COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 05/LM/Jan02
In the large merger between:
Clidet No. 383 (Pty) Ltd (being a joint venture between Harmony Gold
Mining Company Limited and African Rainbow Minerals (Pty) Ltd)
and
The Free State Operations of AngloGold Limited
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REASONS FOR DECISION
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APPROVAL
On 20 February 2002 the Competition Tribuna l issued a Merger Clearance
Certificate approving without conditions the merger between Clidet No. 383 (Pty)
Ltd (being a joint venture between Harmony Gold Mining Company Limited and
African Rainbow Minerals (Pty) Ltd) and the Free State Operations of Ang loGold
Limited in terms of section 16(2)(a). The reasons for the approval of the merger
appear below.
The parties
The acquiring firm, Clidet No. 383 (“Clidet”), is a private company incorporated in
the Republic of South Africa.1 Clidet is jointly owned and controlled by Harmony
Gold Mining Company Limited (“Harmony”) and African Rainbow Minerals (Pty)
Ltd (“ARM”) in equal shares. ARM is controlled by the Kgabo Trust, whose
beneficiaries comprise members of previously disadvantaged groups.
The target fi rms are the Free State Operations of AngloGold Limited
(“AngloGold”), comprising four mines, namely Bambanani, Joel, Matjhabeng and
Tshepong, as well as the business of the Ernest Oppenheimer hospital, together
with the associate assets and infrastructure. These assets are being acquired as
going concerns. AngloGold is the second largest producer of gold bullion in the
world.
1 In their most recent Sale of Business Agreement the parties state that the name will later be changed to
Freegold (Pty) Ltd.
The merger transaction
Harmony and ARM will acquire the Free State operations directly from AngloGold
as going concerns through the jointly held company, Clidet.
Rationale for the Transaction
The parties state that AngloGold focuses on long -life, low cost and high return
mining. They focus on long-term ongoing operations. They advised that the
Freegold operations no longer fit t his profile. They would have implemented a
close-down programme in respect of these Free States assets had it not found a
buyer. As mines move towards the end of the economic lives, a different set of
managerial and operational skills, not only technology, is required to operate
them. From AngloGold’s perspective, Joel and Matshabeng, in particular, were
moving towards the end of their lives. Harmony and ARM have the skills to
extract profit from these mines. 2 Their core activity is rock -breaking and they will
use their own unique techniques to extract value from these mines. The parties
refer to “unlocking synergies”. Underground, for example, the shaft
infrastructures that are owned by the different operators in this joint venture will
be mined more eco nomically. Furthermore, synergies arise too from shared
infrastructure and savings resulting from a single management structure. In
addition, Harmony and ARM will acquire access to mine fields in close proximity
to their refinery operations. By acquiring a ccess to such long -life ore bodies in
close proximity to their existing operations, they are consolidating their assets in
the Free State in order to make the mines more viable and ultimately, profitable.
More specifically, the transaction will result in the extended life of and continued
mining on Joel and Matjhabeng mines; the re -opening of the closed shafts,
Bambanai West, Nyala and Sabie/Kudu; and the increased life of Tshepong for
approximately twenty years.
The Relevant Market
Both parties are engaged in the production and supply of gold bullion to the world
Both parties are engaged in the production and supply of gold bullion to the world
market. According to the parties, during 2000 the South African share of world
gold production was estimated to be 16.63%. The Commission found that the
South African market for gold is constra ined by a limited ability to produce gold
for investment purposes, low production capacity to produce stocks of jewellery
and a small jewellery conversion sector. Accordingly, a proportionately small
amount of gold is sold within South Africa.
2 Referred to as the “Harmony Way” emphasizing reducing costs, upgrading the ore body and empowering
manage ment teams at shaft level.
The Commission determined that almost all of the gold mined in South Africa is
sold on the international market, to international bullion banks through the Rand
Refinery.3 Accordingly, the bulk of the parties’ output is exported. Furthermore,
the gold price is se t internationally, by reference to the London Daily Price
Fixings.
