GOLD Fields' proposals to combine its international assets with those of Canadian-listed gold producer IamGold Corp are a decisive and perhaps final effort by the South African mining firm to keep in touch with the world's gold producing giants.

The move also throws into relief the dangers to SA's established mining companies of the rand's volatility and legacy-related issues, such as empowerment legislation and a proposed Royalties Bill. Though the quality of Gold Fields' SA assets will surely enable it to survive these forces, they do constrain its ability to finance its offshore strategy. The arrangement with IamGold is an assets-for-shares swap, in which Gold Fields injects its non-SADC mines (Australia and Ghana) into IamGold for an overall 70% stake. The imputed value is US$2,1bn, representing a 12,5% premium to IamGold's share price, market sources say.

That seems a pretty penny for a company with only 400 000oz/year of gold production - less than 10% of Gold Fields' annual output. IamGold also has relatively modest exploration potential and is, in truth, dying at the root.

IamGold established itself on the back of two gold mining discoveries in West African country Mali during the Nineties. However, it has failed to progress since. As a result of its relatively small exploration portfolio and modest gold production, IamGold president and CEO of 18 months, Joseph Conway, has been seeking merger opportunities and is now hoping to rebuff an approach from Golden Star - a bid he claims is eclipsed by Gold Fields' offer. However, the true value of IamGold is its primary Toronto and Amex listings that command typical North American ratings.

SA gold companies normally trade at discounts to their North American peers, usually on the basis of their higher sovereign risk. Gold Fields International is hoping that it can retain IamGold's rating and that this will flow back to Gold Fields itself.

Having a higher rating provides the company with more buying power in potential deals where the currency is shares, as well as cheaper access to debt funding. That, in turn, will allow it to grow its offshore base more efficiently and certainly more rapidly.

The enlarged Gold Fields International has 2m oz/year to its name, an output it hopes to improve to 3,5m oz/year in three years. Gold Fields CEO Ian Cockerill says that the deal would allow Gold Fields 'to compete with the juggernauts' - such as AngloGold Ashanti and Newmont Mining, entities created over the past four years of industry consolidation. Therefore the Gold Fields/IamGold union has the elements of authentic mutual benefit. IamGold can offer its shareholders the heft and ambition of Gold Fields; in return, the South Africans can offer their shareholders the prospect of a rerating. Since the beginning of the year IamGold has shed about 11%, compared to a 21% contraction in Gold Fields' share price.

However, the price of concluding the deal is that a cleaver is slicing through Gold Fields' business. In effect, the company is cordoning off its mature, underground SA mines from its fleeter offshore opportunities.

Intriguing managerial decisions have also been taken. Chris Thompson, the non-executive chairman of Gold Fields Ltd, who's been in semi-retirement for several years, will become Gold Fields International's CEO. Does the resumption of executive duties by Thompson represent a demotion for Cockerill, or is it a case of horses for courses?

Certainly, Cockerill's period as CEO of Gold Fields Ltd, a position he will retain, has been characterised by restraint, partly owing to the crushing effects of the rand and a fundamental shift in SA's business climate.

But Thompson is recognised as the quietly spoken but dashing entrepreneur. He once attempted (and failed) to transact a reverse listing of Gold Fields into Franco Nevada, a Canadian company. He later led Gold Fields into Ghanaian and Australian gold mining deals that today still represent the rump of the group's offshore strategy. As such, Gold Fields International represents the company's third attempt to globalise itself.

Meanwhile, Cockerill denies that his company has turned its back on SA. However, an undertone of the transaction is that Gold Fields cannot grow quickly enough unless it demonstrates that there's space between its offshore aspirations and the legacy issues that dominate SA mining. As such, Gold Fields Ltd is offering investors two levels of entry: the holding structure builds in the optionality of the SA assets, while Gold Fields International represents exploration potential.

Interestingly, the deal doesn't clarify Gold Fields' intentions in respect of Noril'sk Nickel, the Russian firm that owns about 20% of Gold Fields Ltd. There's been speculation of a union between the two companies, in which Gold Fields' SA gold production and African exploration could be married with the geographic and commodity diversity of Noril'sk's base metal and platinum assets.

On one hand, Gold Fields International creates distance between Noril'sk and the offshore assets, because Noril'sk holds shares in Gold Fields Ltd. However, the rerating that might flow from Gold Fields International, its global placing and access to capital make it better positioned to conclude a share-based transaction with Noril'sk, which is listed on the New York Stock Exchange.

Gold Fields financial director Nick Holland comments that Gold Fields International doesn't alienate Noril'sk Nickel. 'It's not at odds with talks that we've had with Noril'sk. Nor does it shut the door on anyone.'

However, the separation of the SA and international assets does create a level of opportunity within SA mining itself. By formally imputing a discrete value to the SA assets - and defining their importance in the growth aspect of its strategy - Gold Fields could encourage suitors. Mvela Resources has expressed an interest in building its stake in Gold Fields to beyond the 15% target identified in the five-year goals of the Mining Charter. Mvela Resources' spokesman James Wellsted says the company is sanguine regarding the matter, as it doesn't change the terms of its own arrangement with Gold Fields' SA assets.

Quite how Mvela Resources would fund this deal is a matter for conjecture. But a gold mining executive says that Gold Fields' SA mines could be put in play by the interest in offshore growth. But Cockerill says that Gold Fields is interested in buying ounces, not selling them.

Thompson buries axe with Bank

CHRIS Thompson is recognised as an entrepreneur and dealmaker. But the failure to consummate the reverse listing of Gold Fields into Canadian-listed Franco Nevada (now part of Newmont Mining) during 2001 nearly proved the defining moment of his career at Gold Fields.

The SA Reserve Bank declined to provide approval for the transaction on the basis of exchange controls - a development that left Thompson furious and, later, bitter. Writing in Gold Fields' annual report he threatened to harvest Gold Fields' SA mines unless a better operating environment was created.

Luckily, the turnaround of Tarkwa (Gold Fields' gold mine in Ghana) and the depreciation of the rand from 2000 helped Gold Fields' price recover from about R33/share to a high of around R168/share - all under Thompson's watch. During his period as non-executive chairman (2003/2004) Thompson was also involved in the empowerment transaction in which Mvelaphanda Resources bought a 15% stake in Gold Fields' SA assets.

Commenting on the formation of Gold Fields International, Thompson lauded the co-operation of the Bank, which he says had been 'extraordinarily responsive and constructive' in drawing up the basis for the takeover of IamGold.

In essence, Gold Fields is permitted to employ SA-based funds to pay for deals in which Gold Fields International is involved - provided, among other terms, that the offshore subsidiary retains a 50,1% stake in its various acquisitions.

The Bank has also asked for the repatriation through a dividend of any unreasonable cash build-up in Gold Fields International. In addition, the Bank must receive annual reports from Gold Fields on its offshore activities.

Crucially, Gold Fields International can embark on offshore deals using the rand without deal-by-deal clearance. That allows Gold Fields International to operate with the speed it would require in international markets.

Commenting on his new executive duties as CEO of Gold Fields International, Thompson says that his primary aim is to 'put the vehicle on its feet' - a task he believes can be completed in about two to three years. Gold Fields International is unencumbered with the current processes and other requirements of SA.

It also creates 'a second opportunity' for co-operation with Noril'sk Nickel, says Thompson. 'They (Noril'sk) have assets that we like and we will continue to explore the relationship. But there is no consequence on the table,' he says. 'My primary aim is to get some numbers on the board.'