Gencor Ltd. - Company Profile, Information, Business Description, History, Background Information on Gencor Ltd.

6 Hollard Street
Johannesburg, 2001
P.O. Box 61820
2107 Marshalltown
South Africa

Company Perspectives:

The major strategic moves of the past few years, and those planned for the near future, have enabled Gencor to aspire to a place amongst the world's great mining companies in the early 21st century. The establishment in 1996 of a new group structure based on commodity units, onto which the Billiton assets have been integrated, marks an important step in achieving this strategic objective. "Gencor has undergone a remarkable transformation," says Brian Gilbertson, the group's executive chairman, "and the outcome is a US$5 billion company, focused sharply on its seven core commodity businesses. Each of these is dollar based; and each has attributes that merit the tag 'world class,' be it low operating costs, quality of ore reserves, efficiency of process and/or scale of operations. The group is soundly structured and prudently financed; our management structure is clearly defined, with an ambitious and motivated executive team; we are blessed with an excellent portfolio of world class businesses and there are many opportunities ahead of us. I believe that Gencor is well placed to take up the challenge of the future."

History of Gencor Ltd.

Gencor Ltd., formerly General Mining Union Corporation Ltd., is one of South Africa's top mining houses. After the company's Billiton unit became an independent company in 1997, the "new" Gencor was left to concentrate on precious metals.

Turn-of-the-Century Origins

Gencor is the product of a 1980 merger between General Mining and Finance Corporation and Union Corporation, both of which were founded in the 19th century. General Mining was founded on December 30, 1895, by two Germans, George and Leopold Albu, who controlled a number of gold mines. In the same year they changed the name of their firm from G&L Albu to General Mining and Finance Corporation.

In its early years the company's activities were focused primarily on gold; developing new mines and managing existing ones. In 1910, the company had seven mines under its management, including such well-known names as Meyer and Charlton, Van Ryn Gold Mines Estate, and West Rand Consolidated Mines, and was developing another two.

World War I was a difficult time for the industry; a flat gold price was accompanied by flagging productivity and rising costs on all fronts. The shortage of unskilled labor was a major issue, and its costs increased as contractors, who had to recruit and deliver the workers to the mines, became involved. The mines also had problems during this period with labor unrest, principally among white miners. The best-known example was the 1922 General Strike, during which two months of production were lost. In 1919, activities were diversified with the formation of Transvaal Silver and Base Metals to mine the lode outcrops and lead-bearing ore which the company owned. After six years, this venture was closed owing to its poor prospects. More successful was General Mining's acquisition of a large stake, during the 1920s, in Phoenix Oil and Transport Company, which had major interests in Romanian oil companies.

The mining houses were equally hard hit by World War II, which resulted in shortages of all forms of labor, lack of machinery, and delays in plant and machinery delivery. Good news came soon after, however, with the discovery of the Free State gold fields, which General Mining, together with other mining houses, had the right to develop. It also participated in the opening of gold mines on the Far West Rand. General Mining achieved some notable firsts: it was the first mining house to use the cyanide process for the extraction of gold; and, through West Rand Cons, it was the first mining house in the country to produce uranium.

Postwar Acquisitions

During the 1950s the company's activities were boosted when it gained control of the Consolidated Rand-Transvaal Mining Group. This control brought with it a substantial interest in the gold mine Geduld; platinum, through Lydenburg; pipe fabrication; and sugar.

In 1964 the company merged with Strathmore Consolidated Investments and came to control two mines on Klerksdorp gold field; Stilfontein, and Buffelsfontein. A major change took place during the 1960s when the Afrikaner-dominated mining house Federale Mynbou took control of General Mining. This was effected with the assistance of Anglo American, and its chairman Harry Oppenheimer in particular, who wished to assist the Afrikaans business community to get a better foothold in the mining industry. This aim had a political purpose: to counteract government policies which sought to separate Afrikaner from English, whites from black, by showing that these groups could cooperate in the same spheres of interest.

The outcome was that Federale made the takeover while Anglo took a substantial minority interest. Later, in 1965, it was decided to merge Federale and General Mining with Federale gaining effective control.

The merger resulted in the creation of the Federale Mynbou/General Mining group, the country's largest producer of uranium, accounting for more than a third of output, and also producing approximately 7.25 percent of the country's gold. "Federale Mynbou" was dropped from the group's name in 1965. The group's 10 collieries produced 10 percent of the country's output and it had further mineral interests&mdashbestos fiber production, platinum, and copper. It was also involved in oil production, exploration, and marketing and managed the petroleum company Trek.

