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Gold Fields Limited and Barrick Gold South Africa (Pty) Ltd / Western Areas Limited (83/LM/Oct06) [2006] ZACT 94 (6 December 2006)
.RTF of original document
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: 83 & 84/LM/Oct06
In the matter between:
Gold Fields Limited
Primary Acquiring Firm
and
Barrick Gold South Africa (Pty) Ltd
1stPrimary Target Firm
and
Western Areas Limited
2nd Primary Target Firm
Panel
:Y Carrim (Presiding Member), MTK Moerane
(Tribunal Member), and N Manoim (Tribunal Member)
Heard on
:
22 November 2006
Decided on
:
22 November 2006
Reasons Issued:
6 December 2006
Reasons for Decision
Approval
[1]
On 22 November 2006, the Competition Tribunal issued merger clearance certificates unconditionally approving the mergers between Gold
Fields Limited and Barrick Gold South Africa (Pty) Ltd and Gold Fields Limited and Western Areas Limited. The reasons follow. The Commission was requested by the parties to consider and analyse
the possible effects of the transactions on competition on the assumption that there was just one transaction aimed at the acquisition
of South Deep. Although the parties notified the two mergers separately, in these reasons, the Tribunal has treated them as one transaction,
as both contribute to the same end result - Gold Fields’ acquisition of control over South Deep Mines.
The parties
[2]
The acquiring firm is Gold Fields Limited (“Gold Fields”), a public company listed on the JSE Securities Exchange. Gold Fields is not directly or indirectly controlled by any one company. The largest shareholdings in Gold Fields are as follows:
[2.1]
Old Mutual Asset Managers (10%);
[2.2]
Capital Research and Management Company (9.79%);
[2.3]
Merryll Lynch Investment Managers (7.53%);
[2.4]
RMB Asset Managers (4.58%); and
[2.5]
Sanlam Investment Management (3.73%).
[3]
All other Gold Field shareholders hold less than 3.7% of its issued share capital.
[4]
The first target firm is Barrick South Africa (Pty) Ltd (“Barrick South Africa”). PDG Aureate Limited (“Aureate”)
is a special purpose vehicle existing under the laws of Mauritius and holds the entire issued share capital in Barrick South Africa.
Aureate is a wholly owned subsidiary of Placer Dome Africa Holdings Limited of Mauritius (“Placer Dome Africa”). Barrick
Gold Corporation, a Canadian registered entity, controls Placer Dome Africa. Barrick’s shares are listed on the Toronto Stock
Exchange, the New York Stock Exchange, the London Stock Exchange, and the Swiss Stock Exchange. There is no single entity that directly
or indirectly control Barrick.
[5]
Barrick South Africa holds a 50% interest in the Barrick Gold Western Areas Joint Venture (“the Joint Venture”). The Joint
Venture owns and operates the South Deep Underground Gold Mine (“South Deep”). The other 50% is held by WAL.
[6]
The second primary target firm is Western Areas Limited (“WAL”). WAL is a public company registered on the JSE Securities
Exchange. WAL is not directly or indirectly controlled by any one company. WAL’s register of members reflect the following
largest individual shareholdings:
[6.1]
Harmony Gold Mining Company Limited (holding approximately 29.2% of WAL’s issued shares);
[6.2]
JCI Investment Finance (Pty) Ltd (“JCI Investments”) together with various of its subsidiaries
(holding approximately 21.6% of WAL’s issued shares);
[6.3]
Gold Fields (holding approximately 18% of WAL’s issued share capital);
[6.4]
Randgold and Exploration Company Limited (“Randgold”) (holding approximately 3.8% of WAL’s
issued share capital); and
[6.5]
JCI Gold Limited (“JCI Gold”) (holding approximately 3% of WAL’s issued share capital).
[7]
WAL holds 50% in the Joint Venture that owns and operates South Deep. Accordingly Barrick South Africa and WAL enjoy direct joint
control over South Deep.
