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ARCHITECT... GFSA's Alan Wright put together the deal (top). VISIONARY... Brian Gilbertson was always confident of agreement (above),
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GFSA, Gencor in R17bn gold merger
The new company will be the world's greatest gold vehicle, writes JULIE WALKER
GFSA CE Alan Wright says the deal is a true merger. This deal also precludes New Africa Investment Ltd's purchase of the Asteroid holding, but Wright says it has not been sidelined as it is an important player. Nail has been granted an option to acquire between 5% and 10% of Goldco; 10% would cost R1.7-billion. Gencor chairman Brian Gilbertson says "Goldco" is a stool with three very solid legs, namely Driefontein, Kloof and the Southern Free State goldfield, principally Beatrix. Goldco will probably be instituted via the Driefontein listing as this is by far the largest with a market capitalisation of R6.6-billion. GFSA's other mine, Kloof, is half as big, and Deelkraal has been sold to Elandsrand.
Perhaps most remarkable about the deal, coming so soon after Gencor's separation of non-gold assets into Billiton to leave Gencor as a precious-metal specialist, is that Gencor has sold them so quickly: GFSA made an approach only in August. Gilbertson acknowledges that Wright is the architect behind the deal. "I gained the approval of the GFSA board to approach Gencor at our board meeting on the third Tuesday in August. We were close to agreement by last Tuesday," says Wright. "We believe that the South African equity market is an effective marketing vehicle and we have agreed to use the average share prices during the month ending September 26 in determining the values of the assets to be sold into Goldco." Says Gilbertson: "At no time did I think we wouldn't reach agreement." The deal will involve offers to all the minorities in the affected companies other than in St Helena because of a tax consideration. Goldco will own 100% of Kloof, Dries, Oryx, Beatrix and Evander, 24.5% of St Helena and 33.5% of Eldorado, as well as international assets and mineral rights. Initially, GFSA will hold 35% of Goldco and Gencor 20%. Anglo American will have 8% of Goldco and 22% of GFSA. Simultaneously, GFSA will make an offer for Gencor's 20% of Goldco in a two-pronged deal which helps to unlock the complicated holding structure of GFSA itself. As consideration, Gencor will accept Asteroid, a company jointly owned by GFSA and Driefontein and which owns 40% of GFSA Holdings, owner of 39% of GFSA. Secondly, GFSA will undertake an issue of shares to give Gencor a direct holding of 13% in GFSA. Rembrandt has 40% of GFSA Holdings and Liberty 20%. "I didn't feel it would be proper to become part of this historic incestuous loop," says Gilbertson. "I am having to pay a 10% premium to get into GFSA directly, which was very difficult for me, but I hope it will be justified by the value to be released. A vision of gold-mining leadership is being sold here. "Goldco is the world's greatest gold vehicle. There are substantial opportunities for a rerating of the shares in what I believe is the start of the release in value in the GFSA structure. I hope that Goldco can become an autonomous company as the management contracts will cease to exist." Gilbertson will chair Goldco and become a deputy chairman of GFSA. Wright will be deputy chairman of Goldco and the next chairman: Gilbertson indicates that he cannot do two full-time jobs and has allocated nine months to Goldco. GFSA's gold chief Richard Robinson will be chief executive officer and Gencor's Tom Dale chief operating officer. Rembrandt's Johann Rupert is to become chairman of GFSA on the retirement of Robin Plumbridge. Rembrandt group has 17% of GFSA and 14% of Gencor; this deal goes some way to consolidating two unwieldy portfolio investments. Gencor will become a holding company with only platinum mine Impala to be managed. GFSA is to take all the gold-division staff in the deal and Billiton will assume the Gencor head office premises. "I have told the Impala management to add value quickly," says Gilbertson, declining to discuss whether a deal between Impala and Northam, GFSA's platinum mine, is possible. Gilbertson denies he is getting out of gold. "It's untrue to say I don't like gold: I love gold but I want good gold. Eight years ago, Gencor's gold mines were probably the worst in the industry. We have sold the duds and this deal brings together the best mines in the country. I'd be very disappointed if Goldco can't force costs down." For now, Goldco avoids the route of batching quality gold mines together and quantity gold mines elsewhere, as is being taken by JCI's gold division. What is not an essential holding in Goldco could be disposed of at a later date.
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The Gencor mines are much smaller, Beatrix (also a possible listing vehicle) is valued at R2-billion and Oryx at R1-billion. Gencor's Evander and St Helena mines are worth R752-million, and the combined value of the international and other assets adds R3-billion to gross close to R17-billion. Reserves will exceed 120-million ounces and annual production 4-million ounces of gold at low cost.