The gold mining industry is dominated by one goal: to be number one. AngloGold's failed bid to take over Australia's largest gold producer, Normandy Mining, dominated developments in the global gold sector in the past 12 months.
What started off as a "friendly" approach by AngloGold rapidly turned hostile as Normandy CEO Robert Champion de Crespigny went looking for a white knight to get better terms for his company. He found one in US gold heavyweight Newmont.
AngloGold found itself in a bidding war it could not win against a rival whose stock carried a much higher market rating. International investors preferred to hold Newmont shares rather than AngloGold shares because they perceived Newmont to be the lower-risk option.
Yet the rival bids were so close at the end as to make little difference . AngloGold also put up powerful arguments to fight the perception that it was a higher-risk group and to show Normandy shareholders they would get far better returns in terms of dividend flow and rerating potential from taking AngloGold stock.
At the end of it all, AngloGold CEO Bobby Godsell had to be content with the knowledge that he had forced Newmont into paying well over the odds for the Normandy assets.
Despite the defeat, AngloGold gained a far higher profile in Australia, where the media went to town on the corporate battle as well as stirring up an international debate on country investment risk.
"At the height of the bidding war," says Godsell, "I was getting into debates with the immigration staff at Perth and Sydney airports going in and out of the country. I believe we also got investors to think about country risk in comparative terms. Newmont claimed its operations were two-thirds North American based on production ounces but we pointed out it was almost 100% Third-World in terms of profitability."
The motivation for the contest remains the race to be the undisputed number one in the world gold business. AngloGold used to be top in physical gold production but has lost that position since selling its Freegold mines to Harmony and because of the Newmont/Normandy merger.
The number one in terms of investor rating was Canadian producer Barrick Gold, which last year took over Homestake. That crown is now switching to Newmont after the Normandy deal.
Gold executives like Gold Fields Ltd chairman Chris Thompson do not expect Barrick to take this loss of position lying down and there has been widespread speculation over a possible merger with AngloGold. The two managements have a lot in common in their approach to the gold business and they announced a strategic alliance during the Normandy campaign.
In February, AngloGold financial director Jonathan Best described Barrick as a "good friend" and didn't rule out a possible merger, though he said there were no plans for one at present.
The rewards for being top dog in the gold sector, in addition to a higher stock rating, include being recognised by generalist investment funds.
The contest is being pumped up by the recent recovery in the gold price to levels above US300/oz. This peak looks sustainable compared with the series of disappointing spikes and collapses in the price over the past six years.
The gold bulls are bellowing and their viewpoint was laid out by Gold Fields Ltd (GFL)'s new CEO, Ian Cockerill, in his keynote speech to the Paydirt Gold conference held in Perth in March.
Cockerill says gold has gone through a 20-year down cycle since it peaked above 800/oz in 1980, thanks to the "peace dividend" created by the end of the Cold War.
He says that started to change from the beginning of 2001. The new trend was underscored by the events of September 11 last year when the World Trade Center in New York was destroyed.
"We are no longer a world at peace with itself. We are a world in conflict with many faceless enemies who are hard to identify or pin down. It is against this canvas that September 11 2001 occurred. Like the fall of the Berlin Wall on the same day in 1989, the attacks on the World Trade Center will be remembered as a seminal and definitive event in world history.
"Like the first incident, the second was not a turning point, but rather a symbolic milestone in the advent of a new world order - a wake-up call to the West."
Cockerill views the gradual rise in the gold price from lows around $250/oz as a "systemic response to the increasing risk profile of the world which implies gold is recovering its status as a reserve asset".
The result of gold's renewed strength has been a rampant gold equity bull market. The JSE Securities Exchange's All Gold index hit a record high early in March. Shares such as Harmony and GFL rose to four and five times the levels of just 18 months earlier.
The top performer has been Durban Roodepoort Deep, long disfavoured by investors and analysts as a dog. Now it has its chance to howl long and loud.
Chairman Mark Wellesley-Wood has been doing something like that through such measures as playing the Pink Floyd rock classic hit Money at the beginning of his quarterly report-backs and presentations at investment conferences.
The Durban Deep share price has shot from a low of 430c in 2000 to R44 earlier this year.
The group is using its rand profits windfall to put right a series of long-standing problems, giving priority to getting rid of its hedge book.
Higher-rated competitor Harmony has been following its own strategy in the gold sector's merger mania and has managed to avoid the "dog eat dog" confrontations at the top of the food chain. Instead, Harmony has aimed at smaller targets and pounced on scraps falling from the table of the heavyweights, such as AngloGold's four remaining Free State gold mines, grouped under Freegold.
In Australia, Harmony picked up Bendigo, which is a large-scale exploration play betting on proving up extensions at depth to the old Bendigo gold field situated just north of Melbourne. Harmony also acquired Hill 50 to add to its existing New Hampton operation in Australia, bringing its current gold production out of that country up to a respectable 500 000 oz annually.
That, says Harmony CEO Bernard Swanepoel, puts his group in place for the next phase of the consolidation of the Australian industry.
He says now that the major Australian gold targets have been acquired, the next logical development is for the new owners to focus on what they intend doing with them.
"Inevitably there will be asset disposals and we will be able to bid for those mines on the more logical basis of net present value and net asset value instead of paying for them through share prices inflated by takeover battles," he says.
That is how GFL acquired the wholly owned gold mining assets of nickel heavyweight WMC, which had decided they were noncore and put them up for sale.
Despite the consolidation that has taken place in the SA gold industry, Swanepoel says there is scope for further developments, for which Harmony is waiting.
"When you assess the speculation on the various combinations of global gold companies that could still happen," he says, "you see that in every case there is the potential for further disposal of gold mining assets in SA."
The downside of this is that Harmony is reluctant to lay out its available cash on developing any of the greenfields gold mining projects it owns in SA, even though they now meet the group's required investment return criteria.
The reason is that they are all deep-level mines requiring investment of up to R2bn over as many as seven years before Harmony starts to see any return on its money.
"On this comparison our decision to buy Freegold was a no-brainer because we got financial returns from day one after we bought the mines," Swanepoel says.
Gold mine executives are also extremely wary about the volatility of the rand against the US dollar, which has generated such huge windfall profits for them over the past six months.
Priority will continue to be given to acquiring shallow deposits (preferably for mining by open pit methods) that offer returns within 18-24 months.
These deposits are the ones normally found in Australia and the rest of Africa, but the only ones in SA are Harmony's Kalgold operation near Mafikeng and the Afrikander Lease mine near Klerksdorp.