MONEYWEB, Alec Hogg, 18 October 2004
The Harmony bid – ”We will be recommending to our shareholders that they do not accept this offer. We believe that it significantly undervalues the company … [and] we believe that it is an inferior offer to the strategy that we’ve already put out.”
MONEYWEB: Some business leaders have changed the way their companies work, or even revolutionised whole industries. In Champions of Change, we talk to some familiar business people and some not so familiar about how and why they changed the way things are done. Tonight, what a man to have in this spot – none other than Gold Fields Limited chief executive Ian Cockerill. Ian, before we go into the way that you are changing things, with your Iamgold acquisition in North America, you had your board meeting this afternoon – what was the conclusion on the Harmony takeover proposal?
IAN COCKERILL: Alec, we listened very carefully to the advice coming from our advisers. But the net outcome from the board was a very simple one – and that is that we will be recommending to our shareholders that they do not accept this offer. We believe that it significantly undervalues the company on the basis of the merger ratio which has been put forward. And importantly, we believe that it is an inferior offer to the strategy that we’ve already put out, which is the Gold Fields International, the Iamgold transaction. We believe that there’s more value to be created that way than there is by a merger with Harmony.
MONEYWEB: What would interest you? Was there any indication at all of the kind of level, the kind of premium, that you would require to make this even slightly interesting?
IAN COCKERILL: Alec, I think it’s beyond just the premium. And you have to look – whilst they are two companies in the same business, they do have a very different niche. Gold Fields franchise is one of high quality, long-life assets that require a large amount of investment, inward investment. And we’ve been doing that over the past few years. If you look at our South African assets, over the last five years we’ve injected R4.8bn of investment into our South African assets alone. This year, alone, we’ve done R2.8bn worth of capital investment, a significant chunk of which has gone into the South African side of the business. So the criticism that, one, we are rejecting South Africa and we are not investing in our assets is plainly false. I mean – we have a R10bn project pipeline here in South Africa.
MONEYWEB: When I said that – and you told me that this afternoon in our discussion – when I mentioned that to Bernard Swanepoel who was on the programme earlier, he said, yes, that actions speak louder than words, and your actions have not supported these type of pro-South African philosophies.
IAN COCKERILL: Well, actions are all about what we do, and what we have done, we have made a huge investment over the past few years in this company. And I think it’s also fair to say from a South African perspective, when the company was formed back in 1998, we had a share price of R14, and at the close of business today, we had a share price of R94. If you look at it in US dollar terms, it’s even more significant. It”s gone from $2 to $15. You don’t get there, Alec, unless you are prepared to invest in and grow your business.
MONEYWEB: And change things. The whole Iamgold transaction, which is the cornerstone upon which Harmony is now launching its bid – what is it from your perspective that makes this such an important change, and such an important transaction for Gold Fields going ahead?
IAN COCKERILL: You know, unlike Harmony, we have a fairly significant international portfolio of assets and we have a very good track record, as well, of making those assets work and growing them. But the sad fact of the matter is that the market was not recognising, was not giving us, we believe, the intrinsic value within those assets. It was quite ironic that our partner Tarkwa Mine, Iamgold, was receiving a higher valuation for its stake in the Tarkwa mine than we were getting – and we were the operator. And it was just simply a question of this internationalising transaction, Iamgold buying the international assets of Gold Fields, that we felt would give a rerating to those assets, rating them much more in line with their peer group in the North American market. I know there’s been lot of arguments, pros and cons, about what things are rated at in various part of the world. Regrettably, and I think incorrectly so, assets in South Africa don’t command the same premiums that they do elsewhere. And if one looks at what has happened since we announced the transaction, the Iamgold transaction, on August 11, the see-through value accretion attributable to Gold Fields – because bear in mind we will be owning 79% of Iamgold, which will become Gold Fields International – that value has grown by $500m. That’s a significant value accretion. That’s demonstrable, it’s there, it’s in the market. So what it’s done, it’s enabled the international asset portfolio of Gold Fields to be ranked and rated against its peer group in the more liquid international marketplaces, greater access to cheaper capital and, importantly, has placed an aggressive growth vehicle under the control of a South African-domiciled company, which is Gold Fields Limited.
MONEYWEB: And Ian, are you going to live in Denver once the deal with Iamgold is concluded? Have you been buying a house there?
IAN COCKERILL: No, I am not. I’m firmly entrenched here and, as we said at the time of the deal, I and Nick Holland are staying here. We are running Gold Fields. We are going to be running Gold Fields Limited, and that means we are based here in Johannesburg, and that’s where we’re going to stay.
MONEYWEB: Ian Cockerill, chief executive of Gold Fields Limited. Quick comment from David Shapiro – you’ve heard both sides of the story.
DAVID SHAPIRO: Don’t ask me to comment. My own view, I think it leans towards Gold Fields going with Iamgold. I think the international investors are going to stay with the better quality paper. That’s my own feel of it, but I think it can go any way.
MONEYWEB: Arthur Buchner?
ARTHUR BUCHNER: I would agree with that, and I don’t think there’s any arbitrage opportunities – and the market showed that at the close.
MONEYWEB: So, in other words, don’t go and buy Gold Field shares because you think you can make a little bit of money out if it. Just sit on the sidelines and watch. It’s too close to call.
ARTHUR BUCHNER: 100%.
MONEYWEB: Arthur, but even though it is too close to call, if you were forced into a situation, do you think Harmony’s going to get it right or not?
ARTHUR BUCHNER: I don’t think they will get it right. I think minority shareholders in Gold Fields will vote against it and rather keep what are substantial assets rather than dilute themselves.
MONEYWEB: Well, there’s a vote of 2:1. Nick Goodwin earlier on said he thought that the Gold Fields shareholders would have rocks in their heads if they didn’t accept the Harmony offer, but both David and Arthur Bucher, on a very close verdict here, are saying that they think Gold Fields will be successful in its defence. It something that’s going to be continuing for the next 30 days. I hope you now have the kind of background that you would be looking for. If you missed any part of this programme, go onto the Moneyweb site, there’s plenty there. Thousands – in fact, tens of thousands of jobs are at issue here, billions of rands are at issue as well, in potentially the creation of the biggest gold producer in the world – and from two companies at the moment who are not up certainly in the top three.