Gold Fields to raise $269m in book-build as opts to go it alone on $860m Salares Norte

GOLD Fields has decided to go it alone with the development of its $860m Salares North, a project in Chile, announcing today a book-build worth $269m (R4bn).

Once developed, Salares Norte will produce average annual production of 450,000 ounces of gold equivalent over the first seven years. Pre-development will kick off post the capital raising with the start of construction pencilled in for the last quarter of this year.

Announcing its 2019 full-year results a day earlier than planned because of the bookbuild, Gold Fields posted normalised profit of $343m (2018: $27m) and a 91 South African cents per share final dividend in line with payout policy. The total dividend paid was some 160 South African cents per share.

As he has mentioned previously, Nick Holland, CEO of Gold Fields, said the 2019 was the beginning of a highly cash generative period for the company, having invested $1bn in new projects since 2016. As a result, gold production was expected to be as much as 5% higher in the current financial year, equal to some 2.32 million oz. This compares to 2019 gold output of 2.19 million oz (2018: 2.04m oz).

Gold Fields generated cash flow from operating activities less net capital expenditure, environmental payments and redemption of Asanko preference shares of $249m and had net debt as of December 31 of $1.3bn with a net debt to EBITDA ratio of 1.08x – ahead of its budget. It was on this basis that Gold Fields board decided to press ahead with Salares Norte.

According to a report by Reuters in January, Gold Fields hired RBC Capital Markets in order to find a buyer for a 30% stake in Salares Norte. Today, however, the group said it would issue 41.4 million shares at a price of R96.39 per share. Shares in the company closed 3.5% lower on the Johannesburg Stock Exchange at some R92.99/share. The share issue was equal to 5% of Gold Fields issued share capital.

“Following a review of the alternatives available to the company … the board believes that a combination of the proceeds of the placing, operational cash flow and existing debt facilities will allow the company to fully fund the construction of Salares Norte, and allow Gold Fields to maintain a 100% interest in this world-class project and exploration district,” it said in a statement.

Salares Norte is expected to generate an internal rate of return of 23% at a $1,300/oz gold price and $17.50/oz silver price with a 2.3 year payback period.

SOUTH DEEP

The other major highlight of Gold Fields’ numbers is the performance of South Deep, its South African mine. Once scoped to produce one million oz/year in production, the mine has struggled to make money.

Following a restructuring last year, and aided by a higher rand gold price, South Deep generated net cash of R221m in Gold Fields’ 2019 financial year which compares to an outflow of R1.92bn in 2018.

Holland described the performance as “remarkable” with improvement across most production metrics of which a 41% increase in gold production to 222,100 oz was among the highlights. Total all-in costs decreased 31% to R585,482 per kilogram.

Asked last year about whether Gold Fields would consider selling South Deep, Holland said the first stop was to get the mine profitable before dwelling on its future.

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