The evaluation of the proposed merger between Goldfields gold plants Beatrix and Oryx

Abstract

This management report outlines the evaluation of the proposed merger between Gold Fields gold plants, Beatrix and Oryx at Virginia in the Free State province, South Africa. The proposed merger was as a result of the cost structure of the gold mining industry in South Africa which is escalating at an alarming rate. The main reason for the high cost structure has resulted from high demand of skilled and semi skilled labour coupled by external factors such as political, social, technological and economic environmental factors. As the mining processes and the depletion of underground ore takes place, a substantial amount of money is required in order to process the raw material from underground sources to finished product. Beatrix gold mine is not immune to these economic challenges and therefore, management of the organisation is required to evaluate its business processes and reengineer the organisation accordingly for the benefit of all shareholders. For Beatrix gold mine to remain growing, profitable and sustainable, the executive management of the business has to manage costs effectively as expected by the shareholders and the financial analysts. Costs management is very important in an organisation like Beatrix gold mine because its shafts are marginal and sensitive to paylimit management. Rightsizing or reengineering an organisation like Beatrix mine requires a great deal of sensitivity because employees across the organisation are affected. In South Africa, more especially in the mining industry, employees are laid off because labour cost contributes more than 55% of the overall cost structure in the organisation. However correct tools and approaches to restructure an organisation have to be used and followed. Elements of restructuring process require an effective planning, extensive communication, services of competent management and strong leadership. In evaluating whether Gold Fields Free State gold plants should merge, an extensive analysis has been conducted by identifying all redundant infrastructure. It was clear during the research that the Oryx plant is underutilised due to insufficient feed and annual depletion. Another finding is that the production profile of the Beatrix mine is deminishing year on year and therefore, a restructuring programme is required as a matter of urgency. During the research process, empirical survey has been conducted. The survey covered many aspects of the organisation including but not limited to the morale of employees, new technology, growth of the organisation, retrenchments, economies of scale and the influence of government in the management of the organisation. The survey was conducted in an attempt to establish whether the shareholders of the organisation will accept or reject the rightsizing process. Chapter six of this management report covers the recommendations as well as the conclusion of the proposed merger. After an extensive due diligence process is concluded, it is recommended that Beatrix plants should merge but proper consultation process should be done diligently with trade unions and affected employees involved. It is further recommended that management must ensure that the morale of all employees remain high at all times. Moreover, the leadership of the Beatrix mine should ensure that cash is put aside to fund capital expansions while the gold price is still high.