Engineering firm Murray & Roberts last week joined a long list of South African companies making major acquisitions in Australia. Mark Beyer reports on their patchy track record.
Engineering firm Murray & Roberts last week joined a long list of South African companies making major acquisitions in Australia. Mark Beyer reports on their patchy track record.
While numerous South African lawyers, engineers and other business people have blended easily into Western Australia’s business scene over the past decade, South African companies have not fared as well.
Mining giants Anglo American, Durban Roodepoort Deep and Harmony, consulting firm AST and retailer Woolworths are some of the South African companies with a poor track record in Australia.
Murray & Roberts, which plans to acquire 51 per cent of Perth engineering firm Clough, will be hoping in future to be ranked alongside success stories such as gold miner Gold Fields and wholesaler Metro Cash & Carry.
South African companies have often paid top dollar for Australian assets, and in some cases have incurred big losses.
Hartleys resources analyst Kevin Tomlinson said part of the problem was that financial goals had been compromised by strategic goals.
“It looks like they are trying to get money out of South Africa, so they are paying higher amounts than they might otherwise,” he said.
Prime Corporate Finance director Liam Twigger, who specialises in the mining sector, said South African companies were not alone.
“Investors in Australia, whether Canadians or South Africans, have generally been handed their head back on a plate,” Mr Twigger said.
“When you cross borders to make an acquisition, you just need to be so careful. There have been so many disasters.”
Arguably the biggest disaster was Anglo American’s $243 million investment in Anaconda Nickel (now Minara Resources) in 1999, at the spectacular price of $3.15 per share.
It was seen at the time as yet another smooth deal by Anaconda’s then chief executive Andrew Forrest, but within 18 months Anglo was calling for his head.
“Projections and financial forecasts made at the time of Anglo American’s investment in 1999, and subsequently, have not been achieved,” Anglo chief executive Tony Trahar said in March 2001.
“Anglo American has lost confidence in the Anaconda board as currently constituted, as well as the CEO and the CFO.”
Anglo finally sold out of Anaconda last year, having lost most of its original investment.
Most of the other South African acquisitions have been in the gold sector.
RFC Corporate Finance director Stephen Allen said diversification has been a key motivator for the South African miners.
“They are keen to hold offshore assets and diversify their political risk and currency risk,” Mr Allen said.
AngloGold Ashanti, a company formed to house the gold assets of Anglo American, was the first big mover into Australia.
In 1999 it acquired Acacia Resources, owner of the Sunrise Dam open pit mine, which has been a source of good cash flow.
“I think Sunrise Dam has exceeded their expectations,” Global Mining Research resources analyst David Haughton said.
AngloGold suffered a setback two years later when it was outgunned by US company Newmont in a battle for Normandy Mining, at the time Australia’s largest gold mining company.
Another relative success story has been Gold Fields, which in 2001 acquired WMC’s St Ives and Agnew gold mines.
While Mr Tomlinson said the common view at the time was that Gold Fields had paid far too much, he believes the acquisition has paid off, helped by favourable currency movements.
AngloGold and Gold Fields have shown their faith in Australia by committing to big investments.
Gold Fields is proceeding with a $125 million development of a new mill at St Ives, while AngloGold recently gave the go-ahead to an $87 million underground feasibility study at Sunrise Dam.
It is also continuing to assess the potential $500 million reopening of the Boddington gold mine, jointly owned with Newmont and Newcrest.
South African gold miner Harmony, which has made four Australian acquisitions, has a very patchy record.
Mr Haughton said its New Hampton and Hill 50 acquisitions had both been disappointing.
“They certainly failed to live up to their expectations relative to what they paid,” he said.
Mr Haughton takes a more positive view of Harmony’s 31 per cent stake in Bendigo Mining, which is developing a $215 million underground mine in Victoria, while the jury is still out on its acquisition of Abelle, which plans a $177 million gold project in Papua New Guinea.
Durban Roodepoort Deep is finally starting to achieve some success in Australasia after several failed initiatives. It recently became the major shareholder in Emperor Mines and has interests in two producing mines in PNG.
Kumba Resources (formerly Iscor Mining) was one of the first big South African companies to invest in Australia. It invested in mineral sands producer Ticor in 1995 and is now the majority shareholder.
Ticor posted weak profits last year and Kumba asserted its influence by squeezing out the former chairman and managing director.
Outside the mining sector, technology consulting firm AST is widely believed to have paid top dollar (a rumoured $70 million) for corporate finance firm Poynton & Partners. Some observers believe the value was with founders John Poynton and Mark Barnaba, who left the business early this year despite its profitability at the time.
In the retail and grocery sectors, three South African companies have worn substantial pain from their Australian investments.
South Africa’s Woolworths, which bought upmarket fashion retailer Country Road, and Pick ‘n Pay Stores, which owns the loss-making Franklins supermarkets in NSW, are both patiently working to lift the performance of their Australian assets.
In contrast, Metro Cash and Carry is finally reaping the benefits of its 60 per cent shareholding in wholesale group Metcash.
Readers with a good memory will recall that Metcash (formerly known as David’s) and Perth’s own Foodland spent many years in the early to mid 1990s plotting to grow and take on Coles Myer and Woolworths. Metro swooped on David’s in 1998, when the latter company incurred big losses, and since then has slowly and surely lifted its performance.
