[miningmx.com] –GOLD Fields will buy the 19% minority stakes held by partner Iamgold in the Damang and Tarka mines in Ghana for $667m in cash and intends closing the deal by end-July.
The possibility of this transaction taking place was raised just a day ago by JP Morgan Cazenove analyst Allan Cooke at the mineral reserves and resources presentation given by Gold Fields in Johannesburg on Thursday.
Completion of the deal is subject to approval by Gold Fields shareholders and will give Gold Fields a 90% holding in each mine with the other 10% stake belonging to the Ghanaian government.
Gold Fields will pay for the acquisition through its existing cash holdings plus drawing from an existing, unutilized $500m offshore debt facility.
CEO Nick Holland said the deal was value accretive on all measures to Gold Fields shareholders on existing reserves but, in addition, there was major potential to increase future production from the Damang mine.
He estimated the payback period on the investment at between six and seven years on current gold prices and cost structures.
Gold Fields will acquire an additional 181,000 oz of annual gold production at current cash costs of $540/oz and a notional cash expenditure (NCE or total production cost) of about $940/oz based on results for the six months to end-December.
The group will also acquire an additional 2.14m reserve ounces at a cost of about $300/oz and an extra 3.27m resources ounces at a cost of about $198/oz as well as $20m in working capital.
Holland added, “this is a low-risk acquisition of in-production ounces generating healthy free cash flow that will improve the overall quality of our portfolio and be accretive to our shareholders on a per share basis.
“This proposed acquisition, together with the recent offer to the minority shareholders in our Cerro Corona mine in Peru are important steps towards our objective of international diversification and will contribute meaningfully to our target of growing our production base to five million ounces either in production or development by 2015.’
The offer in Peru closes on Friday and, as of Thursday, Gold Fields had increased its stake in Gold Fields La Cima – which owns Cerro Corona – to 92.9% from 80.7% before the offer was made.
Holland said initial scoping study work at the Damang mine had indicated there was potential to enlarge the present operation and increase the length of the pit on strike from the current one kilometre to about three kilometres.
“We could at least double the gold resource at this mine and perhaps go beyond that and that upside is not seen in the current resource and reserve picture. “
Market reaction to the deal was neutral with Gold Fields shares dipping 30c to R122.40 in trading on the JSE on Friday.
The writer owns shares in Gold Fields.