The late 1960s saw a program of diversification. It was the era of conglomerates and the prospects for gold were not exciting. However, many new projects pursued, particularly in the industrial field, were not compatible with the company's expertise, and failed. The turnaround came in 1970 with the arrival of Dr. Wim De Villiers as chief executive. He instituted a rationalization of activities which led to improved profitability. The major changes he implemented concerned decentralized management, strategic planning, and better utilization of labor. On the industrial side, De Villiers sold off the consumer interests of General Mining.

A Major Claim in the 1980s

The other company involved in the eventual 1980 merger, Union Corporation, was of a similar age to General Mining. It was founded in 1897 by a German, Adolf Goertz, the local representative of Deutsche Bank, and was initially known as A. Goertz and Co. Goertz became involved in the gold rush and staked 326 claims on the Modderfontein farm on the East Rand, from which emerged the Modder Deep Levels mine, "the jewelbox of the Reef," in Goertz's words.

In 1902 Goertz and Co., with the assistance of U.K. and French investors, who took up shares, became the first Transvaal finance house to obtain a London listing. During World War I the company changed its name to Union Corporation.

There was much uncertainty in the early days, with financing for the Modderfontein mine being obtained literally hours before war broke out. After the declaration of war, all transactions with Germany were frozen.

From 1908, Union Corporation pioneered the Far East Rand, and in 1938 it discovered the Orange Free State gold fields. The first shaft was sunk at St. Helena in 1947, which became the first mine to produce gold in the Orange Free State. In 1951 came the discovery of the Evander gold field, over which Union Corporation had sole control. It established four mines there: Bracken, Kinross, Leslie, and Winkelhaak.

Later mining ventures included involvement in Impala Platinum, where mining began in 1969. Impala was the first platinum concern in the world to provide an integrated operation from the mining of the ore to the marketing of high purity platinum group metals. The gold mine Unisel was developed in 1974, and in 1978 Beisa, the first mine in the country to be established as a primary uranium producer, was opened.

Union Corporation also owned the original interest in Richards Bay and helped put together Richards Bay Minerals, which mines heavy mineral deposits from sand dunes north of the harbor, recovering ilmenite, rutile, zircon, and titanium. General Mining's rights in Richards Bay were later merged with these.

Union Corporation's diversification into the manufacturing industry started in earnest in 1936--37, with the formation of the paper company Sappi in the East Rand town of Springs. It was a long-term grassroots project which only really became profitable in the 1970s.

During the 1960s, investments were acquired in the packaging company Kohler Brothers; African Coasters, forerunner of Unicorn Shipping Lines; and engineering companies Darling and Hodgson and Evelyn Haddon. At the time of the 1980 merger, Union Corporation had a 58 percent stake in Sappi, 74 percent of Kohler Brothers, 55 percent of Darling and Hodgson, 17 percent of Haggie--a wire rope manufacturer--and 27 percent of Kanhym. It also held a stake in Capital and Counties, the U.K. property concern which later became the major investment of First International Trust, the overseas arm of the Liberty Life group, a major player in the South African insurance field.

In 1978, 56 percent of Union Corporation's assets were in minerals, including 33 percent in gold. It was operating seven gold mines--Marievale, Bracken, Kinross, St. Helena, Winkelhaak, Leslie, and Grootvlei--in addition to developing the Unisel gold mine. Approximately 50 percent of net income came from industrial interests in the fiscal year 1977--78.

Although the General Mining/Union Corporation merger was only consummated in 1980, the courtship had begun in 1974 when General Mining acquired a 29.9 percent stake in Union Corporation after a tremendous battle with Gold Fields of South Africa. A further step was taken in 1976 when Union Corporation became a subsidiary of General Mining and the takeover, still spoken of as the country's most bitterly contested hostile bid, was completed four years later.

The decade under De Villiers had been a golden one for General Mining, whose earnings per share increased at an average rate of 26.2 percent per annum over the period. Prior to De Villiers's arrival, the company had paid a maintained dividend--unchanged for the ten years up to 1968, with the dividend only marginally higher in 1969. At the time of the merger, Union Corporation and General Mining were the fourth- and fifth-largest mining houses in South Africa, ranked by equity capitalization. More than a third of each company's income derived from manufacturing.

