Gold Fields spin-off company to test investor confidence

Shares of Sibanye Gold, a new company hived off from the world's fourth-largest gold miner, will begin trading in Johannesburg and New York on Monday. Analysts expect the shares to trade anywhere from R8 to R52.

The wide range reflects uncertainty over how investors will rate the assets, given restive labour relations in Africa's largest economy.

"Without a doubt everybody is speaking about the risk associated with mining in South Africa," said Percy Takunda at Imara SP Reid, a Johannesburg brokerage.

"American asset managers have very strict social mandates that they have to fulfil when they put in the money and many will not touch unionised companies or sectors."

Gold Fields is spinning off two of its three South African mines, both of which were hit by labour unrest last year. It is holding onto its South Deep mine, which has avoided recent labour conflict thanks to its high level of mechanisation.

By unloading the older assets, Gold Fields makes itself more attractive to investors uncomfortable with South Africa's labour risk. Other companies could eventually follow suit.

Investor confidence
South Africa was pounded by waves of violent labour unrest last year that started in the platinum industry and spread into gold, diamonds and later trucking and agriculture.

More than 50 people were killed, shredding investor confidence and raising questions about President Jacob Zuma's management of the country.

Wrestling declining output and soaring costs, other gold companies like AngloGold Ashanti, have been urged by investors to hive off their operations in the country in order to see their shares re-rated.

AngloGold Ashanti's largest shareholder, Paulson and Co., suggested AngloGold could hike its value by up to almost 70% if it separated its high growth international business from the dividend paying South African operations, according to media reports.

"If this goes well – and Paulson is a good example because they are well invested in both Gold Fields and AngloGold – there will be a lot of pressure on AngloGold to do the same," said Takunda.

Paulson and Co. owns just under 1% of Gold Fields, and 7.4% of AngloGold Ashanti, according to Thomson Reuters data.

Shareholders will receive one share in Sibanye for every share they hold in Gold Fields.

Shares of Gold Fields finished up 1.1% at 105.80 rand on Friday, valuing the firm at R77.3-billion.

Sibanye would still be one of South Africa's top gold producers with an output of about 1.3 million ounces a year with 16 years of production left.

The spin-off will immediately reduce Gold Fields' exposure to Africa's largest economy from around 50% by revenue to less than 15%. It will now rely on its mines in Ghana, Peru and Australia for the bulk of its revenue.

"The investment community is very concerned about broad production targets for companies," Gold Fields Chief Executive Nick Holland told Reuters in an interview this week at a mining conference in Cape Town.

"It's crazy to focus on long-term production targets. Let's focus on making cash today," he said.

Shares in Gold Fields have fallen almost 4% since the end-November announcement detailing the spin off. The JSE Gold Index has dropped more than 5% in the same time.

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