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MERGER and acquisition (M&A) activity was back on the radar for Johannesburg-listed gold companies owing to the pullback in the gold price, and could see unusual combinations.
Nedbank Securities analyst, Arnold van Graan, said in a report that the valuation gap between AngloGold Ashanti and Gold Fields compared to their peers had widened lately after a period of discount-reduction.
"We believe this discount could widen even more if the gold price falls further," said Van Graan. "This could see the SA gold stocks again looking very attractive on valuation metrics and thus an M&A perspective."
Neal Froneman, CEO of Sibanye-Stillwater, said earlier this month the merger of his company with AngloGold and Gold Fields would create a 'national champion' that would rival Barrick Gold and Newmont Mining, offshore-listed firms both of which had recently conducted M&A of their own.
However, Froneman has stopped short of saying he was prepared to launch a bid for either. AngloGold and Gold Fields have declined to comment on possible M&A activity.
Van Graan said the market ought to anticipate unusual combinations such as Gold Fields with AngloGold, especially owing to management changes at the two firms. AngloGold is yet to appoint a permanent CEO following the resignation of Kelvin Dushnisky in September. It is currently headed by interim CEO, Christine Ramon.
Nick Holland is serving the last two weeks of a 13-year period as CEO of Gold Fields. He is due to make way for Chris Griffith, the former CEO of Anglo American Platinum (Amplats). Griffith said in January following the announcement of his appointment that he would keep an open mind on growing the company.
"A takeover of AngloGold or Gold Fields will leave a large gap in the SA-listed gold space," said Van Graan. "We believe there is another alternative that makes plenty of sense from a strategic and valuation perspective: a merger between AngloGold and Gold Fields.
"Not only could this create a company that can compete head on with the large-cap producers on scale, asset quality, operational metrics, and returns, including dividends."
"We believe the desire to grow, the need to compete on scale, management changes, and a potential downturn in the gold price could be major catalysts for M&A," said Van Graan.
"We would, therefore, not be surprised to see big M&A moves in the SA gold sector over the next year. What could surprise us, though, is the nature of these deals and the parties involved, which may just go beyond the obvious."