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Bidding for South Deep to intensify Posted: Wed, 16 Aug 2006 [miningmx.com] -- ONE of the lesser known facts concerning Placer Dome’s last months as a gold mining company before being taken over by Barrick Gold was that it was negotiating with DRDGOLD to swap its 50% stake in South Deep. In return, the SA company was to yield its 20% stake in Porgera, a gold mine in Papua New Guinea (PNG). Placer Dome was the Canadian gold mining firm that bought a 50% stake in South Deep from Brett Kebble’s JCI in 1998. It struggled mightily to develop the project until yielding to Barrick Gold’s takeover plan last year. The mine always sat uneasily with Placer Dome, partly because its relationship with Kebble was constantly being tested. Commenting on the deal that never was, DRDGOLD’s investor relations GM Ilja Graulich says it was thwarted by the takeover offer from Barrick. But Placer’s intention to quit itself of South Deep has also, it would appear, become Barrick’s strategy. Prized in SA as the last jewel likely to be surrendered by the Wits Basin, a geological expression on which Johannesburg was built, South Deep is a problem with which Barrick doesn’t want to saddle itself. It’s deep, difficult to mine – unless there’s specialised experience – and labour intensive, with attendant safety risks. It’s also worth noting that on a net current value basis, stockbrokers such as RBC Capital Markets, BMO Nesbitt Burns and HSBC impute a value to South Deep of no more than 4% of Barrick’s total. That’s less than the amount of Barrick takeover target Novagold will add if the Canadian firm’s bid succeeds. Another interesting nugget is that Barrick rarely comments on its SA investment, almost as if it didn’t exist. At the time of writing there was speculation that Barrick was, therefore, to announce its intention to sell its stake in South Deep, a development that allows Gold Fields and AngloGold Ashanti to bid for it. Were that to occur, Harmony Gold would find its plans to control Western Areas – the entity that owns the other 50% of South Deep – squeezed out of the equation. Bernard Swanepoel’s Harmony Gold owns 29,3% of South Deep, an interest it holds in the hope it could build on that interest by swapping more shares for Harmony’s high quality mines. Amid a bidding war that strategic intent may end up like DRDGOLD’s plans – thwarted. It’s unlikely that Harmony will be able to find the finance to compete with Gold Fields or AngloGold Ashanti. With 30m oz in gold reserves, South Deep represents a tidy form of replacement for Gold Fields, whose SA mines – Kloof and Driefontein – will one day become exhausted. Gold Fields is best positioned to bid for the mine, owing to its 18,9% stake in Western Areas – which exerts negative control over Harmony’s position – and the economic benefits of Kloof, which is adjacent to South Deep. It’s thought that with its infrastructure deep underground Kloof could be used to accelerate output from South Deep.
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