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Gold Fields will spend just more than US$1bn to increase the equity stakes it owns in its Ghana and Peru gold mines in deals described by RBC Capital Markets analyst Leon Esterhuizen as “plucking the low-hanging fruit”. Esterhuizen has raised his 12-month price target on Gold Fields shares to R175 from R160 previously due to those transactions. Gold Fields is currently trading at around R119.
In Ghana, Gold Fields [JSE:GFI] is buying the 19% minority stake held by partner Iamgold in the Damang and Tarkwa mines for $667m in cash, which takes its ownership of those mines to 90%. In Peru, the group has raised its ownership of the Cerro Corona mine to 98,5% at a cost of $379m through a voluntary offer to minorities. Gold Fields owned 80,7% before its offer.
Gold Fields will pay the cost of the Peru and Ghana acquisitions through a combination of internal cash and the drawdown of existing, unutilised debt facilities.
The group currently produces around 3,6m attributable ounces of gold a year and wants to increase production to 5m oz/year within five years. Virtually all of that increase will come from outside SA, where Gold Fields’ plan is to maintain overall output by increasing production from the developing South Deep mine to compensate for declines in production from its other, older operations.
Buying the Iamgold stakes is conditional on approval by a majority of Gold Fields shareholders at a general meeting. Gold Fields CEO Nick Holland says the Ghana deal is value accretive for shareholders on all measures on the existing known reserves at the two mines without taking into account the potential to greatly expand the Damang operation.
Holland estimates the payback period on the investment at between six and seven years at current gold prices and cost structures. He adds: “The proposed acquisition – together with the recent offer to the minority shareholders in our Cerro Corona mine in Peru – is an important step towards our objective of international diversification and will contribute meaningfully to our target of growing our production base to 5m oz, either in production or development, by 2015.”
Esterhuizen says the Damang and Tarkwa mines accounted for 33% of Gold Fields net profits in the December 2010 quarter, which was well above the 24% of group attributable production that came from the two mines. Using the same yardstick for Cerro Corona, he says this mine accounted for 13% of net profit in the December quarter compared with the 10% of attributable production it provided.
Says Esterhuizen: “Gold Fields’ current push to increase offshore production over the next five years will serve to improve the asset quality as well. That was clearly noted when the company recently announced its latest reserve and resources statement and sharply reduced the resources numbers at the Kloof/Driefontein mine, which is the core of its South African production base. This is seen as a clear sign that future capital spending will be aimed at other assets outside SA.” Holland says: “We now have five new gold projects – which is a lot on our plate and we need to prioritise. When we started the uranium project, the need to prioritise was far less than it is now. I think the uranium project will have a role in the future but we won’t press that button this year or next.”
Ryan holds shares in Gold Fields
In Ghana, Gold Fields [JSE:GFI] is buying the 19% minority stake held by partner Iamgold in the Damang and Tarkwa mines for $667m in cash, which takes its ownership of those mines to 90%. In Peru, the group has raised its ownership of the Cerro Corona mine to 98,5% at a cost of $379m through a voluntary offer to minorities. Gold Fields owned 80,7% before its offer.
Gold Fields will pay the cost of the Peru and Ghana acquisitions through a combination of internal cash and the drawdown of existing, unutilised debt facilities.
The group currently produces around 3,6m attributable ounces of gold a year and wants to increase production to 5m oz/year within five years. Virtually all of that increase will come from outside SA, where Gold Fields’ plan is to maintain overall output by increasing production from the developing South Deep mine to compensate for declines in production from its other, older operations.
Buying the Iamgold stakes is conditional on approval by a majority of Gold Fields shareholders at a general meeting. Gold Fields CEO Nick Holland says the Ghana deal is value accretive for shareholders on all measures on the existing known reserves at the two mines without taking into account the potential to greatly expand the Damang operation.
Holland estimates the payback period on the investment at between six and seven years at current gold prices and cost structures. He adds: “The proposed acquisition – together with the recent offer to the minority shareholders in our Cerro Corona mine in Peru – is an important step towards our objective of international diversification and will contribute meaningfully to our target of growing our production base to 5m oz, either in production or development, by 2015.”
Esterhuizen says the Damang and Tarkwa mines accounted for 33% of Gold Fields net profits in the December 2010 quarter, which was well above the 24% of group attributable production that came from the two mines. Using the same yardstick for Cerro Corona, he says this mine accounted for 13% of net profit in the December quarter compared with the 10% of attributable production it provided.
Says Esterhuizen: “Gold Fields’ current push to increase offshore production over the next five years will serve to improve the asset quality as well. That was clearly noted when the company recently announced its latest reserve and resources statement and sharply reduced the resources numbers at the Kloof/Driefontein mine, which is the core of its South African production base. This is seen as a clear sign that future capital spending will be aimed at other assets outside SA.” Holland says: “We now have five new gold projects – which is a lot on our plate and we need to prioritise. When we started the uranium project, the need to prioritise was far less than it is now. I think the uranium project will have a role in the future but we won’t press that button this year or next.”
Ryan holds shares in Gold Fields