The major reason for the merger was General Mining's need to create an improved capital base from which to undertake new investments, such as the first phase of Sappi's Ngodwana mill, the Beatrix mine, which was initially funded from within, and the Beisa uranium mine. There were also the additional benefits of manpower rationalization and, with the exception of gold, the two groups' activities supplemented each other rather than overlapping. It was also felt that Union Corporation's growth prospects would be improved through closer links with the ruling Afrikaner power bloc.

Given the hostile nature of the bid, it was inevitable that merging the two corporations would take time. Initially they remained separate operating entities, merging their corresponding product divisions whenever conditions were favorable. The process was apparently more complex than anyone imagined, and the period 1980--86 was to prove difficult for the group. In 1982 the two major stakeholders, Sanlam and Rembrandt, clashed over Gencor. Sanlam, the second-largest South African life insurer, had been a major shareholder in the two companies which joined to form Federale Mynbou, and thus become involved in General Mining, and subsequently Gencor. The result of the clash was the replacement of De Villiers--later a member of the cabinet&mdash chief executive by former Union Corporation managing director Ted Pavitt, after a clash between De Villiers and Dr. Andries Wassenaar, head of Sanlam, about the management of Gencor.

In the early 1980s, Gencor started to expand its interests, particularly in manufacturing, thinking that the outlook for metals, especially base metals, was poor. However, the group was caught by recession, high inflation, and high interest rates, which pushed up costs of new investments and led to a R410 million rights issue in 1984 to reduce leverage.

The biggest project was a R1.6 billion expansion at Sappi, which was plagued by technical difficulties and cost overruns. Problems were also experienced at Tedelex and Kanhym, which likewise needed to resort to rights issues. Foreign exchange losses of R200 million in 1984, with Impala and Tedelex worst hit, were followed, in 1985, by appalling performances by the manufacturing interests: Sappi, Kohler, Tedelex, and Kanhym.

The group's industrial relations image within the industry also took a battering at this time following troubles at Impala and Marievale and, later, mining disasters involving multiple fatalities at Kinross and St. Helena. The Beisa uranium mine which opened in 1981 was closed in 1984, having constantly failed to produce profits. This was primarily the result of a soft world uranium market.

The perception that all was not well within the group was compounded in 1983 by the group's failure to find a new chief executive to succeed De Villiers. It settled instead for management by its five most senior executives: Johan Fritz, George Clark, Basil Landau, Tom de Beer, and Hugh Smith. Pavitt had relinquished executive responsibilities in August 1984.

Over the course of that year manufacturing interests were underperforming; there was massive foreign loan exposure, and Gencor appeared to be something of a rudderless ship. The executive committee was thought to be concerning itself too much with operational issues and not enough with strategy and planning. Investor confidence waned. To some extent, such perception was unfair. Steps were being taken to address problems, such as the 1984 reorganization of mining and industrial interests in line with a policy of greater divisional autonomy.

Major developments were also underway, including that of the Beatrix mine, perhaps the most successful new gold mine of the 1980s; the development by Sappi of the massive mill at Ngodwana; and the gaining of control of Samancor. Gencor raised its stake in Samancor from around 30 percent to 50 percent by swapping various interests with Iscor, the state steel producer which was the controlling shareholder in Samancor. Next to these, the problems at Tedelex and Kanhym were relatively minor. Still, they were symptoms of malaise.

The interest in Samancor dated back to the 1970s when General Mining took steps to become more involved in the production of ferrochrome. At the time, General Mining held 15 percent of Montrose Chrome. After building up a controlling stake in Montrose, it went on to buy Union Corporation's operations, but the quantum leap in the formation of what is today Samancor came with the Tubatse ferrochrome project, a 50-50 joint venture with Union Carbide, which was bought out in the 1980s.

Gencor had battled with Anglo American for control of Samancor. The government had stepped in at one stage to prevent a successful Anglo bid, on monopoly grounds. At that time, Samancor was not a chrome company but a manganese company controlled by Iscor. Anglo later put its manganese interests into Iscor and took a 25 percent stake in Samancor.

Another important event was the creation in November 1983 of Genbel, through the merger of Gencor's investment holding companies UCI and Sentrust. UCI, on the Union Corporation side, was formed in 1946 to explore the Evander gold field. It was listed in the 1960s as part of a pyramid exercise to raise funds for the development of Kinross. Through a pyramid exercise, a holding company could control a large number of companies with a combined capital very much greater than its own, since it needed to hold only half or even less of the shares of its subsidiaries.

General Mining had no less than seven similar companies, whose most valuable assets were interests in the Free State and Klerksdorp gold fields. They were combined in 1968 to form Sentrust, which eventually constituted about a third of the merged Genbel as against UCI's two-thirds.