We accordingly agree with the Commission’s definition of the relevant market in
this transaction, namely as being that for the production and marketing of gold
bullion to the international market.
Market Shares of South African producers
COMPANY PRE-
MERGER
AngloGold Limited 50%
Goldfields Limited 25%
Harmony 14%
Durban Roodepoort Deep
Limited
7%
Western Areas Limited 1%
Other (incl. ARM) 3%
Harmony & ARM 15%
Source: Bloomb erg’s and Company records
The parties calculated that the operation being acquired would make up eight
percent (8%) of South African gold production. 4
Competitive Effect
Having regard to AngloGold’s prominent position on the world market, this
merger will not in any way undermine this position. In fact, the transaction will
result in Harmony and ARM increasing their productive capacity, whilst that of the
larger firm, Anglogold, decreases.
The parties alluded to gold’s pertinent and unique characte ristics, namely its
undifferentiated quality; the fact that it is marketed internationally; central banks’
holding of extensive gold reserves. They state that the gold price is inelastic and
deemed to be near perfect competition. The main customers are int ernational
bullion dealers. Therefore it is not possible for any one producer to manipulate
the price of gold, t o the extent that the international gold price is influenced by the
sale of reserves by financial institutions such as international central ban ks, the
World Bank and the IMF. At the hearing, the parties stated that despite notions of
World Bank and the IMF. At the hearing, the parties stated that despite notions of
3 Formed by gold producers and acting as agent for producers in selling gold to the international market. 4 They reckoned that total gold production is about 400 tons, and they would produce about 30 tons.
supply and demand having a limited role to play in the setting of the gold price,
gold producers are too numerous to enable them to exert any concerted
influence on the gold price. 5
Public Interest Issues
The only public interest factor relevant to this transaction is the effect on
employment.6
Previously, AngloGold had announced a retrenchment program, which would
have affected 5 000 employees, prior to the tran saction being envisaged. The
parties at the hearing maintained that the maximum retrenchment figure
consequent upon this transaction was set to be 4 200 with a possibility, by a
redeployment of employees and other possibilities, that it could be reduced to
3 200. However, they pointed out that no compulsory retrenchments had taken
place to the hearing date. The only retrenchments, which have taken place, were
voluntary retrenchments and they had taken place in accordance with an
AngloGold plan, which was a nnounced to employees during the course of last
year.
Harmony and ARM are both retrenching fewer employees and extending the life
of the mines, because they have a lower cost method of operating and they can
operate on a lower grade ore body. As a resul t, those employees who remain will
have sustainable jobs whereas under the AngloGold structure their jobs would
have been for a far shorter time -span7. In fact, AngloGold was going to close
down two of the shafts. Therefore the impact on employment would h ave been
worse had the mines remained with AngloGold.
The parties advised that they were in the process of negotiating retrenchments
with all the relevant unions. In any event, none of the trade unions made any
representations to us or the Commission to i ndicate that they opposed the
merger.
The Tribunal is satisfied that this merger would entail fewer retrenchments than
otherwise and seeks to, as far as possible, consolidate the existing employee
base.
otherwise and seeks to, as far as possible, consolidate the existing employee
base.
5 In the Harmony Gold M ining Company and the Randfontein Estates Limited merger, Case No:
16/LM/Feb00, the Tribunal noted that the sheer size of the market meant that South African gold producers
are essentially price takers
6 Although the parties made reference to the empowerm ent credentials of ARM we need not consider this
factor in any depth given that they go to support approval of the merger, a conclusion we had already arrived
at in the competition analysis. 7 In other words, the man -year’s (people employed over the life o f the operation) worked will increase.
Conclusion
The Tribunal endorses the Commission ’s finding that this transaction will not
substantially lessen or prevent competition in the relevant market and
accordingly approves the transaction unconditionally.
_____________ 26 February 2002
D. Lewis Date
Concurring: N. Manoim, C. Qunta