JOHANNESBURG (Business Day) -- Gold Fields [NYSE:GFI] expects to acquire Bolivar Gold Corporation [TSX:BGC] for $357.4 million, but 19% shareholder Scion Capital doesn’t agree. In a chat with Classic Business Day, Gold Fields Executive Vice President and Head of International Operations John Munroe comments on the situation.
LINDSAY WILLIAMS: Venezuelan Bolivar Gold was to be merged with Gold Fields’ assets in Ghana and Australia - it all looked very nice, but then U.S. asset manager Scion, which owns 19.14% of Bolivar doesn’t like the whole thing so it’s certainly taken a little twist. John, nice thing to come back to on a Monday morning!
JOHN MUNROE: We’ve been working with this since the bid started in November 2005, so it’s not new for us.
LINDSAY WILLIAMS: The history of your association with Bolivar - some of us have been away for three or four weeks - can you just go back a step or two for us?
JOHN MUNROE: We launched the bid on 20 November 2005 - the actual bid process has been progressing through the Christmas period, and the nature of the bid is a plan of arrangement very similar to the scheme of arrangement executed in this country.
LINDSAY WILLIAMS: But you owned 11% anyway - that goes back about two years doesn’t it?
JOHN MUNROE: That’s correct - we’ve actually had a relationship with Bolivar involving that shareholding, and we’re also involved in a joint venture with them on a property adjacent to their Choco 10 property, their key asset in Venezuela.
LINDSAY WILLIAMS: The headline on Monday morning started: “Scion ask courts to block Gold Fields’ Bolivar bid.” I’ll read the first part: “U.S. investment company Scion Capital commenced an application with the Ontario Superior Court requesting a ruling that Gold Fields has violated Ontario securities laws in the recent purchase of nearly 5.2-million shares of Bolivar via the exchange”. How do you react to that?
JOHN MUNROE: Clearly we believe that claim is unfounded - we wouldn’t have done it if we felt it was illegal, and we’re actually defending that action in Toronto.
LINDSAY WILLIAMS: What do you think is going to happen? What do you think the court is going to say - have you got any idea from your legal team?
JOHN MUNROE: There are two steps - one is to grant them the hearing, and then there is the actual hearing itself. We don’t know how the court will handle it, but we think that the case is without merit.
LINDSAY WILLIAMS: Why did you purchase those 5.2-million shares? Just because you thought that they were good value, or do you think it was bolstering your case - what was the reason behind it?
JOHN MUNROE: It’s obviously the opportunity to buy it below the bid price, but also the opportunity to increase our stake - and that’s entirely within the realm of legality in the Canadian takeover codes.
LINDSAY WILLIAMS: Has the relationship with Scion Capital always been fairly acrimonious - ever since you launched the bid?
JOHN MUNROE: Yes, in fact Scion was not well known prior to the launch of the bid, although it turns out subsequently they owned just short of 10% before the bid commenced. Subsequent to the bid they actually acquired around an additional 10% to get themselves just short of 20%. They have launched a fairly acrimonious attack on the bid on Bolivar, and in due course on some of our positions - so it’s been a fairly rough ride from their point of view, but I really must emphasise they’ve been a fairly lone voice in terms of opposition to this deal - we have seen strong support through the Canadian market for the approach from Gold Fields.
LINDSAY WILLIAMS: The obvious question now is then why did you raise your bid from C$3.00 to C$3.20?
JOHN MUNROE: When the bid commenced obviously that allowed us to spend some time in the Canadian market talking to a range of Bolivar shareholders, and warrant holders as well - we need to emphasise the warrant holders are a separate class of shareholders, and vote separately to the shareholders - but we spent some time talking to these various classes of people, and looked at the general conditions in the market. As we got closer to the meeting we decided that an increase in the offer was justified.
LINDSAY WILLIAMS: I spoke to Nick Holland from Gold Fields back in late November 2005, and when I spoke to a gold analyst after that interview he said that you were picking up these assets – if you do pick them up -for an absolute song, and that there was something more to it. That was his words, not mine. Having a look at one of the stories that’s come out on the wires it says: “Bolivar gold has overstated Venezuela risk.” That also comes from Scion, and again I will read you the first paragraph so you can give us your views: “U.S. fund manger Scion Capital said over the weekend that the government of Venezuela had confirmed that Toronto listed Bolivar Gold’s operations were far more secure than the companies management and board had claimed.” It’s almost saying that by putting out these statements would mean that you could pick up these assets at a cheaper price - that is the implication anyway.
JOHN MUNROE: I think that contention has been launched at us as well - I think it’s unfounded. We have actually been consistent in our message about Venezuela since we commenced this bid in late November - which is that it is a tough country to do business in, but we believe it’s workable otherwise we would not be investing $360-millon worth of our shareholders’ money in that country. I think our stance has been very consistent on that basis, and it is again a political situation that continues to move backwards and forwards - so again it’s a moving feast.
LINDSAY WILLIAMS: The 19% that Scion owns - it doesn’t do to have an enemy with such a big shareholding does it? If everything goes ahead do you think you are going to have to work with them in future? What do you think the situation might be?
JOHN MUNROE: The nature of the deal that is contemplated is a plan of arrangement - if the shareholders vote in favour then all the shareholders are squeezed out. It’s an all-or-nothing type of transaction - so either they will vote us down tomorrow and nothing happens, or we are successful and we will own the entire company - in which case all shareholders receive the consideration that has been offered.
LINDSAY WILLIAMS: One of the big shareholders now - in terms of a group of people - is hedge funds. I think you’ve come out today and said that hedge funds now hold 40% to 50% of Bolivar - obviously jumping on the band wagon. They will be very happy today with the share price closing at CAN$2.98 yesterday, and it’s probably going to be C$3.17 or C$3.18 by the close of business today. Do you think that affects the bid at all, the bid process?
JOHN MUNROE: There is no doubt that the incredibly large volume of hedge fund participation in this deal makes it different to many others - normally in takeovers you can see hedge fund activity in the order of 10% to 15%, but in the order of magnitude that you’ve mentioned it potentially changes the dynamic in terms of how they respond to offers but also what may happen in the event that this gets voted down. So that makes it quite a tricky situation.
LINDSAY WILLIAMS: Any chance that it won’t go ahead, and if so where does that leave you with your overseas ambitions?
JOHN MUNROE: I think in terms of our confidence - you can never be overly confident with these types of transactions, anything can change in the market. We are happy with the new bid that we’ve made, and look forward to the vote tomorrow afternoon in South African time - but I think it’s important to emphasise that neither this transaction nor some of the others we have announced recently are absolutely essential to the growth strategy. They are all collectively important in moving us forward to our target to be announced of an additional 1.5-million ounces of international production, but none of it is absolutely founded on these types of transactions.
LINDSAY WILLIAMS: Are there other deals in the pipeline?
JOHN MUNROE: We have a number of things that we continue to look at - obviously this is a very difficult market with the gold price pushing the way it is.
LINDSAY WILLIAMS: Yes, but everyone I keep speaking to says $600 to $620 is almost a given, and other people are saying $750. We’ve heard that before. Aside from the actual corporate side of things are you still bullish of the price in dollar terms?
JOHN MUNROE: Yes, we think all the factors that have put gold into a very strong upward channel - we emphasise channel because it moves in all directions at particular points in time - those factors remain in place, and in many ways are stronger, and so we are confident in the outlook for the price.
