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26 Sep 2006 00:00
The last two weeks were the most expensive in Gold Fields’s history. It plonked deals worth about R25-billion on the table, in the process establishing itself as the world’s top gold mining group in terms of ounces in the ground.
Recently, it unveiled a R4,7-billion investment aimed at deepening its flagship Driefontein and Kloof gold mines, giving it access to an additional 10,8-million ounces of gold.
This week it bagged 50% of the awesome South Deep gold mine from Canadian gold producer Barrick, and at the same time increased its stake in Western Areas—which owns the other half of South Deep—to 34,7% from 18%.
It did this by concluding an agreement to purchase JCI’s 27-million shares in Western Areas at a 16,8% premium to the market price.
Gold Fields has an option to increase its stake in Western Areas to 41%, which would then obligate it to make an offer to minorities for their shares.
It was a triumphant week for Gold Fields’s CEO Ian Cockerill, who just two years ago appeared to be fighting for his job after Harmony Gold launched a hostile bid for the group. Harmony needs higher quality ore to replace its ageing, low quality mines, and Gold Fields—with its relatively high quality mines—was just the ticket. The hostile bid consumed months of executive time, but eventually dead-ended.
Both groups then turned their attentions to South Deep, a massive 67-million ounce deposit lying 45km south-west of Johannesburg. Murdered mining magnate Brett Kebble kick-started development of this mine in the 1990s, but ran into cash problems and had to sell half to Canadian producer Placer Dome to bankroll the project. Barrick inherited half of this mine when it acquired Placer Dome earlier this year and made it known it had little interest in deep level South African gold mines—for reasons of worker safety and costs.
Three months ago Barrick’s investment bankers put out word that its share of South Deep might be up for sale. Towards the end of August it invited bids, and Harmony and Gold Fields once again found themselves competing for the same assets.
Gold Fields’s and Barricks’s advisers worked through Sunday night to finalise the transaction details. By Monday morning this week it was game over, 2-0 to Gold Fields. “From a technical and mining point of view, the deal makes sense for us,” says Gold Fields’s investor relations manager Willie Jacobs. “South Deep adjoins Kloof mine and is really the same ore body divided by a fault. We have plenty experience of mining under the conditions found at South Deep.”
Gold Fields is paying $1,525-billion for Barrick’s half share in South Deep, $1,2-billion of it in cash. To acquire the Western Areas half of the mine, it will offer 35 ordinary shares in Gold Fields for every 100 Western Areas. This is a 16,8% premium to Gold Fields’s closing price on September 7. Similarly, JCI shareholders will receive 35 Gold Fields shares for every 100 Western Areas shares held by JCI.
Gold Fields produces about 4,2-million ounces of gold a year from mines in South Africa, Ghana, Australia and Venezuela, as well as a developing mine at Cerro Corona in Peru. The company has ore reserves of 65-million ounces and mineral resources of 179-million ounces. Combined with South Deep’s 67-million ounces, Gold Fields is South Africa’s largest gold producer, with sufficient reserves to carry it through to 2050. South Deep at full capacity has the potential to lift Gold Fields’s annual production to 5-million ounces a year.
Gold Fields now has sufficient reserves to carry it for the next 50 years, leaving it free to cherry pick offshore acquisitions at its leisure. Harmony does not have that luxury and will have to step up its search for quality reserves elsewhere.
Harmony still has about 29% of Western Areas which it will now be able to sell at a tidy profit. It could use its shares to block Gold Fields acquiring Western Areas, but there seems little point in this as South Deep has now slipped beyond its grasp.
There’s no question Gold Fields paid heavily for its share in South Deep. “While the price of approximately $104 per reserve ounce that Gold Fields is paying for South Deep is competitive, the total consideration payable for South Deep is fair to all parties,” says Cockerill. In other words, Gold Fields is paying $104 an ounce before turning a single sod of soil to access South Deep’s gold.
Cockerill is an Oxford and Royal School of Mines educated geologist who joined Anglo American in 1975 and worked his way through Anglo’s management trainee programme.
He did stints at Minorco in the technical office and managed Elandsrand and Western Deep Levels before being promoted to technical director of Anglo’s gold division in 1996. In 1998, he was appointed head of Anglogold’s business development and sent off to find new ore deposits around the globe. He joined Gold Fields as chief operating officer in 1999, working under then CE Chris Thompson, and was appointed CE in 2002.
“Under-promise and over-deliver” is his operating philosophy. Ever the gentleman, he remained diplomatic and cool under pressure during Harmony’s hostile bid and refrained from indulging in personal attacks on Harmony management. He is gregarious, enjoys a good debate and argues his corner with conviction. He is a devout family man, with three children (two of them are out of school), and likes to spend his weekends tending the garden or fly fishing. He has a passion for cars (he drives a Porsche) and football, and believes in a healthy balance between work and home life.
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