GOLD Fields sold shares in two non-core investments for a combined $88m, a debt cutting strategy that quite likely has future funding tasks in mind, most notably the $834m Salares Norte project in Chile.
“One of our key objectives is to reduce the amount of debt on our balance sheet,” said Nick Holland, CEO of Gold Fields in a company statement. “In addition to the restructuring of Gold Fields’ debt announced over the past few months, using the proceeds from the sales of our non-core investments to pay down debt will further improve liquidity,” he said.
The non-core investments were a 19.9% shareholding in Maverix, a Toronto-listed gold and royalty streaming business, which Gold Fields sold for $68 and a 19.9% shareholding in the Sydney-listed Red 5 which was sold for $20m. “Both positions were sold at a significant premium to the look-through acquisition costs,” said Gold Fields.
Gold Fields said it would retain 4.125 million in Maverix warrants, equivalent to a 3.68% interest in the company on a partially-diluted basis. Gold Fields sold the bulk of its royalty portfolio to Maverix in December 2016 in return for the 19.9% shareholding.
In April 2019, Gold Fields sold its 247 million shares in Red 5 for A$0.12/share. Gold Fields acquired the stake at A$0.05/share in October 2017 when it sold its Darlot gold mine in Western Australia to Red 5, it said.
On May 9, Gold Fields said it had raised $1bn in two new bonds, as it previously flagged it would do. The bonds consist of a $500m, five-year instrument which carries a coupon of 5.125% and a $500m, 10-year bond with a coupon of 6.125%. The average coupon is 5,625%. As a demonstration of interest in the company’s credit worthiness, Gold Fields said the final combined book for the bond issue was more than $3bn.
The proceeds will be used to repay amounts outstanding under the $1,29bn Credit Facilities Agreement and refinance or repurchase certain other existing indebtedness, or for general corporate purposes, the company said in May.
Gold Fields said in April that it was bullish on the development of Salares Norte, currently the subject of an environmental impact assessment (EIA) that would take 18 to 24 months for the Chilean authorities to complete. The EIA was accepted by the government for review on July 11 last year.
All things being equal, construction on Salares Norte was scheduled to begin in late 2020 with first gold production in 2023. The mine would have an initial life of mine of 11.5 years and life of mine production of 3.7 million gold equivalent ounces at an all-in sustaining cost of $465/oz.
In addition to capital expenditure of $834m, Gold Fields had already spent some $220m firming up the deposit which translates to a cost of $66 per reserve ounce.
One of the other pieces in the funding puzzle before proceeding with Salares Norte may be a final decision on whether Gold Fields remains committed to its South Deep mine in South Africa. According to JP Morgan Cazenove, the funding of Salares Note and the fate of South Deep were mutually exclusive.
“This is likely to mean that a strategic solution at South Deep is a likely condition precedent of Salares’ approval for funding,” the bank’s gold analyst, Dominic O’Kane. “Such a strategic solution at South Deep would be positive catalyst in Gold Fields’ share price.”