Gold Fields splurges on the purges
GOLD Fields, which unbundled most of its local assets in February, is slashing jobs and shelving exploration projects while reviewing the future of two mines in a bid to further cut costs and preserve cash.
The gold miner spun off all its South African mines, with the exception of the troubled South Deep operation, into Sibanye Gold in February.
Since the separate listing in February, Sibanye’s share price eased 0.8%, compared with a 55% drop in the Gold Fields’ share price. The price of gold fell 24% over the same period to $1 246 an ounce.
This week, CEO Nick Holland said it was the right decision to form Sibanye, and that investors were warned that Gold Fields would struggle for the first two years after the divorce. Gold Fields historically relied on cash from its local mines, particularly Beatrix and the Kloof Driefontein Complex, to fund its expansion plans abroad as it aimed to reduce its exposure to South Africa’s regulatory and labour risks.
“We’re delighted with Sibanye’s performance. It is exactly what we hoped would happen,” Holland said.
Daniel Sacks, portfolio manager at Investec Asset Management, said the Sibanye assets were run sub-optimally before the unbundling.
“The Gold Fields focus was on offshore growth and the build-up of South Deep. Under the new structure, the focus is only on these mines, and it seems to be why they are performing so well.”
For Gold Fields, life without its legacy South African assets has been difficult. South Deep — the company has spent $4-billion on it to date — is still bleeding cash and struggling to reach production targets.
Holland admitted this week that he was no longer “mar- ried” to the target of 700 000 ounces of production a year by 2016.
“What I am married to is to make sure we generate positive cash flow,” he said.
Gold Fields is also facing a probe from the US’s Securities and Exchange Commission (SEC) into the South Deep empowerment deal. It and the SEC would not comment.
Sacks said: “There is a lot of uncertainty around Gold Fields, which is worrying for investors. There is no clarity on the SEC probe; we have not seen the new South Deep mining plan. They will declare the new reserves and resource update in February [adapted for a gold price of $1 300 per ounce]. Until then, there is uncertainty about what the value of the business is.”