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SA gold firms to double cash flow Posted: Mon, 18 Sep 2006 [miningmx.com] -- THE improvement in cash flow from South Africa’s gold mining sector could lead to a series of projects, particularly deep drilling ventures. Cash flow from operating activities from South Africa’s three largest gold producers – AngloGold Ashanti, Gold Fields and Harmony Gold – increased about a third, or R1bn, to R3.9bn in the three months to June. That compares to cash flow of R2.9bn in the first quarter. Gold Fields unveiled plans on 7 September to spend R4.7bn on two new projects: deepening Kloof and Driefontein, west of Johannesburg. By deepening Driefontein, Gold Fields will own the world’s deepest mine with a depth of 4.1km. “It’s case of making hay while the sun shines,” says one analyst, who believes that more project activity will flow amid the improved cash generation. “You’ll be seeing a lot more of such projects.” Nick Goodwin, a gold analyst at T-Sec, says shareholders in gold companies normally suffer. “It underlines the maxim that gold shares aren’t for investing but for trading. Shareholders suffer because the cash should be returned in a special dividend.” It’s true that gold mining companies don’t return to shareholders in terms of dividends or capital restructuring, and certainly not on the scale seen by the mining diversified companies. However, Nigel Suliaman, head of specialist equities at Metropolitan Asset Managers, says returning money to shareholders is acknowledgement that there’s no growth remaining in the gold mining industry. “That’s the way gold mining companies get the ratings. They have to show there’s growth for 20 years.” But there are inherent risks in the spending, the major factor being if the gold price retreats. Says Gold Fields CEO Ian Cockerill: “The house view is that the gold price will continue to trend upwards. Our capital projects are predicated on R100,000/kg rand gold price.” At the time of writing, the gold price had retreated about $30 to $40/oz on its price two weeks prior. But in rand gold terms it was still at R140,000/kg. Perhaps then the greatest risk is complacency. Budget overruns, the inability to control inflation-related costs on the mines and the failure of projects to deliver are the major factors investors will be concerned about. Meanwhile, the immediate future looks promising.Free news alerts: click here to subscribe
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