[8]
WAL has other firms that it directly or indirectly controls.
The transaction
[9]
This transaction concerns Gold Fields bid to acquire control over South Deep Gold mine. WAL and Barrick presently own the mine in
equal shares through the Joint Venture. Gold Fields’ strategy is to acquire control in two stages, each aimed at the respective
joint venture partners. The first stage, referred to as the “Barrick transaction”, will result in Gold Fields acquiring
all the issued shares in Barrick South Africa. The second stage will take place simultaneously or almost simultaneously, and Gold
Fields will acquire all the issued shares in WAL. This is referred to as the “WAL transaction”. The end result is that
Goldfields will have sole control of South Deep. At the time of our hearing it is not clear whether Gold Fields will be able to acquire
more than 50% of WAL, but it appears that it will acquire a sufficient stake to be able to control the majority of votes at a general
meeting of the company and hence for the purpose of section 12(2)(b) of the Act can be considered to control WAL. If it controls both WAL and Barrick it is able to effect sole control over the only relevant business implicated in these transactions,
South Deep Mine.
The Barrick transaction
[10]
In terms of the first leg of the transaction, Gold Fields intends to acquire 50% of Barrick’s interest in South Deep. This interest
is held directly by Barrick South Africa, a wholly owned subsidiary of the Barrick group of companies. Thus, Gold Fields will acquire
the entire issued share capital of Barrick South Africa.
[11]
Subsequent to the Barrick transaction, Gold Fields will acquire sole control over Barrick South Africa, and joint control over the
Joint Venture (and South Deep), together with WAL.
WAL transaction
[12]
The WAL transaction entails Gold Fields acquiring control over WAL which controls the remaining 50% in South Deep. This will be achieved
by the acquisition of the entire issued share capital of WAL by Gold Fields. Gold Fields shall gain control over WAL through the
following mechanisms:
[12.1]
Gold Fields intends to make an offer to WAL’s shareholders to acquire all the issued shares in WAL (except
those already owned by Gold Fields and JCI Limited and its subsidiaries). A successful implementation of this offer will effectively result in Gold Fields acquiring control over WAL.
[12.2]
Gold Fields will acquire from JCI and its subsidiaries (collectively “JCI”) 27 million WAL shares owned
by JCI. The implementation of this transaction will result in Gold Fields owning approximately 34.7% of the entire issued share capital
of WAL. Further, JCI has granted Gold Fields a call option and JCI has been granted a put option in respect of shares representing
approximately 6.16% of the total issued shares of WAL. Gold Fields’ interest in WAL will increase to approximately 41% of the
issued shares of WAL.
[13]
The successful implementation of the legs referred to above will result in the acquisition by Gold Fields of sole control over the
Joint Venture, and thus, South Deep.
[14]
The following diagrams show the pre and post merger structures of this transaction:
Pre-merger
Barrick Gold Corporation
Placer Dome
JCI Inv.
21.6%
Gold Fields
18.9%
Randgold
3.8%
Harmony 29.2%
JCI Gold
3%
PDG Auriete Ltd
Barrick Gold South Africa
WAL
Barrick Gold Western Areas Joint Venture
South Deep
Post-merger
Gold Fields
South Deep
Rationale for the transaction
[15]
Gold Fields submitted the following points as its rationale for the transaction:
[15.1]
Both transactions will increase Gold Fields’ exposure to South Deep;
[15.2]
South Deep is close to Gold Fields’ Kloof Gold Mine (“Kloof”). By acquiring access to an ore
body which is contiguous to Kloof, Gold Fields will be able to mine more efficiently and effectively at both Kloof and South Deep
as a result of associated synergies which are likely to decrease marginal costs per ton of gold mined by utilising the same infrastructure
across both mines; and that-
[15.3]
South Deep complements Kloof and fits with Gold Fields’ portfolio of high quality, long life assets, providing
Gold Fields with a solid base from which to pursue growth in the gold mining sector.
