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Game changer

Dec 03 2012 11:26 Jarred Myers

Company Data

GOLD FIELDS LIMITED [JSE:GFI]

Last traded 43.13
Change 0.93
% Change 0.02
Cumulative volume 479963
Market cap 33.40bn

Last Updated: 23/04/2014 at 04:27. Prices are delayed by 15 minutes. Source: McGregor BFA

ANGLO AMERICAN PLC [JSE:AGL]

Last traded 275.00
Change 1.99
% Change 0.01
Cumulative volume 1040206
Market cap 386.50bn

Last Updated: 23/04/2014 at 04:27. Prices are delayed by 15 minutes. Source: McGregor BFA

Anglo American Plat Ltd [JSE:AMS]

Last traded 508.50
Change -1.49
% Change 0.00
Cumulative volume 137520
Market cap 137.13bn

Last Updated: 23/04/2014 at 04:26. Prices are delayed by 15 minutes. Source: McGregor BFA

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THE GAME is changing. What used to be enough is no longer, and we, as an industry, need to step up to the plate. These are the words conveyed by outgoing Anglo CEO, Cynthia Carroll last week at an industry conference.

It's ironic that Carroll, who has been heckled as late for not being South African enough, chose a baseball metaphor: stepping up to the plate. The cynics among us would probably find a more appropriate metaphor in stepping away from the trough, which is a more fair description of the root problem in the mining sector.

Be that as it may, as Carroll puts it “what used to be enough is no longer”. The question now remains, what is enough in the new industry paradigm?

As your columnist has been forecasting since that fateful Marikana moment, the industry is transforming by and large to the detriment of the nation.

Last week began the slow march to divestiture and risk mitigation – strategies that mine company boards are all debating – with Gold Fields [JSE:GFI] spinning off its older assets into a separate entity, Sibanye Gold.

The move in isolation makes perfect business sense; older assets require different strategies and managers. While part of a larger portfolio the KDC and Beatrix mines which are now Sibanye, received broader attention and will now benefit from dedicated management attention and cash flow utilisation.

What makes even more sense for Gold Fields is that international shareholders have been appeased. Like the exorcising of an ingrown toenail, shareholders can maintain their exposure to the gold sector while decreasing their need to limp along with the Rainbow Nation handicap (Gold Fields still maintains heavy SA exposure through its South Deep Mine with 40m ounces in reserves).

Gold Fields has, is and will continue to sing off the song sheet that these moves have been mooted for eons, and they have indeed. What strategy session would be complete without debating lobbing the axe and spinning off department so and so – what marks a watershed in the industry is that they actually did it - and did it while the gold price is soaring without Icarus in sight?

Before exploring how this 'Sibanye Slice' will rinse and repeat throughout the sector, it's important to contextualise how much of a game changer this event is.

Sibanye starts out with prior knowledge of wage inflation and a deep familiarity with geopolitical risk, so their next steps are indicative of the new mining paradigm, their actions are precursors to the tectonic shifts rumbling through the nations ore sources.

To this point, Sibanye CEO elect Neal Froneman articulated that "the ability to preserve employment in deep level gold mining by extending the life of mines will depend on effective co-operation between management, trade unions and the workforce”. CEO speak for we're cutting jobs but it’s your fault!

Undoubtedly they will reduce labour, gearing up for increased mechanisation, implementing lessons learnt at South Deep. No doubt they will cite geological reasons for this, but hey, who are you kidding?

Another reduction will be in corporate overheads. This move is long overdue and should be welcomed by shareholders – miners tend to forget what exactly it is that they do when they spend too much time in London and Sandton. Going to work in those stylish, reflective boiler suits does wonders for recalibrating executives.

Another telling message which government will obviously ignore is what Gold Fields will do with its Sibanye bounty, equally obvious is that whatever it will do, it will not remain in South Africa – or to quote Gold Fields press release:

"Following the unbundling, Gold Fields will focus on...  growth through the expansion and life extension of its existing mines in Ghana, Peru and Australia..."

For my readers who accuse me of scaremongering, please note the absence of South Africa, but not Africa.

Companies vote with their feet – they make a noise when they build schools, clinics and bird feeders, but they are rather quiet when they diversify billions into foreign countries.

Who’s next in line for the Sibanye Slice?

Carroll inadvertently gave us the answer.

As she has stated she intends remaining in the position until a replacement can be found. Fair enough, it's quite acceptable not to leave a $40bn company rudderless, but she has also highlighted that she intends to see through the completion of the review of Anglo Platinum.

Anglo Platinum [JSE:AMS] (Amplats) is the world’s largest platinum miner; Anglo American [JSE:AGL] owns 80% of it. Why Carroll links her departure to the Amplats review is testimony to her erudition and character.

With her parachute already on, the best gift she could bequeath her successor is a fighting chance.

The spinning off of Amplats – Sibanye style – would be a death march for any chief executive. By Carroll executing the divestiture she immunises her replacement without the need to fall on any sword; the political dromedaries will castigate her non-the-more, they've never had much time for facts anyway. Bravo Cynthia!

No doubt mining companies will have to up their game, but the root cause lies elsewhere.

Politicians and labour unions best make their way to the plate, pronto.

SA currently produces 7% of world gold, down from 67% in the 1970's. Politicians best maul the nationalisation issue fast and furiously before it drops to nada. Union bigwigs best alight from their SUV's and align with their electorate, while both are still employed.

Sibanye means we are one, herein lays the kernel to solving the nation's woes: labour, government and industry must unite in order to succeed – one country, one destiny, one solution.

 
gold fields  |  sibanye gold
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