[miningmx.com] – ADAM Fleming’s Witwatersrand Consolidated Gold Mining Company (Wits Gold) has been identified as low-hanging fruit for Neal Froneman’s Sibanye Gold, according to Macquarie Research in a note published last month.
Sibanye Gold, a company established after Gold Fields unbundled its mature South African assets, would have significant cash generation ability that would position it to become a new consolidating force in the local gold industry, as intended by Gold Fields.
Certainly, Sibanye is highly leveraged to the gold price as well as the rand. “Now you’re talking my language,’ said Neal Froneman, CEO of Sibanye Gold, when asked if he thought the overvalued rand would provide some lift to his company’s prospects.
“We are of the view that Sibanye Gold is highly leveraged to the gold price and to the potential gain in efficiencies management can achieve,’ said David Davis, an analyst for SBG Securities.
Said James Oberholzer, an analyst for Macquarie Research: “Sibanye is likely to have a substantial production profile with significant cash generation ability. This, in conjunction with a South African focused mandate . may provide an opportunity for further merger and acquisition in the industry.
Apart from “. bucking the trend of negligable “new project’ investment in the South African gold mining industry’, it would also create opportunities for like-minded gold juniors such as Wits Gold which has assets close to Sibanye Gold’s Beatrix mine.
“Given the proximity of these assets to the Beatrix mine, and that Wits Gold currently lacks the funding to develop them, we feel that sufficient synergies exist to warrant a transaction between the parties,’ Oberholzer said.
Meanwhile, Gold Fields’ decision to spin off its South African operations has increased the likelihood that AngloGold Ashanti, the world’s third-biggest producer of the precious metal, will be asked by its shareholders to do the same, Finweek’s Garth Theunissen reports.
AngloGold Ashanti mines about a third of its gold in South Africa, but CEO, Mark Cutifani, was quoted last month as saying that the company retained the option to split off the South African operations, which like those of Gold Fields are becoming increasingly marginal thanks to the capital-intensive nature of deep-level mining and ongoing labour unrest in the sector.
With AngloGold’s share price down almost 25% in the last year there may be a temptation to purchase the stock on the view that once the headwind-prone South African operations are hived off, investors could benefit from the upside of its higher growth assets in Australia, Argentina, Colombia, Brazil, the US and a host of African countries including Ghana, Tanzania, Namibia, Mali, Guinea and the DRC. Not so, say the experts.
Kurt Benn, head of equities at Cadiz Asset Management in Cape Town, says he remains wary of gold stocks in general and that investors should be aware that any potential upside from a rerating of AngloGold’s offshore assets are likely to be cancelled by a corresponding lower rating of its domestic operations.
“AngloGold’s investor base is definitely pushing it to follow Gold Fields example and separate the company into two, which will give them an opportunity to reduce their reliance on SA gold sector which has been in decline for some time but has also been beset by instability more recently,’ says Benn.
“If AngloGold is split into two, the majority of the offshore investors are probably going to dump the South African component. So even if the offshore component benefits from a rerating the downward rerating of the local assets will be compounded by selling pressure from offshore.’
With almost 70% of AngloGold’s shareholders situated overseas (44.5% in the US and 8.03% in the UK) the selling pressure on the local component is likely to be significant. In other words, if you were planning on buying AngloGold now to benefit from an upward rerating of the offshore assets following a likely split in the company, don’t bother as your investment is likely to be diluted by the holding in the South African operations.
Incidentally, Benn says Cadiz is avoiding gold stocks altogether regardless of whether their asset base is in South Africa or overseas. “We think our capital can be better deployed elsewhere in the market,’ he says. “We favour platinum stocks over gold.’
– Finweek