Barrick
[16]
Barrick intends to dispose of its South Deep interest as it does not have much expertise in deep level underground mining, expertise
that Gold Fields has.
JCI
[17]
By disposing of its shares in WAL, JCI perceives that it will be enabled to exchange its shareholding in WAL at a premium for a holding
in more diversified gold mining company, Gold Fields.
Parties’ Activities
Gold Fields
[18]
Gold Fields is involved in the production of Gold. It is also a major holder of gold reserves in South Africa, Ghana, Venezuela, Peru
and Australia. Gold Fields is primarily involved in underground and surface gold mining, including exploration, extraction, processing
and smelting of the product. Further Gold Fields holds strategic interests in platinum group metals exploration. Gold Fields is currently
the second largest gold producer in South Africa and one of the largest gold producers in the world, on the basis of annual production.
[19]
Gold Fields’ South African operations, comprising the Driefontein, Kloof and Beatrix mines are held through and are owned and
operated by GFI Mining South Africa (Pty) Ltd (“GFIMSA”), a wholly owned subsidiary of Gold Fields. The primary activity
of each of Driefontein, Kloof and Beatrix mines respectively is the mining and processing of gold. GFIMSA has an agreement with Rand
Refinery Limited providing for the refining of substantially all of Gold Fields’ South African gold production by Rand Refinery.
The gold is delivered to Rand Refinery which assumes responsibility for and refines the gold. With effect from 1 October 2004, Gold
Fields has sold all of its own South African gold production on the international gold bullion.
Barrick South Africa
[20]
Barrick South Africa is also involved in the production and supply of Gold through its 50% in the Joint Venture, which owns and manages
South Deep.
WAL
[21]
WAL is also involved in the production and supply of Gold through its 50% interest in the Joint Venture, which owns and manages South
Deep. To a lesser extent, WAL is involved in the production and supply of silver as well.
RELEVANT MARKETS
Relevant product market
[22]
The parties and the Commission defined the product market as the market for the production and supply of gold. This was based on the
Tribunal’s previous decisions in large merger cases involving gold producers where the Tribunal stated that the product market
is the market for the production and supply of gold.
Relevant Geographic market
[23]
The Commission and the parties defined the relevant geographic market as international. The two reasons which influenced the parties
and the Commission to define the market as international market are that firstly, most of the gold produced in South Africa by the
merging parties and their competitors is converted into bullion and sold on the international bullion market. Secondly, the Tribunal
has previously defined the market as international.
[24]
The Tribunal has no reason to deviate from the Commission’s and the parties’ definition of the relevant geographic and
product markets.
Competition Analysis
[25]
The table below shows the market share of Gold Fields and its largest competitors in the international market for the production and
supply of Gold.
| Competitor (International Gold Producers) |
| Newmont Mining Corporation |
199,7 |
7,92 |
| Anglogold Ashanti Limited |
191,8 |
7,61 |
| Barrick Gold Corporation |
169,8 |
6,74 |
| Gold Fields Limited |
130,6 |
5,18 |
| Placer Dome Inc. |
113,4 |
4,5 |
| Freeport-McMoran Copper Gold Company Limited |
86,8 |
3,44 |
| Harmony Gold Mining Company Limited |
80,5 |
3,2 |
| Kinross Gold Company |
48,4 |
1,92` |
| China National Gold |
45,7 |
1,81 |
| Newcrest Mining Limited |
44,4 |
1,76 |
| Total world production 2005 |
2519 |
100 |
[26]
The parties submitted that total gold production for South Deep for 2005 was 14,34 tonnes, translating to 0,56% of total world gold
production during 2005. It is thus expected that the proposed transactions will increase Gold Fields’ estimated market share
in the world by 0,56% from 5,18% to 5,74%. Barrick’s market share will drop to 10.96%.
[27]
The Commission and the parties relied on the Tribunal’s decision in the case of Harmony Gold Mining Company Limited and Gold Fields