[miningmx.com] – ALL eyes fall on AngloGold Ashanti, and possibly on other players in the South African mining sector, following a proposal yesterday [November 29] to unbundle Gold Fields’ South African assets, a transaction that was broadly welcomed by the market.
“I think this is a breath of fresh air,’ said Peter Major, an analyst for Cadiz Corporate Solutions in Johannesburg. “I think the rest of the mining sector can take a leaf out of Gold Fields’ book, staring with AngloGold Ashanti,’ he added.
Shares in AngloGold Ashanti gained nearly 4% in Johannesburg which some analysts interpreted as expectations the R106bn gold group might attempt a similar unbundling of its ageing South African assets.
AngloGold Ashanti didn’t comment directly on its plans, suffice to say it has repeatedly recognised the strategy was “an option’.
A company insider, however, commented: “It helps that someone is at the vanguard of this thing,’ referring to Gold Fields’ proposals.
In terms of the unbundling, Gold Fields has proposed creating a new company – Sibanye Gold – that will consist of the mature South African mines KDC and Beatrix that produced 1.4 million ounces of gold in Gold Fields’s 2011 financial year, and a pretax profit of about R6.2bn.
This would leave in Gold Fields the 700,000 oz/year project, South Deep, on Johannesburg’s West Rand, as well as the group’s existing African, Australian and South American mines, and some exploration prospects. Gold Fields would have production of 2.2 million oz/year and 64 million oz in gold resources.
According to a market source, Mark Cutifani, AngloGold Ashanti CEO, had already lined up a proposal with a similar outcome to that announced by Gold Fields such that its shareholders would have the option of investing in either the firm’s South African or non-South Africa (international) assets, or both.
“I think they were waiting for the conclusion of Manguang (ANC elective conference) and Cutifani will be quite annoyed Gold Fields has come out with this first,” a US-based source told Miningmx.
“Gold Fields now has first mover advantage. I think he [Cutifani] was first just getting all his ducks in a row first,’ he added.
Asked to comment on whether the Gold Fields deal could open the way for the creation of other South African-focused companies, Nick Holland, CEO of Gold Fields said: “AngloGold has been grappling with the same problems as us; their decline in production is the same as ours.’
“The question for them, as for us, was how to deal with the demands of investors who have choices. They’ve got to be thinking about it,’ Holland said.
Cadiz’s Major says the creation of Sibanye offers a return to the dedicated gold vehicles available to investors in the Eighties and Nineties. “The reason the ratings of South African gold companies are at a 25 to 30-year low is that you don’t know what you’re getting from them. With gold [metal], you do’.
A gold company with nothing but South African mines offers a certain profile, and return, that investors can understand. “There’s none of this subsidisation of offshore mines using South African cash flows or vice versa,’ said Major.
“Others have to follow this. Shareholders will demand it,’ he said. Major also suggested that other mining companies, such as Anglo American Platinum, currently applying the finishing touches to an operational review, could do the same.
“Harmony Gold is another. I’ve told Graham Briggs [CEO] that its Indonesian project [Wafi/Golpu in Papua New Guinea] has been taken past the value curve. It’s over-drilled and now people are starting to see the negatives in it,’ he said.
Sholto Dolamo, an analyst for asset management company, Stanlib, agreed the Gold Fields unbundling could be applied elsewhere in the industry. “I wouldn’t be surprised if there was thinking along similar lines.
“If you could make the South African mines cash cows that would make sense from an economies of scale point of view, especially if you could put them together. Mponeng [an AngloGold Ashanti mine] and KDC [Gold Fields mine] perhaps in the same complex would make perfect sense,’ he said.
