COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 71/LM/Oct09
In the matter between:
Harmony Gold Mining Company Limited Acquiring Firm
And
Pamodzi Gold Free State (Pty) Ltd (in provisional liquidation) Target Firm
Panel : N Manoim (Presiding Member) Y Carrim (Tribunal Member),
and A Wessels (Tribunal Member)
Heard on : 11 December 2009
Order Issued : 11 December 2009
Reasons Issued: 5 February 2010
Reasons for Decision
Approval
[1] On 11 December 2009, the Tribunal approved with conditions the merger
between Harmony Gold Mining Company Limited and Pamodzi Gold Free State
(Pty) Ltd (in provisional liquidation). The reasons for approving the transaction
conditionally follow.
The parties
[2] The primary acquiring firm is Harmony Gold Mining Company Limited
(“Harmony Gold”), a public company listed on the JSE Securities Exchange.
Harmony Gold is not controlled by any firm. 1 The largest shareholders of
Harmony Gold are ARM Limited (“ARM”) with a 14.87%; and Allan Gray Unit
Trust Management Limited with a 13.8% shareholding.
1 Approximately 42% of Harmony’s shares are held by South African shareholders and 32%
are held by American shareholders.
[3] Harmony controls in excess of 50 companies around the world.2 In South
Africa, Harmony Gold has various subsidiaries including Avgold Limited
(“Avgold”), a wholly owned subsidiary.3
[4] The primary target firm is the Pamodzi Gold Free State (Pty) Ltd (in provisional
liquidation) (“Pamodzi Free State”). Pamodzi Free State is a wholly owned
subsidiary of Pamodzi Gold Limited (in provisional liquidation) (Pamodzi Gold). 4
Pamodzi Gold controls in excess of 20 companies in South Africa.5
[5] Harmony Gold holds 32.4% interest in Pamodzi Gold and Pamodzi Gold is
regarded as an associate of Harmony for accounting purposes.
The transaction
[6] In terms of the proposed transaction which is concluded in terms of a Sale of
Assets Agreement (South), Harmony will acquire the gold mining, processing
and related business carried out by Pamodzi Free State under the name
President Steyn South Division (“PSSD”) which business includes the operation
of the South Steyn Shafts. In terms of the Sale of Assets Agreement (North),
Avgold, Harmony’s subsidiary, will acquire the gold mining, processing and
related business carried out by Pamodzi Free State under the name President
Steyn North Division (“PSND”), which business includes the operation of the
North Steyn Shafts.
[7] In a nutshell, the PSSD is directly acquired by Harmony Gold and the PSND is
directly acquired by Avgold, a wholly owned subsidiary of Harmony. Upon
completion of the merger, the business of Pamodzi Free State comprising
PSSD and PSND will be controlled by Harmony Gold and Avgold.
The parties’ activities
Primary acquiring firm
[8] The primary acquiring firm is involved in the production and supply of gold. Its
operations are located primarily on the Witwatersrand Basin, encompassing ten
2 See Harmony’s Oganogram marked Annexure “B”,3 Harmony’s subsidiaries in South Africa include African Rainbow Minerals Gold Limited (“ARM
Gold”), Rand Uranium (Pty) Ltd (“Rand Uranium”), Envader Gold Mines Limited (“Envader
Gold”), Venda Gold Mining Company (Pty) Ltd (“Venda Gold”), and Lesila Gold Mines Limited
(“Lesila Gold”).4 On 17 April 2009, the primary target firm was placed under provisional liquidation by the High
Court of South Africa as a result of being unable to meet its financial obligations when they fell
due.5 See Pamodzi Organogram marked Annexure C.
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underground operations, an open pit mine and surface operations in four
provinces namely, Gauteng, North West, Mpumalanga and Free State.
Primary target firm
[9] The primary target firm was involved in production and supply of gold until it
was placed under liquidation and ceased operations on the Free State assets in
February 2009.
Rationale for the transaction
[10] Harmony Gold’s reasons for concluding this transaction are numerous. 6
Harmony Gold was the preferred bidder 7 as it has a lot of experience mining
gold in South Africa. This transaction enables Harmony Gold to take advantage
of the potential of the Pamodzi Free State’s assets and the synergies it
provides with its own operations.
[11] Pamodzi Free State was placed in provisional liquidation by the High Court of
South Africa as a result of being unable to meet its financial obligations and
liabilities, thus the assets have been sold to raise funds.
