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Gencor pops champagne on achieving its ambitious global dreamLooks at another coup under the direction of Brian Gilbertson UNTIL recently, Gencor's management found itself wanting the impossible: to be a flourishing specialist precious metals company within a mining conglomerate. Even more: it dreamed about establishing a world-class commodity-based group, but the inability to access global capital markets frustrated this ambition. This week's announcement that the Gencor group is to cleave itself into a locally based precious metals company and a London-based international commodities group neatly addresses both issues. "If I want to expand bauxite production in Western Australia to feed a new smelter I want to build in Mozambique, or if I want to be a serious contender for the privatisation of Venezuela's aluminium operations I need to access international capital markets," says Gencor chairman Brian Gilbertson. "I have been saying this for five years. Mining has long lead times and swallows up large amounts of capital. For us to be in the first league, we have to be able to access capital. "The South African Reserve Bank has given its warm support for our plans and we are very heartened by its approach." Gencor's market capitalisation is R31.8-billion at a share price of R21.20 - an all-time high. The value of all of Gencor's South African precious metal stakes is about R3.6-billion, rising to R5.5-billion when the stakes in Canadian gold mining and exploration company El Dorado and Ghanaian open-pit gold mine Bogosu are added in. This excludes any value for international exploration. This is only about 17% of the value of Gencor, and the percentage of earnings from precious metals was even less in the last financial year. This is not to detract from their value but merely illustrates Gilbertson's point: "Even if we establish a new gold mine that eventually earns R100-million a year, it won't make that much difference to Gencor as it exists now. In Beatrix we already have the best mine operating at the lowest cost in Africa and the potential exists to expand it. It is the core asset of the new Gencor." Oryx, St Helena and the Evander mines also form a part. Gilbertson says many have asked why Impala Platinum is being grouped with the gold. "It's only because other countries don't have platinum that they don't have precious-metal companies rather than just gold. Platinum is always worth more than gold, and it's a store of value, used in coins and jewellery. It is the fizz in the champagne. I might be wrong, and if Impala does not add value, many people would be interested in it. I think there is a lot of value to be added to our platinum mines." The main deviation from the international model of a gold mining company is that Gencor's mines will be listed whereas in other countries, they are usually wholly owned subsidiaries. "However, I expect the new Gencor shares will be an attractive currency: we might be able to reach accommodation with other shareholders." He hopes that the comparatively poor rating accorded to South African-only gold mines might be revisited by investors under the new format, which includes some international operations held via El Dorado. Gilbertson says the new Gencor will be opportunity-driven: "We have no intention of acting as nurse maids to dying operations. We intend this to be a world-class business and will seek out opportunities." Gencor will retain its listings on the Johannesburg, London, Paris, Frankfurt and Swiss stock exchanges. It will have a one for five consolidation of shares. Current shareholders will retain their Gencor interests as well as being issued with shares in the second, international listing. Into this new company, which will have an old name in Billiton, Gencor will sell its stakes in aluminium, titanium minerals, steel, ferroalloys, nickel, coal, base metals, marketing, trading and exploration. In 1994, Gencor bought the assets of Billiton from Dutch group Shell and incorporated them into Gencor. (While Gencor has a 102-year history, the name Billiton stretches back 137 years to its origin on a remote Indonesian island mined for tin from 1860.) Even before its formation, Gilbertson is billing Billiton plc as brilliant. That they are sound assets is not in doubt, and commodity prices are faring well. Gilbertson says the Alusaf aluminium smelter, Samancor's ferrometal, Richards Bay Minerals' titanium and Ingwe's coal operations are already world class. Base metals is smaller but growing, and the nickel business takes a quantum leap to fourth place in the world league - provided that the proposed merger of Queensland Nickel in Australia and Cerro Matosa in Columbia wins shareholder approval (see page 4). Billiton will be diversified geographically as well as by commodity: it will have significant interests in South Africa, Brazil, Australia, Columbia and Suriname, as well as trading posts in the UK and the Netherlands. For the nine months to March 1997, Billiton's pro forma attributable profit including exceptional items was $417-million, assets were $5.4-billion and debt only $94-million. Gilbertson expects its market capitalisation to be among the top 60 on the London Stock Exchange and for it to be included in the FTSE 100 index. Simple arithmetic suggests a market value of about $6-billion before the rights issue. Billiton will issue shares to Gencor in consideration for the assets, which Gencor will pass on to its shareholders. Billiton will have its primary listing in London and will also be quoted on the JSE. Billiton will then raise between $1-billion and $1.5-billion - Gilbertson says SA shareholders are welcome to follow their rights if they have the dollars. He will chair both companies, though he seems likely to step away from Gencor over time. Gencor's current financial director, Mick Davis, will move to London to join Dave Munro, already a Billiton executive. Mike Salamon will also join Billiton's board but remain in South Africa. Derek Keys, a former chairman of Gencor and currently running the aluminium division, will join the Billiton board. (There is a sense of irony here: Keys himself prohibited investment money from leaving South Africa while he was this country's minister of finance.) Gencor's board will be Gary Maude - currently managing the international gold portfolio - Tom Dale and Michael McMahon. Earlier this year, Gencor withdrew from the auction for the privatisation of Brazilian minerals giant CVRD. Gilbertson says it could not see a way to realise value within the given structure - it would receive only dividend flows. Subsequent to the auction, won by the CSN consortium, Gencor was invited back for talks which are still in progress. Gilbertson is definitely keen on Venezuela's aluminium privatisation, although national elections might interrupt the timetable. "I visited earlier this year and was assured that the privatisation would take place this year. We have secured local player Sural as our partner; we would not have considered a bid alone." Gilbertson says the long-term price of electrical power, and the extent of environmental liabilities will play an important part in determining the price. Capital-raising in the US is particularly sensitive and Gilbertson has to watch every word: "The lawyers give me a script and I daren't deviate from a single word." America will be part of the international roadshow which gets under way to help determine the parameters of the Billiton rights issue, which will be the biggest to take place in London this year. The grass has had no chance to grow under Gilbertson's feet since he became chairman in 1992 - the pick of five contenders. This is the group's ninth major move since the 1993 unbundling which focused it on mining and out of industrial and commercial investments. In coal, Trans-Natal bought Randcoal to create Ingwe, which itself bought Coal Mines of Australia last year. Gencor bought the IDC's stakes in Richards Bay Minerals, and chrome assets from Barlow. It invested in Columbus and Alusaf, bought Billiton's assets, invested in El Dorado and sold certain gold assets into it. But Gencor's latest move is its biggest and bravest, and puts it in the international spotlight.
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