Historically, Genbel grew by exploring mineral rights and then putting these into new mines in exchange for shares, thus becoming an investment company by default. It continued to grow from opportunities offered by the Gencor group, as well as through developing its own mineral rights.

While the 1984--85 period was a difficult one for the South African economy, Gencor's particular difficulties were compounded by an identity crisis. Staff had not outgrown their previous allegiances and still tended to see themselves as Union Corporation or General Mining employees. The two corporate cultures were very different. Union Corporation had a reputation for good engineering and exploration, and General Mining for financial engineering.

The Key to Surviving in the 1990s

Gencor's failings were analyzed in 1986 in a report commissioned by Federale, at that time controlling company of Gencor, and produced by Arthur D. Little, the U.S.-based management consultants. The report contained some strong criticisms, accusing the group of lack of focus and direction, weak leadership, and a lack of corporate loyalty amongst employees. The report served as a spur to change but the man to whom it fell to implement this, Derek Keys, appointed executive chairman in April 1986, had no background in mining, having come from the industrial group Malbak. The appointment was not universally popular, and caused Johan Fritz to resign and Basil Landau to take early retirement.

Keys made a number of important moves, one of which was to separate the manufacturing interests. He brought Malbak into the group and then sold into it all the manufacturing interests--bar Sappi, which was much too large, and Trek, which later found a home in Engen. Thus at one stroke the manufacturing interests were separated from the mining interests, and Malbak was given the task of managing them. Previously, the manufacturing interests had been managed in true mining house style--from the center. Keys and Grant Thomas, managing director at Malbak, introduced a new decentralized structure.

This was part of Keys's strategy of increasing the powers of divisional managers within the group. Head office staff was cut from 1,700 to 54 by 1989. In many ways, Keys was responsible for putting into practice the decentralized management philosophy first articulated 15 years earlier by De Villiers.

The period from Keys's arrival was one of considerable expansion and growth, both organic and through acquisitions. On the mining side, the Oryx gold mine was developed as well as the smaller Weltevreden mine near Klerksdorp, and Impala Platinum developed the Karee mine. In 1989, Gencor bought a 30.7 percent controlling interest in Alusaf, the Richards Bay aluminum smelter, from the Industrial Development Corporation for R270 million. A R1.47 billion rights issue in 1989 helped fund these developments and acquisitions. Other acquisitions included Sappi's purchase of Saiccor, which specializes in the productions of chemical cellulose pulp, and of a 49 percent interest in the Usuthu pulp mill in Swaziland. In mid-1990 Sappi also bought five paper mills in the U.K. subsidiary Malbak, while Abercom Holdings bid £42million for the U.K.-quoted packaging group MY Holdings.

Another important event was the publication in 1988 of the Gencor mission, a brief statement of the group's fundamental corporate goals, which went a long way toward clarifying to the public and to its employees what Gencor stood for. In Keys's words, "Now they know that Gencor has only two businesses&mdashø start or to acquire major businesses and to accelerate the development of those businesses which it already has."

Two major developments took place within Gencor in 1989. The first was the formation of General Mining Metals and Minerals Limited (Genmin) in March 1989. Genmin was made responsible for managing the group's mining, metals, and minerals interests, which comprise some 60 operations. These included 14 gold mines, the base metals group Samancor, the platinum producer Impala, the coal group Trans-Natal, and the minerals division.

The second major development was the formation of Engen, the company responsible for the group's energy interests, which included exploration and refining of crude oil and marketing of the final products. General Mining had first become involved in the petroleum sector back in 1968 when it participated in a joint venture launching the country's first petrol marketing company, Trek Beleggings (Trek Investment). The key event in the formation of Engen took place in July 1989 with Gencor's purchase, for US$150 million, of Mobil Southern Africa from its disinvesting parent company. Its major assets were a refinery in Durban, the Mobil management team, and a country-wide network of approximately 1,150 service station sites.

Engen's other major interests included: the Trek network of petroleum outlets; 20 percent interest in the oil and gas exploration outfit, Soekor; and a 30 percent stake in, as well as the management contract for, Mossgas, a synthetic fuels venture.

In 1991 Gencor was an investment holding company with a mining house as its major interest. It has been left, in Keys's words, as "a pool of risk capital with connected businesses that are in our sphere of control but which in no sense can be regarded as one large business."

