S Africa Mining Groups Turn To London

South African mining companies, determined not to be left behind in a world of fast-expanding exploration opportunities, are turning to the London Stock Exchange to help them maintain their challenge. On Sunday it became clear that Gencor was considering splitting in two and gaining a London quote for its base metals operations.

The move comes as Rand-gold is putting the finishing touches to a London listing for Randgold Resources, its international mining and exploration subsidiary, possibly early in July.

Meanwhile, JCI hopes to persuade Lonrho to agree to a merger that would produce another substantial mining entity with London as its main market. Behind these moves is the fear that South African groups might be left trailing behind as their rivals in Australia and North America seize the new opportunities available to international mining companies.

 

The big South African companies are not convinced that their domestic market will be able to provide all the cash they might need in the race to be among the industry's leaders.

Hence the move to London. Countries around the world are welcoming mining companies as never before.

From Argentina to Zambia, governments that once treated mining groups with suspicion now compete for their favours.

Many have loosened or abolished their foreign ownership restrictions and sometimes punitive taxes which previously discouraged companies from exploring or mining in many parts of the globe.

Mining groups are also being invited to bid for mining assets as huge chunks of the industry are returned to the private sector around the world.

Since the start of the 1990s more than half the countries in the world have allowed access to international mining companies and are actively encouraging them to invest. More than 70 countries have changed their mining laws to make themselves more attractive to foreign companies. All this is giving big international mining groups an unprecedented opportunity for fast growth.

Some observers believe that in 10 to 20 years the mining sector will be dominated by a small number of very big companies. Some South African groups are determined to be among the dominating few.

However, South Africa's exchange controls have been a hindrance. Until now only Anglo American Corporation, South Africa's biggest group, has had the relative freedom to grab any opportunity. Minorco, its 60 per cent owned, Luxembourg-quoted subsidiary, gave Anglo a vehicle for non-South African acquisitions. Minorco is now a substantial international mining company in its own right.

While London might seem the obvious market for South Africa groups to turn to for extra equity and debt finance, the rest of the mining industry has been relying on Canadian stock exchanges, particularly Toronto, to raise new money.

According to an analysis by RBC Dominion Securities, part of the Canadian banking group, mining companies in 1996 raised US$4bn of new equity on the Toronto exchange, 3 1 /2 times that on its nearest global rival, the Australian exchange.

But Toronto's reputation was recently tarnished by scandals, particularly by Bre-X, the small company that claimed to have found the world's biggest gold deposit only to discover it was a victim of fraud.

Even before the Bre-X affair, Peter Flack, chairman of Randgold, said he preferred London for the flotation of Randgold Resources because it ''is a serious, long-term company and it is more appropriate for it to list in London.''

A move to tap the London market would mark an important step for encor, which less than 10 years ago was an unwieldy, bureaucratic conglomerate whose performance and rating were so poor that desperate institutional shareholders drafted in Derek Keys in 1986 to give the business a thorough overhaul. When Keys left to become South Africa's finance minister five-and-a-half years later, Gencor was a successful, entrepreneurial, decentralised group and its rating had improved substantially.

This gave Brian Gilbertson, successor as chairman to Keys, a solid base from which to tackle growing internationally.

One option considered was a merger with Lonrho of the UK. But this was rejected because Gencor did not relish the idea of taking on Lonrho's disparate non-mining interests.

Instead, internationalisation was achieved via the $1.1 billion acquisition of the Billiton mining business from Shell. Billiton linked well with Alusaf, the South African aluminium producer that Gencor now owns.

Together Billiton and Alusaf constitute the world's seventh largest aluminium group and it has long been possible that Gencor would float that as a separate business.

Gencor may split, to float metals arm

Kenneth Gooding in London & Mark Ashurst in Johannesburg

Gencor, South Africa's second biggest mining group, is believed to be considering plans to split itself in two and float its base metals operations on the London stock exchange.

The company, valued on the Johannesburg stock exchange at