Dineo Faku
Gold Fields, whose history dates back 125 years when gold prospectors first swamped the Witwatersrand, has again announced a major makeover in a bid to improve its fortunes.
The company said yesterday that it would split off its South African operations and house them in a new gold mining company, Sibanye Gold, which would be listed on stock exchanges in New York and Johannesburg.
The news of the split could herald a similar move by other gold mining companies as the South African gold mining industry grapples with aging mines, escalating costs, declining ore grades and labour challenges.
Sibanye Gold, formerly known as GFI Mining South Africa, will hold the Kloof Driefontein Complex and Beatrix mines near Carletonville, which were among mines rocked by recent labour unrest.
Gold Fields will retain the key South Deep mine.
The spinning off of the local assets was largely unexpected, but it underscores the urgency with which Gold Fields viewed the worsening conditions in the industry. About two weeks ago, the group’s credit rating was cut to junk by global rating agency Standard & Poor’s, which cited social and political tensions on South African mines.
“If we stay as we are, the production decline is inevitable with consequential impact on jobs, tax and royalty revenues,” Nick Holland, Gold Fields’ chief executive, said.
The news of the splitting of assets was welcomed by the market, as the Gold Fields share price shot up 5.71 percent to close at R108.60 on the JSE, but the real test is yet to come.
“The main reason for the unbundling is that South Africa has mature mines which have shown year-on-year declines in production and reserves,” David Davis, a mining analyst at SBG Securities, said yesterday.
He noted that Gold Fields’ choices were to either downsize itself, sell its local operations or unbundle them.
Subject to the approval of the JSE and New York Stock Exchange, Sibanye Gold will be listed as a separate business on both exchanges next February.
“By unbundling its South African assets, Gold Fields is effectively giving these investors the opportunity to exit South Africa, while still remaining invested in the company’s other underlying assets,” Abdul Davids, the head of research at Kagiso Asset Management, said.
Earlier this week, Gold Fields warned the market that the local gold industry would no longer exist in five years if conditions stayed the same. It lowered its production target by 200 000 ounces because of the wildcat strikes.
Peter Major, an analyst at Cadiz Corporate Solutions, said yesterday that other gold companies would follow. “Soon shareholders will tell companies like AngloGold Ashanti and Harmony [Gold] that if they don’t unbundle, they’ll sell their interests in the mines.”
He said the separation of the Gold Fields assets meant more money would be invested in South African assets instead of local assets generating money for overseas operations.
A banker, who spoke on condition of anonymity, said the deal had been in the pipeline for the past five months.
He said creating Sibanye was a simple and quick way to find a solution to problems without approval from the Department of Mineral Resources and shareholders.
Gold Fields said there would be no job losses directly as a result of the creation of Sibanye Gold, and all conditions of employment would remain unchanged.
Following the splitting of the assets, Neal Froneman, the chief executive at Gold One, has been appointed as the chief executive of Sibanye Gold.
Matthews Moloko, a non-executive director of Gold Fields, will become the non-executive chairman of the newly created company.
Mamphela Ramphele will continue to chair Gold Fields, Holland will remain the chief executive and Paul Schmidt will stay on as the chief financial officer.
Froneman said the company would be committed to maintaining profitable, stable and low-cost operations that provided a high degree of leverage to the gold price.
“We will selectively pursue synergistic opportunities for consolidation in the South African gold industry and, as a separately listed entity, will be able to fully utilise our free cash flows for the benefit of the company and its stakeholders,” Froneman said.