing against the US markets now. One can’t appear to see any light there. So the dollar got weaker, which strengthened the rand, particularly after last week’s failure to cut rates, and the better inflation outlook. So what happened is the rand picked up and that put a lot of pressure on our resource market as well.

MONEYWEB: I was going to say that David, while all this was going on on the side, the rand is at R6.33.

DAVID SHAPIRO: R6.33 – and it’s also worrying local investors now, because they are not quite sure how our local economy is actually going to cope, particularly on the stock exchange. It relies heavily on the export side of the market for its profits. A lot of companies operate offshore. So it does hurt the JSE – I’m not saying the South African economy, but those shares listed on the JSE. So the JSE came under a lot of pressure, Breweries and Richemont and Anglos and Billiton and all those heavyweight shares weighed down on the index, and we ended up I think losing about 0.8%.

MONEYWEB: Why would the rand have been so strong today? Any particular reason?

DAVID SHAPIRO: Just the weak dollar. It’s really come under pressure and there’s no reason to go into the dollar. Why would anyone with rands want to switch into dollars at this stage?

MONEYWEB: Arthur, from your perspective, did you see that there was quite a lot of arbitraging against the weaker dollar today – in other words, people coming in with the stronger rand?

ARTHUR BUCHNER: Funnily enough, from a futures perspective and a derivatives perspective, we were buyers today. We actually had baskets going through which were buying, and we just bumped into stock the whole day.

MONEYWEB: Explain that – baskets?

ARTHUR BUCHNER: Baskets – when someone wants to unwind a hedge and they want to buy their futures back, they take the market to a premium, which is a higher level. We will sell the future and we will buy the underlying spot, which is all the Anglos, etc. And there was continuous selling. And remember that, with the [indistinct] and Anglos, it’s the same price in pounds, but it’s much, much lower in rands. And so that put pressure on the market definitely. Bucking the trend, though, were the platinum stocks.

DAVID SHAPIRO: Platinum shares were very strong and I think that’s because of this buy-back that Impala have said they are going to do.

MONEYWEB: And well they should be strong at the moment, although we have been fighting with them, you might remember, about the conops [continuous operations] – and we asked Bernard Swanepoel, on a different occasion I think, what he thinks about Mr David Brown’s Impala saying that conops don’t work, because Impala of course have resisted it and Harmony is making a bet on it.

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