The relevant market
[12] The Commission and the parties, in line with previous Tribunal decisions, 8
submitted that the relevant product market is the market for production and
supply of gold.
[13] In line with previous Tribunal decisions,9 the geographic market has been
defined as international by the Commission and the merging parties. This is
largely because all South African gold is sold to the international bullion banks
and Rand Refinery Limited acts as an agent for most of the South African gold
producers in the process. In addition gold is priced extraneously by reference to
the London daily price fixings of the London Bullion Association.
Competition analysis
6 See record pp43-44.7 The other company that bid to buy Pamodzi Free State’s assets is Virgile Mining whose bid
was rejected. Virgile Mining raised objections to this merger though the objections were not
competition related. Virgile Mining was to make representations to the Tribunal and only
competition related. Virgile Mining was to make representations to the Tribunal and only
withdrew at the last minute (See Transcript p3.8 See Tribunal cases 05/LM/Jan02, 31/LM/May02, 03/LM/Jan01, 93/LM/Nov04, 66/LM/Aug06,
and 83 & 84/LM/Oct06.9 Pamodzi Gold/President Steyn 110/LM/Oct07, Pamodzi Gold/ARM Gold 62/LM/Jun07,
Harmony Gold Mining Company Limited/ African Rainbow Minerals Gold Limited
25/LM/May03, and AngloGold Limited/ Driefontein Consolidated (Pty) Ltd 66/LM/Nov03.
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[14] The table below shows international market shares for the production and
supply of gold in 2008.
Table 1: International market shares for the production and supply of gold
Market Participant Estimated market share
(%)
Barrack Gold Corporation 14.61
Newmont Mining 10.08
AngloGold Ashanti 9.67
Gold Fields 5.82
Gold Corp 4.37
Freeport-McMoran Copper & Gold 4.20
Kinross Gold Company 3.10
Harmony 3.05
Newcrest Mining 2.75
Buenaventura 2.13
Source: Merging parties’ submission based on Brook Hunt – February 2009
[15] From the above table, it is clear that Harmony has 3%, and Pamodzi’s share is
estimated to be 0.23%. The post merger market share of the merged entity will
be 3.28%, which is small and as a result, does not raise competition concerns.
Public Interest
[16] The merging parties argued that without the merger being approved, a total of 3
606 employees of Pamodzi Free State will permanently lose their employment
as Pamodzi Free State will be placed in final liquidation. The proposed merger
will limit the loss of employment to approximately 1 600 employees. At the time
the target firm was placed under provisional liquidation, all employment
contracts were suspended. Employment contracts were not terminated
however but employees have not been paid for many months causing great
hardship. Harmony has signed Union Termination and Recall Agreement in
terms of section 197(6) of the Labour Relations Act 66 of 1995 and the
Separation Agreement with the National Union of Mineworkers and Solidarity,
the two unions representing the largest number of employees of Pamodzi Gold
Free State. In terms of those agreements Harmony has undertaken that it will
re-engage 2400 employees within 24 months. Approximately 1600 employees
will permanently lose their jobs as they will not be recalled. The merging parties
have argued that the loss of employment is not due to the transaction as all
have argued that the loss of employment is not due to the transaction as all
employment contracts had been suspended prior to the transaction being
implemented. The unions have provided letters of comfort in support of the
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merger and the recall process. In order to protect the interest of the employees
to be recalled, the Tribunal made Harmony’s undertakings conditions for the
approval of this merger.
[17] There are two reasons for this. In the first place it would appear that the job
losses have been made merger specific by Harmony’s insistence that the
liquidators dismiss the workforce subject to the recall agreement as a condition
of their offer to purchase. Secondly, although Harmony has negotiated with the
unions over the job losses and arrived at an agreement with them, the
agreement is with the unions not the individual employees and requires the
unions to act to enforce compliance with its terms. Given the number of
employees at risk we do not consider this sufficient protection and hence we
proposed the condition which the merging parties to their credit had no
objection to.
Conclusion
[18] The merger is approved subject to the conditions as contained in the order
issued by the Tribunal attached hereto as Annexure “HP1”.
________________ 5 February 2009
N Manoim DATE
Presiding Member
A Wessels and Y Carrim concurring.
Tribunal Researcher : R Kariga
For the merging parties: R Bhana (SC) and M Derwance instructed by Cliffe
Dekker Hofmeyr Attorneys and Knowles Hussain
Attorneys
For the Commission : M Van Hoven and L Madihlaba (Mergers and
Acquisitions)
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