Control rested with the Sanlam insurance group, still a major shareholder in Federale Mynbou. The other major shareholder, Rembrandt, the tobacco and luxury goods empire built up by South African entrepreneur Anton Rupert, controlled such companies as Rothmans, Dunhill, and Cartier Monde. Rembrandt had been willing to put up money for Gencor acquisitions.

The decade since Gencor's formation was a time of upheaval for the group. In the first half of the 1980s there was a lack of direction at Gencor but this had changed with the advent of Derek Keys.

A New Gencor for a New Century

Keys was succeeded by Brian Gilbertson, who presided over Gencor at a time when politicians viewed the pyramid structure of such conglomerates with suspicion. Unbundling these complicated structures would also tend to increase share prices, which were traditionally undervalued in this system. Subsequently, Gencor divested itself of Engen, Genbel, Malbak, and Sappi.

Gencor bought Billiton International from Royal Dutch Shell in 1994 for £780 million, giving Gencor the opportunity to operate as an aluminum trader as well as producer. However, Billiton was not to remain very long under Gencor's umbrella.

In 1995, Alusaf began operating the mammoth Hillside Aluminum Smelter, which, when combined with the upgrade of a smaller Alusaf facility, nearly doubled Africa's production of the metal. The company planned an even larger smelter in Mozambique. Rangold bought some of Gengold's less profitable mines in 1995, while Gengold acquired some new mines of its own.

The European Commission scuttled Gencor's plans to merge Implats with Lonrho's platinum interests (LPD) on anti-competition grounds. The only other competitor in South Africa, the EC reasoned, would have been Amplats (the platinum interests of Anglo American Corp.), and Russia was the only other external supplier. Gencor already owned a 27 percent share in the Lonrho operations Western Platinum and Eastern Platinum.

Steel and ferroalloys contributed most (31.7 percent) to revenues in 1996; aluminum accounted for the next largest share (27 percent). Other operations each contributed less than a tenth of total revenues. Approximately half the company's revenues came from abroad.

In 1997, Gencor's base metals and non-gold interests were split off as a separate company, Billiton, to be based in London. Alusaf, titanium producer Richards Bay Minerals, and the steel and ferroalloys division remained part of Billiton after the transition. The company had a market capitalization of £4.6 billion (US$7.7 billion). The new Gencor would henceforth specialize in precious metals.

A US$194 million sale of mines and exploration rights to Eldorado Gold Corporation, based in Canada, was canceled in the summer of 1997. An unstable gold market was cited as the cause. The company continued to stake out investments in Australia, Indonesia, and Vietnam.

Principal Subsidiaries: Gencor (UK) Ltd.; Impala Platinum Holdings Limited (46%); Western Platinum Limited (27%); Eastern Platinum Limited (27%).

Principal Operating Units: Gold; Platinum; New Business and Trading.

Additional Details

Further Reference

"All That Glitters: Gencor," Economist, March 9, 1996.Benjamin, Paul, "Mining Stands on the Brink of New Era," Business Day, September 20, 1996.Beresford, Belinda, "Gencor to Separate Gold, Other Interests," Business Day, June 2, 1997.Dhliwayo, Dominic, "Mega Aluminum Smelter for Maputo?" African Business, January 1997, pp. 27--28.Freimond, Chris, "Rob Angel--Driving Engen," Executive, May 1990."Gencor to Shed Base Metals and Buy Australian Nickel," New York Times, June 19, 1997.Green, Timothy, The New World of Gold, New York: Walker and Co., 1981.Jones, J. D. F., Through Fortress and Rock: The Story of Gencor 1895-1995, Johannesburg: J. Ball, 1996.Kilalea, Des, "Gencor Looks Ahead," Finance Week, April 27-May 3, 1989.McKay, David, "Gencor, Australian Firm in Indonesian Deal," Business Day, October 23, 1996.------, "Gencor to Revise Mozambique Plan," Business Day, February 26, 1997.McNulty, Andrew, "Man of the Year--Gencor's Derek Keys," Financial Mail, December 25, 1987."Meet Genmin," Johannesburg, Gencor, March 1990."Mining Survey," Supplement to Financial Mail, July 28, 1978.Ross, Priscilla, "Implats' Impasse," African Business, June 1996, p. 22.Scudder, Brian, "Tiny Shouts, But Nobody Listens," African Business, January 1996, p. 23."South African Conglomerates: The Unbundling Begins," Economist, May 15, 1993."South African Gold: A New Vein," Economist, September 27, 1997."Unbundling: Restructuring the Corporate Scene," Barron's, October 11, 1993, p. 72.

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