When the going gets tough, the tough get going - and that is what has been happening in SA's embattled gold sector. Executive reputations and the future of some mines are on the line.
Since October the headlines have been on Harmony's hostile bid for Gold Fields. It triggered a bitter battle as Harmony CEO Bernard Swanepoel and Gold Fields CEO Ian Cockerill slugged it out, using every device available to gain advantage.
But a lot else was taking place in an industry under pressure. The long-running feud between DRDGold CEO Mark Wellesley-Wood and the Kebbles - Roger and son Brett - reached a new intensity in March when the Kebbles finally ran out of legal options. They were forced in the court of appeal to pay R40m after losing the case between DRDGold and JCI/Consolidated African Mines (CAM). The Kebbles briefly considered taking the matter to the constitutional court, but decided against it.
They paid only after DRDGold brought an action for the liquidation of JCI/CAM and sent in the sheriff to attach assets. Still pending was the outcome of the legal action between the two over the Rawas mine in Papua New Guinea.
DRDGold has huge problems of its own and during March was forced to put its North West operations (the former Harties and Buffels mines) into liquidation.
That move triggered an immediate clash with larger neighbour AngloGold Ashanti, because of the threat of flooding to AngloGold Ashanti's Klerksdorp mines if the pumping of underground water from Harties and Buffels was to stop.
According to AngloGold Ashanti CEO Bobby Godsell, the DRDGold mines are all "updip" and the underground water, if not controlled, would flow down the natural dip in the underground strata into the AngloGold Ashanti mines. Godsell says "the updip mines are obliged by law to continue pumping underground water, even after their mining operations have ceased".
Not so, counters DRDGold's Ian Murray, who asks why two unviable mines must pay to pump water so AngloGold Ashanti's profitable Klerksdorp mines can continue to make money. Murray says AngloGold Ashanti should pay those pumping costs.
The common denominator in all these disputes is the continued strength of the rand against the US dollar, which has squeezed revenues and profit margins to the point where SA's marginal operators are now in trouble.
That is why the DRDGold mines were put into liquidation; why JCI/CAM battled to find the money to pay DRDGold; and it is the main underlying motivation for Harmony's hostile bid for Gold Fields.
This assessment contrasts with Swanepoel's claim that the takeover would be in the interests of both sets of shareholders, because he believes Harmony can run the Gold Fields mines better than Gold Fields management.
The rand strengthened from around R6,50/US$1 at the beginning of 2004 to around R6/US$1 at the beginning of this year. As a result Gold Fields - which does not hedge and therefore sells gold at ruling market prices - reported a drop in average gold price received to R83 381/kg for the six months to end-December 2004 from R85 511/kg in the six months to December 2003.
This was despite the average dollar price of gold rising from $375/oz in the six months to December 2003 to $416/oz in the six months to December 2004.
The revenue squeeze has put tremendous pressure on the marginal gold mines. Harmony's December 2004 quarterly showed 16 of its 28 shafts in the red, and they lost a combined total of R152m during those three months.
Harmony started restructuring in April last year and was forced to restructure again from January, after union troubles in the Free State blocked plans to introduce continuous operations (Conops), which could have kept some of the affected shafts going a while longer.
Gold company executives had all seen this crisis coming in one form or another. The simple reality is that SA's gold industry is in decline, but the strong rand is speeding up the process.
Godsell saw the signs in the late 1990s when he started to sell off the marginal mines owned by AngloGold, as it was then.
Wellesley-Wood and Cockerill reacted by diversifying operations outside SA into countries such as Australia.
AngloGold Ashanti is now sitting comfortably, with its remaining low-cost, long-life mines easily able to cope with present low rand gold prices, with two exceptions (Ergo and Savuka), which are being closed.
Swanepoel saw the trend as well, but took a bet on the rand staying relatively weak.
Harmony opted to maximise benefits in SA through buying up the discarded mines that AngloGold no longer wanted and running them more efficiently. As a result Harmony's overseas diversification has lagged behind. It did extremely well while the rand was depreciating, until the start of 2003.
Harmony had grown and prospered through acquisitions and, when the crunch arrived in mid-2004, Swanepoel opted for the radical option of bidding for larger and richer rival Gold Fields. Had he been successful, he would have been a corporate hero. He had clearly taken Gold Fields by surprise through striking an alliance with Norilsk Nickel - which holds 20% of Gold Fields - and through the innovative two-stage structure of the bid.
But Gold Fields managed to recover. It stalled Harmony's bid with various legal actions, while mounting a defence stressing the financial vulnerability of Harmony's loss-making operations.
The final result was that Harmony's bid failed because there were no further acceptances and Harmony did not extend it past the deadline of May 20.
Diversification is another way of countering the rand. Gold Fields has built its Tarkwa mine in Ghana into a world-class operation and is expanding its St Ives and Agnew mines in Australia. DRDGold is expanding production from its Tolukuma operation in Papua New Guinea, where it also owns 20% of Placer Dome's Porgera gold mine.
Last year DRDGold also upped its stake in Emperor Mines to 45%. Emperor runs a gold mine in Fiji. DRDGold had been subsidising the losses at its SA mines from its profitable Australian operations, until it decided to throw in the towel on Buffels and Harties.
The former Afrikander Lease - now Aflease Gold & Uranium Resources - has also had a wild ride over the past year. The company's share plunged after it was forced to close its open-pit gold mine near Klerksdorp and then failed to complete the purchase of Kalgold from Harmony.
That left Aflease without an operating gold mine and, while CEO Neal Froneman remained enthusiastic about prospects for developing Bonanza South, the future looked grim.
And then came a renaissance based on improving global prospects for uranium, a commodity that had been in the doldrums for the past 20 years. The Aflease share price rebounded from a low of 85c in July last year to 415c in February as two big North American institutions - Sprott Asset Management and Eastbourne Capital - bought substantial strategic stakes in Aflease and Brett Kebble was forced to sell out of the company.
