Major gold producers would not follow in Gold Fields footsteps by implementing a strategy to split South African assets from their portfolios.
Gold Fields on Thursday created a company called Sibanye Gold, to be listed in New York and Johannesburg, to hold its ageing and deep mines, Beatrix and the Kloof-Driefontein Complex (KDC) in Carletonville.
All eyes were on Harmony Gold and Anglo Gold Ashanti to follow suit and restructure their businesses, following the surprise announcement by Gold Fields.
Peter Major, an analyst with Cadiz Corporate Solutions, said the shareholders of other gold players would put pressure on management to split their South African assets.
“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,” Major said.
However, the mining companies said they would not follow in Gold Fields’ footsteps.
“Harmony has spent the last couple of years restructuring its portfolio, and we are pleased with the world-class mines we have. It would not be opportune to split the company as we do not believe that it will generate value for our shareholders,” Marian van der Walt, the executive for corporate and investor relations, said.
Harmony, which produced 1.3 million tons last year, holds ten underground operations and an open-pit mine in South Africa, plus interests in Wafi-Golpu in Papua New Guinea, said there were no plans to reshuffle its assets.
AngloGold Ashanti, the third largest gold producer in the world, said it had no intention to realign its business.
“We have no plans today to split the business, but all options must remain open,” chief executive Mark Cutifani was quoted as saying.
AngloGold Ashanti, which is listed on exchanges in New York, Johannesburg and Australia, has interests not only in South Africa, but South America, Australasia and the US.
Local gold mining companies are frustrated by a decline in productivity and increasing input costs particularly for labour and electricity.
Also declining grades and increasing regulatory oversight by the Department of Mineral Resources have been major challenges.
The mining companies have not been able to exploit the strengthening gold price.
“Gold companies with aged, deep-level South African assets as part of their portfolio have not seen their share prices move in tandem with the significant increase in the gold price since 2005, when it traded at $400 (R3 518) an ounce compared to the current $1 680 to $1 750 range in November 2012,” Ebrahim Takolia, the executive lead of mining solutions at Deloitte Consulting, said on Friday.
He said a feasible way for these companies to unlock the deep discounts that have negatively affected their valuations was to split the companies into separate portfolios, so that the underlying assets could be evaluated according to the appropriate risk profile. In this way, future capital requirements could be funded at a more appropriate cost of capital.
Gold Fields, with 2.2 million ounces of annual production, was downgraded to junk status two weeks ago by global credit ratings agency Standard & Poor’s, which cited social and political tensions in South African mines.
“I’ve been on the road a lot over the last couple of years speaking to a lot of investors, and I’ve been watching our share register very carefully over that period,” Nick Holland, the chief executive at Gold Fields, said on Thursday.
“The European shareholders have dropped from 23.5 percent to 15.6 percent over two years. The US shareholders have dropped from 49.9 percent to 47 percent. There has been a corresponding increase in the South African shareholder base, but that’s not because the South Africans are necessarily buyers.”
Deputy President Kgalema Motlanthe said South Africa had a lot to do to bring certainty to the mining sector, after the announcement that Gold Fields was hiving off its assets.
Motlanthe, speaking in Pretoria on Friday, said the mining industry was “very important” to the South African economy.
He also said the violence at Lonmin’s Marikana mine was “regrettable”.
The remarks by Motlanthe came after Gold Fields split its South African assets and created a new company called Sibanye Gold, which holds its deep and ageing mines, namely the Beatrix and Kloof Driefontien Complex (KDC) on Thursday.
Gold Fields, whose history dates back 125 years when gold prospectors first swamped the Witwatersrand, had been under pressure from investors to provide alternative investment choices in recent years.
Neal Froneman, the former chief executive at Gold One, will lead Sibanye.
Gold Fields shares strengthened 1.48 percent to R110.21 on the JSE on Friday, after gaining 5.71 percent on Thursday. – With additional reporting by Bloomberg