Gold Fields CEO warns gold market tailwinds will not persist

Mike Fraser, CEO, Gold Fields

GOLD Fields turned in a “steady as she goes” performance during 2023 and the outlook appears to be for more of the same in 2024, but the more important issue for shareholders is probably to get a handle on what new CEO Mike Fraser intends doing with the group.

Six weeks into the job the key comment in his maiden review has to be this one: “We are mindful that the gold price and exchange rate tailwinds will not persist and that the favourable pricing cycle for the industry could turn.

“We are therefore committed to continue building a resilient business that delivers competitive returns to shareholders and sustainable value for stakeholders through the price cycles”.

Put another way – Fraser is sounding very much like Barrick CEO Mark Bristow – in stressing that it’s all about value and resilience and not size. Ironically, he is taking over at a time when Gold Fields has already way outperformed Barrick in terms of share price growth.

And not just Barrick. Over the last three years Gold Fields has left the gold industry’s largest producer – Newmont – eating its dust as well.

The Gold Fields share price has doubled over the past three years during which time Barrick lost 20% of its value and Newmont a whopping 40%. Measured over the past 12 months Gold Fields is up 51% while Barrick is down 8% and Newmont is down 24%.

The key factor accounting for the variation in these performances – which took place over a period during which movements in the gold price have been favourable – appears to be merger and acquisition (M&A) activity.

Bristow has been on a crusade for decades against unnecessary M&A preaching the Bible of “organic growth” which he maintains Barrick has in spades. Barrick has not done any M&A since the joint venture with Newmont in 2019 to combine their Nevada operations.

Newmont on the other hand last year concluded the US$16.8bn takeover of Newcrest Mining.

In 2022, Fraser’s predecessor – Chris Griffith – quit after the failure of Gold Fields’ bid to take over Yamana. He left because of differences of opinion on strategy between himself and major Gold Fields institutional shareholders.

Fraser would not be drawn on those developments but he did refer to the failure off the Yamana bid as a “derisking event” which helped drive up the Gold Fields share price.

Asked how his role as CEO could be affected by the opinions of large, influential shareholders Fraser commented: “Management and boards of companies have an important role to play. They need to act not just for the shareholders of today but also the shareholders of tomorrow and they need to bridge the interests of all stakeholders.

“That can be a complex role at times, but I can say our role is to listen and to take on-board feedback and make sure we have a close and open dialogue with all of our material stakeholders.”

He added: “We want to be the preferred gold stock. We don’t need to be the biggest gold producer but we want to be one of the most valuable stocks and that means we need to grow cash flow per share as an important metric.

“We also have to be agile and play in different places like we have demonstrated with the acquisition of Windfall. Gold Fields is a high-quality company and we need to demonstrate to the market that we have more to offer which I think we do.”

Asked about a possible change of domicile following AngloGold Ashanti’s move out of South Africa Fraser replied: “That is a very low priority from my perspective”.

CFO Paul Schmidt added: “Our exit tax would be multiples of what AngloGold had to pay so the economics do not work for us in terms of the taxes we would have to pay to the South African government”.