Gill Marcus, chairwoman, Western Area
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» Gold Fields in $2.5bn swoop for South Deep
» Western Areas swung by single owner
» Aflease role in Western Areas' future
» Gold Fields shows hand on South Deep
» Harmony talks up Western Areas deal
» Market forgives Western Areas failure
» Western Areas gold outlook slashed
» Western Areas plans R700m capex


Western Areas swung by single owner
Allan Seccombe
Posted: Mon, 11 Sep 2006

[miningmx.com] -- WESTERN Areas faces its demise if shareholders approve a transaction to sell their shares to Gold Fields, but the deal makes sense because it brings one of the world’s largest untapped gold ore bodies under one management, Western Areas chairperson, Gill Marcus, said on Monday.

The 47-year-old Western Areas jointly owns South Deep, a mine west of Johannesburg, with Barrick Gold, which acquired the asset when it took over previous owner Placer Dome in January this year.

Relations between Western Areas and Placer were never easy and South Deep was commissioned a year late. Brett Kebble, the former Western Areas CEO blamed the delay on Placer’s mismanagement.

Marcus said relations between Western Areas and Canada’s Barrick were “excellent” but that it made sense to have the mine run by a single management team.
managed as a single entity
Barrick’s advisors indicated in the past couple of weeks that the company might look at selling its South Deep stake, prompting a $1.5bn bid from Gold Fields, which was accepted.

Gold Fields currently owns 18% of Western Areas. Including the share offer for the rest of Western Areas, the total value of the transaction is about $2.5bn.

Gold Fields has long coveted South Deep, which borders its Kloof mine and has reserves of 29m oz at a depth of three kilometres.

Gold Fields CEO Ian Cockerill has argued it makes sense to access the second phase of the South Deep project through Kloof infrastructure, saying it would reduce capital requirements and brings forward the second phase by decades.

“The question for us (the Western Areas board) was that if Gold Fields is buying half the mine, the best use and working of this mine is to have the whole asset,” Marcus told Miningmx.

“For an asset of this nature, which is a big mine still in development, having it managed as a single entity rather than a joint venture is a very important question,” she said.

Western Areas shares shot up 10% during Monday's session on the JSE, hitting a high of R49.90. Gold Fields shares were last down six percent at R136.30.

Cockerill said the long-life mine will experience a number of cycles in the gold price and that it was critical that operations were set up correctly from the start.

“We’ve got to get it right first time,” he said. Gold Fields has extensive experience of deep-level South African mining. It is planning to extend two of its mines to be the deepest in the world in a quest for 11m more ounces of gold.

Western Areas is seeking independent advice on whether the offer is fair and reasonable before making a recommendation to its shareholders. The process should be completed within a few weeks, Marcus said.

“We feel the offer they’re making is a very good offer for Western Areas shareholders and we felt an offer of this nature is a very important one for shareholders to consider given the circumstances around Western Areas, in terms of our obligations,” she said.

Cockerill felt sure the offer to Western Areas shareholders would be accepted.
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“When the world’s largest gold company has accepted this offer and you’ve been offered something which stands almost equal with that, why would you not want to accept it,” he said.

Marcus said if shareholders accepted the offer, Western Areas, which was made a public company in September 1959, would be delisted.

Western Areas has a particularly onerous hedge book set in place by Kebble. At the end of the 2006 June quarter the hedge book was a negative mark-to-market R3.7bn.

The challenge of meeting hedge book requirements and generating enough cash to maintain Western Area’s portion of capital expenditure was proving to be formidable, particularly since the main hauling shaft was damaged in May when a skip broke loose. The 3km deep shaft should be repaired early next year.

In the June quarter, Western Areas total attributable gold output fell 35% to 36,578 oz, 92% of which went into servicing its hedge book. In the previous quarter, 62% of gold production went into servicing the hedge book that runs until 2014.

Gold Fields sees South Deep being an 800,000 oz/year gold mine in about six year’s time. It produced 470,000 oz in 2005, but this figure will be substantially lower his year because of the shaft incident.

Western Areas and Barrick planned to spend R580m at South Deep in 2007, which would be covered by mine production, Marcus said. The spending would go towards deepening ventilation and horizontal development.

Western Areas has three newly permitted exploration projects around South Deep that could also be served by the mine’s infrastructure and potentially add to the mine’s life, Marcus said. The prospects have Ventersdorp Contact Reef and the Upper Elsburgs as strike and down-dip extensions to South Deep and Kloof.