COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 03/LM/Jan01
In the large merger between
Randfontein Estates Ltd
and
Anglogold Ltd
Reasons For The Competition Tribunal’s Decision
Approval
The Competition Tribunal issued a Merger Clearance Certificate on 28 March 2001
approving the merger between Randfontein Estates Ltd and Anglogold Ltd without
conditions. The reasons for our decision are set out below.
The merger transaction
In this transaction Randfontein Estates Ltd, a wholly owned subsidiary of Harmony Gold
Ltd, is acquiring two businesses from Anglogold Ltd 1, the Deelkraal and Elandsrand
mines. Randfontein Estates will acquire the businesses as going concerns.
According to the parties both Deelkraal and Elandsrand cannot continue to operate
successfully as mining entities because they are near the end of their economic life and
cannot sustain the current staffing levels. Harmony has positioned itself in the market to
take unprofitable mines that are close to the end of their life span, and by using lowcost
mining methods, restructuring them into low cost, high productivity producers. Both
Deelkraal and Elandsrand fit this profile.
Furthermore, the sharp decline in the price of gold, coupled with the maturity of the
1 Anglogold is a wholly owned subsidiary of Anglo South Africa, which, in turn, is a wholly owned
subsidiary of Anglo American plc.
South African gold mining industry, forces rationalisation on the industry.
Evaluating the merger
The relevant market
The relevant market is the international market for the production and supply of gold for
reasons set out below.
Gold is priced extraneously by reference to the London daily price fixings of the London
Bullion Association. The international gold price is influenced by factors such as the sale
of new production by worldwide producers, global economic trends, currency exchange
fluctuations, expectations of investors and the sale of reserves by financial institutions
such as international central banks, the World Bank and the IMF. As we have observed in
earlier decisions concerning the mining industry a single producer of gold can, therefore,
not influence prices in the international market. 2
Effect on competition
Due to Harmony’s relatively insignificant proportion of its production against total world
production post the merger (i.e.5 % of world production), it cannot influence the price of
gold and will, therefore, not be in a position to exercise market power after the merger.
The estimated market shares in South Africa as provided by the parties are:
Supplier Market share premerger Market share postmerger
Anglogold 42% 32,5%
Gold Fields Ltd 28% 28%
Harmony 17% 26,5%
Durban Roodepoort Deep 9% 9%
Western Areas Ltd 2% 2%
Total 100% 100%
As will be observed from the table above although the market share of Harmony
increases with 9,5%, the combined market shares of Deelkraal and Elandsrand, it does so
at the expense of the largest domestic producer Anglogold.
Public interest considerations
Whilst the merger raised no competition concerns the public interest concerns were more
difficult. In terms of section 12A(3) one of the public interest grounds we have to
consider is the effect that the merger will have on employment. It is well known that due
2 See Tribunal Cases No. 16/LM/Feb00 and No. 77/LM/Jul00
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to the unfavourable conditions in the mining industry a large number of jobs are being
lost.
The merging parties have informed us that if the merger is implemented a large number
of jobs will be lost at both mines. However they argue that if the merger does not proceed
Anglogold will have to effect measures to drastically downscale both operations and the
result would be that more jobs would be lost if the merger is not implemented.
Should the transaction not take place, Deelkraal will be closed by July 2001 which will
place 3100 jobs in jeopardy while mining output at Elandskraal will be significantly
reduced, which would place approximately 1500 jobs at risk.
If the acquisition goes ahead Harmony will reduce operations at Deelkraal to ensure that
the remaining life of the operation is extended to four years. This will affect 1600 jobs,
400 being supervisory and managerial levels and the remainder from lower levels.
Although Harmony will not cut back the production output at Elandsrand it will
restructure the operation to ensure that it focuses primarily on rock breaking, its core
business, thereby extending its life by more than 20 years. Approximately 400 jobs could
be affected, with 90% being at supervisory and managerial level.
Two trade unions the National Union of Mine Workers (NUM) and United Association
of South Africa (UASA) attended the Tribunal hearing.
NUM indicated to the Tribunal that it was not against the merger as such but expressed
concern about the extent to which restructuring in the mining industry resulted in job
losses and said that the Tribunal should, therefore, not assess this transaction in isolation
but as part of a much broader restructuring process. The Num suggested that greater
obligations should be placed on the seller, Anglogold, to absorb the social implications of
the merger. No specific suggestions were made to us as to what these should be. It must
the merger. No specific suggestions were made to us as to what these should be. It must
be observed that the acquiring firm will be subject to the same obligations as the seller in
relation to employees’ rights. Employees who are retrenched postmerger will receive the
equivalent benefits to employees who might have been retrenched by the respective
mines if they had remained in the Anglogold group.
On the evidence before us we agree with the Commission’s conclusion that the effect on
employment will be more adverse if the transaction is prohibited. Since no conditions
have been suggested to us to attach to the approval we approve the merger
unconditionally.
19 April 2001
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N.M. Manoim Date
Concurring: D.H. Lewis and D.R. Terblanche
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