Rationale
6. The parties stated that as Anglogold is currently mining adjacent to the Driefontein block via its TauTona mine it will have access
to the acquired minerals towards the end of 2004 whereas Driefontein, due to a lack of necessary infrastructure, would only access
the area sometime beyond 2014 via its No. 1 Tertiary Shaft System.
7. Gold Fields, through the target firm, would be able to obtain fair value for the minerals now, bring its value forward and use
the funds in its existing operations whilst Anglogold can use the mineral rights for the extraction of its mineral content in the
near future in line with its value-adding growth strategy.
Activities of the merging parties
8. Anglogold is primarily involved in the manufacturing, marketing and selling of gold, more specifically bullion bars. Anglogold then delivers
the gold to Rand Refineries, which refines and sells the gold on the international market as gold bullion.
Anglogold currently operates seven South African mining operations located at Great Noligwa, Kopanong, Moab Kotsong, Mponeng, Savuka,
Tau Lekoa and TauTona. Apart from these, it also has gold mining interests in Argentina, Australia, Brazil, Mali, Tanzania, Namibia
and the United Sates.
9. Driefontein forms part of Gold Fields’ three wholly owned South African gold mining operations, whose primary activity is the mining and
processing of gold. Similarly, the gold mined by Driefontein is delivered to Rand Refineries, which refines the gold and sells it
on the international market as gold bullion.
The relevant market
10. In their analysis, both the Commission and the merging parties distinguished between the different levels in the production and
supply chain for gold. They identified three key stages with regard to gold manufacturing:
Firstly, “production of gold” – this stage entails the exploration, mining/extraction, smelting and primary refining of gold. These processes (referred to by the parties as ‘upstream market’) are typically conducted in their entirety by gold mines.
Secondly, “secondary refining of gold” – this follows the primary refining whereof gold which is 95% pure (known as dore) is delivered to refineries for further (secondary) refining. As indicated earlier, two secondary refineries exist in South Africa,
viz, Rand Refinery in Germiston and the Harmony Refinery in Virginia. The latter is primarily concerned with in-house refining whilst the former refines the balance of Harmony’s, and
other local and international firms.
Thirdly, “distribution to wholesalers and end users by bullion banks” – with the exception of Harmony, which markets and sells the gold that it refines to the international bullion banks, Rand Refinery
acts as the agent for the rest of the gold producers and sells the gold to the international markets, including banks and jewellers
(referred to by the parties as the ‘downstream market’)
Product overlap
11. It appears from the above that both the primary and target firms are active in the production and supply of gold. Neither party
is involved in downstream supply to users/wholesalers.
The relevant geographic market.
12. For purposes of this transaction, we therefore conclude that the relevant geographic market is the production and supply of gold
in the international market.
Market shares
13. According to the parties and the Commission, the market shares structure of both the merging parties and their competitors, based
on estimated output for 2003, is as follows:
| Competitor |
Estimated output in ounces for 2003
(000’s) |
Estimated
market share (%) |
| Driefontein Mineral Rights |
|
0,0004 |
| Harmony/ARMGold |
3,692 |
5,1 |
| Freeport-McMoran |
3,385 |
4,1 |
| Durban Roodepoort Deep |
927 |
1,1 |
Source: Gold Field Mineral Services, Deutsche Bank, Driefontein
14. The parties indicated that Driefontein’s production entails 26% of Gold Fields’ production. The Driefontein’s
mineral rights make up only 2% of the total reserves at Driefontein and 0.007% of Gold Fields’ total reserves. Anglogold’s
post-merger market share accretion is very insignificant (0.007%).
15. The parties contended further that this transaction will result in the acquisition of the Driefontein Mineral Rights and will
not alter the competitive position of either party to this merger. As a result, the Commission submitted that the merged entity’s
post-merger market share would be below 15%, which is very unlikely to raise competition concerns.
Competitive effect of this transaction
16. The parties contend that there are a number of constraining factors in the market that will prohibit any anti-competitive harm
as a result of either unilateral or co-ordinated effects. When considering the structure of the supply chain, it appears that neither
Anglogold nor Goldfields is active at the level of downstream distribution.
17. Both the Commission and the parties contend that although both Anglogold and Gold Fields have stakes in Rand Refinery, this transaction
involves the sale of the Driefontein Mineral Rights and therefore no direct competitive impact on the (secondary) refining stage
is envisaged. Hence Rand Refineries’ ownership structure will not be affected by the acquisition
18. The Commission further contends that this transaction will not induce foreclosure as Rand Refineries is currently refining for
both Driefontein and Anglogold whilst Rand also refines dore for other local and international mines. As a result, the parties contend that should gold producers in a particular geographic region
seek to raise prices to refiners in South Africa, the latter might be able to procure gold dore elsewhere. In addition, the parties’ post-merger market shares will be below 15%.
19. In our previous decisions, we held that no single gold producer has the ability to influence the gold price, and that gold producers
are essentially “price takers” with the price being determined by reference to the daily price fixings of the London
Bullion Association.
20. From the above, it appears that this transaction will not impact on the level of concentration in the relevant market, and given
the peculiarities of the gold international market, the transaction viewed in its entirety is unlikely to substantially prevent or
lessen competition.
Public interest considerations
21. No impact on employment is envisaged.
Conclusion
22. In light of the above findings, we conclude that this merger is unlikely to substantially lessen or prevent competition in any
of the relevant markets. We accordingly approve this transaction without any conditions.
______________ 04 February 2004
D. Lewis DATE
Concurring: N. Manoim, P. Maponya
For the merging parties:
Mr Anton Norton, Webber Wentzel Bowens.
For the Commission:
Ms Odie Strydom assisted by Mr. Asogren Chetty, Competition Commission
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