[miningmx.com] – THE possibility that two of the world’s largest gold companies in Canada’s Barrick Gold Corporation and Newmont Mining, a US company, may merge is a surprising development given the trend lately in the sector towards introversion.
Long gone are the days when gold mining companies announced multi-billion dollar greenfield projects, or mergers for that matter. Instead, the high rolling has been replaced by parsimony, a way of business largely shareholder driven.
Commenting on the proposed merger, Gold Fields CEO, Nick Holland said: “The consolidation of those two companies was a bit counter-intuitive; maybe deconsolidation might add more value for them’.
Holland was one of the first gold CEOs to reject size in favour of value. He unbundled the massive, and cash generative, Driefontein and Kloof gold mines to shareholders, creating Sibanye Gold in the process, because he wanted a company consisting of mechanised mines where the risk was lower.
In continuation of this strategy, he now believes building projects from ground-up is too expensive preferring to buy-in to cheap near productive assets or more preferably develop new ounces in brownfields expansions, known as resource conversion.
As a result, Gold Fields is spending $51m at its existing Australian assets this financial year, just over double the $25m it spent last year. Gold Fields bought the Yilgarn South mines from Barrick last year, but acquisitions are not a priority.
“For the right deal, we can find ways to finance it,’ says Holland. “We would look at bolt-ons, but not major transformational deals. We don’t want to waste good money on bad acquisitions; we would rather grow the cash,’ he says.
It’s an argument that has been long acknowleged by Mark Bristow, CEO of Randgold Resources, who has built the UK-listed firm into a £4.2bn (R73bn) company from almost nothing 19 years ago.
Bristow has long shunned the merger and acquisition market but unlike Holland, he has preferred to build new projects from ground-up.
Interestingly, however, Bristow last week announced plans to double the bankability of the group’s production to 10 years by expanding its ability to convert resources in the ground, much as Holland intends for Gold Fields.
“We want to have 10-year banked stable business plan, so to do this we need a reserve plan. Then that will give us time to find the next elephant,” Bristow said.
Harmony Gold has perhaps less international or regional options to grow production than either Gold Fields or Harmony but its CEO, Graham Briggs thinks the merger of Barrick Gold with Newmont may create some opportunities.
“Look at the situation in North America where two big guys are talking about getting together with possible spinoffs,’ Briggs told Bloomberg News recently. “We see this as maybe a potential opportunity in the gold space,’ he said.
Holland says he’s also keeping an eye on developments between Barrick and Newmont, but he’s cautious about the chances of picking up assets, even though Gold Fields has recently done business with Barrick.
“If we got an opportunity to have a look we would, but doesn’t mean we would be interested,’ he said. “It’s not easy to find gold. In a world where people thought gold was aplenty, it’s actually becoming worse,’ Holland said.
