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Gold Fields offshore strategy intact Posted: Mon, 11 Sep 2006 [miningmx.com] -- GOLD Fields sought to ease shareholder fears it was turning to South Africa for its additional gold output saying its international strategy was intact. This follows a proposal unveiled today to buy South Deep, a mine west of Johannesburg with potential to produce 800,000 oz/year in its first phase, pencilled in by Gold Fields to be around 2012. "This particular acquisition in no way, shape or form deflects us from a strategy to internationalise Gold Fields," said Ian Cockerill, Gold Fields CEO. "We see this [the South Deep acquisition] as incremental," he said. In terms of the South Deep deal, Gold Fields will buy Barrick Gold's 50% stake for $1.52bn. It will also bid for control of Western Areas which owns the balance of the mine. South Deep has gold reserves of 29.3 million oz, and many more in the resource category. If completed, the effect of the deal will be to double Gold Fields' reserves and raise the proportion of total group gold production from South Africa. According to company estimates, Gold Fields will produce 3.5 million oz from South Africa by 2011 compared to 2.82 million oz recorded in its 2005 financial year. Total attributable production from the group’s worldwide operations was 4.2 million oz in 2005. How the investment in South Africa will go down with Gold Fields' international shareholders is a moot point. About R25bn in South African brownfields expansions and acquisitions has been committed in the last week. Gold production from South Africa is deemed high cost and unsafe owing the deep level of operations - some of the factors which swayed Barrick Gold to sell the asset it originally acquired in its takeover of Placer Dome. Responding to questions from North American and European investors, Cockerill said production from South Africa would peak for four or five years before production ounces from other South African mines fell away. "There's a short-term reversal of our internationalisation strategy. In four or five years [South Deep] will be replacement ounces," he said. The acquisition of South Deep created "... a strong base load from which we can continue our international growth," said Cockerill. With the R4.7bn extension of the Kloof and Driefontein mines tied down, and with additional cash from South Deep, management focus can fall on offshore ounces. Gold Fields has a long-established strategic goal of adding 1.5 million of additional ounces to total annual output. But Cockerill said the search for offshore ounces would continue, probably in the emerging market. "We will continue to seek ounces where we have a competitive advantage. But the company said it was mindful of the large premiums being paid by international companies. Canadian gold producer, Goldcorp recently bid $8.7bn for compatriot firm, Glamis Gold. “That was a deal between Canadian gold producers using highly rated paper. We wouldn’t hope to compete in that,” said John Munro, director of Gold Fields business development. “We’ll search where we have a competitive advantage such as south-south [hemisphere] deals,” he said. Of Gold Fields’ 1.5 million oz/year goal, about 900,000 oz/year had already been secured through the expansion of Gold Fields' Damang mine in Ghana, and the acquisition last year of mines in Venezuela and Peru. Cockerill said buying South Deep represented a once-in-a lifetime opportunity. “We couldn’t pass it up as it’s an ideal Gold Fields asset. This is a mine with 50 years of life and that will see several cycles. Some assets you buy are good but they don’t provide returns because the market is not favourable.” Asked whether Gold Fields would consider selling off some of its higher cost South African assets - such as Beatrix to Harmony Gold - Cockerill said: "We are a buying club not a selling club." Steve Shepherd, an analyst for JP Morgan, suggested Gold Fields might secure the support of Harmony Gold in its bid for Western Areas if it offloaded Beatrix to the beleaguered gold producer. But Cockerill said no such plans were envisaged.Free news alerts: click here to subscribe
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