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Sibanye Gold could be 'industry catalyst'

Nov 29 2012 15:00

Johannesburg - New gold mining company Sibanye Gold, formed on Thursday from assets previously owned by Gold Fields [JSE:GFI], could act as a catalyst for change and consolidation in the gold mining industry, said Gold Fields CEO Nick Holland.

"I think we are all dealing with the same challenge," he said at a company briefing in Sandton.

"(Sibanye Gold) will help us to change the future direction of the industry for the benefit of the entire industry and the country."

Holland did not say how Sibanye would catalyse the industry, but its new CEO Neal Froneman said the company would not act as a "pacman" gobbling up other companies in the sector.

Sibanye Gold is currently a subsidiary of Gold Fields and was formerly known as GFI Mining South Africa (GFIMSA).

But it would now become an independent company with listing planned for mid-February.

Gold Fields has a primary listing in Johannesburg and a secondary listing on the New York Stock Exchange, and Sibanye would do the same.

Gold Fields shareholders would receive shares in Sibanye, but there would be no cross-holding between the two companies.

They would be separate and independent, pursuing different strategic goals.

Gold Fields would focus on shallow ore bodies worldwide, retaining South Deep as a flagship deep mine in South Africa.

Sibanye would focus on reducing costs in its deep mines and reinvesting cashflow in the business.

While the gold price had reached levels the industry had previously only dreamt of, "our equity is in the mud", said Holland.

Other gold companies also struggled with the same problems.

Production had declined at Beatrix and KDC, its two large mines which were now part of Sibanye Gold.

Sibanye had been formed from a Gold Fields unbundling.

Gold Fields, an increasingly global company, had to compete for scarce capital and was not able to focus on Beatrix and KDC.

Meanwhile, costs at these mines had risen in line with the gold price.

"That is no recipe for success in future," he said.

"If we don't do something, those assets will hit the wall."

Recalling the group's results presentation earlier in the week, Holland said he had noted the company needed to do something different.

Sibanye Gold represented that difference.

It was an opportunity to break the trend of declining profitability and create value.

Gold Fields' South African shareholding had increased markedly in the past few years, at the expense of European and American investors.

"South Africans are buyers of last resort," said Holland.

"Shares are flowing back, and investors want alternative investment choices."

Left unchecked, this trend would affect share liquidity and price, and ultimately its access to funding.

"I think it's a positive thing," he said, adding Sibanye's creation would "definitely" lead to repositioning.

Beatrix and KDC had formed the core of Gold Fields at its inception 15 years ago, and would now form the core of the new company, said Holland.

Froneman dismissed suggestions that Gold Fields had unloaded its most problematic mines on his company, as well as analysts who gave KDC and Beatrix a negative value.

His company was valued at R13bn at the current gold price of R400 000 per kilogram.

It would focus on improving yields while extending the life of its mines, which were currently expected to last until 2034.

Drilling could be more efficient, and the possibility of uranium production could reduce costs, he said.

Sibanye would introduce a new profit-share scheme for its 35 000 staff and would spend R700m over five years to improve employee housing.

The current spate of wildcat strikes in the industry had not influenced the unbundling, which was already underway, he said.

"The unrest has created a recognition that it's time to do things differently," he said.

"We have an opportunity to change the landscape, probably for good."

He described Sibanye as a new, proudly South African gold mining company.

Froneman was previously CEO of Gold One International [JSE:GDO], a smaller mining company.

Sello Moloko would chair the new company, and would step down from Gold Fields' board.

Mamphela Ramphele would continue to chair Gold Fields, and its strategy would remain unchanged.

Both Gold Fields and Sibanye Gold would be domiciled in South Africa.

There would be no direct job losses as a result of the creation and unbundling of Sibanye Gold.

The transaction did not require shareholder approval and the listings had been approved by the South African Reserve Bank, the group said.


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