Ian Cockerill, CEO, Gold Fields
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Gold Fields bids $330m for Venezuelan
David McKay & Allan Seccombe
Posted: Mon, 21 Nov 2005

[miningmx.com] -- GOLD Fields, the South African gold producer, is to pay $330m in cash for control of Canadian listed firm, Bolivar Gold Corp. in an effort to reach its ambitious four-year gold output growth of 1.5 million oz by 2009.

According to Gold Fields CEO, Ian Cockerill, Bolivar’s main asset - the Choco 10 mine in Venezuela - could be expanded to more 400,000 oz/year from start-up output of 45,000 oz over the last five months. “This is not a knee-jerk transaction. We’re comfortable with the company and that the price we’re paying recognises the upside in the mine,” he said.

Gold Fields already owns 11.4% of Bolivar Gold after investing in the company about two years ago. About 5% of the company is held by Venezuelan parastal, CVG.

Analysts were supportive. "Shareholders can be glad they are not being diluted by the issue of shares for this," said Leon Esterhuizen, an analyst for Investec Securities in Johannesburg. "If it [Choco 10] has the potential they say it has, you could be looking at another Tarkwa. This is about half the size of Tarkwa now and that is a great operation," he said.

Bolivar Gold represents Gold Fields’ first foray into the international gold market since its failed reverse takeover of IamGold Corp, a transaction that was defeated almost 12 months ago. Gold Fields produced 4.2 million oz in its financial year, of which about 66% was mined South Africa, considered a relatively mature gold region.

“This deal is consistent with our growth strategy and gives an operational foothold in a highly prospective gold camp,” said Cockerill. The deal, which has the support of Bolivar Gold’s board, is expected to be concluded by the end of January, 2006.

Including expansions at its existing operations, Tarkwa (Ghana) and St Ives (Australia), and new projects (Cerro Corona, in Peru), as well as Bolivar Gold, the group has already secured additional offshore output of 900,000 oz to 1.1 million oz/year.

In addition, the company is hoping to develop the Essakane gold mine in Burkina Faso and there’s potential for other acquisitions including working with 20% shareholder, Norilsk Nickel which has properties in Russia.

If Gold Fields achieves its gold expansions, about 55% of 5.5 million oz/year in production will from offshore mines.

According to Bolivar’s third quarter operational and financial results, issued in November, the company has increased proposed output in 2006 from Choco 10 to 190,000 oz/year from 140,000 oz. “Cost budgets are still being finalised, but cash cost per ounce is expected to be in order of $185/oz,” the company said. If the company reaches output of 400,000 oz/year, it will be at a cash cost of $195/oz, it said.
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Gold Fields offer, which is equal to C$3.00/share, represents a 19% premium over Bolivar’s close on November 18, and a 40% premium over its 30 day weighted average price.

“We’re conservative on making acquisitions but we prefer to look at cash-on-cash return. This is the total of acquisition and capital costs per ounce, in addition to operating cost per ounce over the life of mine which must not exceed 75% of the long-term gold price,” said Willie Jacobsz, Gold Fields spokesman.

"It seems pretty expensive. Looking at the reserve base they are paying a purchase price of $220 an ounce," said Esterhuizen.

"If you look at resources they are paying about $100. They are paying a lot for blue sky, but they must have a belief there is a lot more here."

In addition to the $330m acquisition price, Bolivar estimates a first phase capital cost of about $50m in order to take Choco 10 to 250,000 oz during 2007. The company had already spent $68m developing the existing infrastructure.

Speaking at the Denver Gold Forum in September, Cockerill said the company was more likely to grow through brownfields expansion rather than acquisitions which were too expensive. “Across the globe, value-adding deals are few and far between. We prefer to grow off our own platform,” he said.

Nick Holland, Gold Fields chief financial officer, said an application had been made with the South African Reserve Bank to deploy cash offshore. "We expect a positive decision in between five to 10 days," he said. "The acquisition falls very much within the ambit of exchange controls."