Gold Fields investors want blood
Holland’s head on block over South Deep restructuring
● Gold and platinum miners in SA have made some hard calls to close shafts and cut jobs this year. The market has been largely understanding that tough times require tough action, but this week an announcement that Gold Fields would restructure its South Deep operation is having the government and investors alike baying for blood. And the obvious target is CEO of 10 years, Nick Holland.
The restructuring of South Deep, into which Gold Fields has sunk about R32bn, will entail as many as 1,560 jobs being lost. The aim is to stop the mine from bleeding about R100m a month; the hope is to one day recover some of the investment.
In its interim results, Gold Fields reported a loss of $369m in the first half of the year, with the losses from South Deep largely to blame, although restructuring of operations in Ghana and impairments from a Philppines project added to the woes. The share price reacted strongly to the news and by Friday was down 20% in seven days.
Mineral resources minister Gwede Mantashe has called for Holland to step down. And a representative from Bank of America Merrill Lynch asked the company who, if anyone, might fall on their sword over the debacle. Holland has reportedly indicated he would not resign. Gold Fields, meanwhile, told Business Times no further action would be taken until it is seen whether or not the restructuring has worked.
“Any time a company loses R32bn heads should roll,” said Peter Major, director of mining at Cadiz Corporate Solutions. But it’s not always easy to say who that should be. “As an asset manager I start at the top, with who bought it,” said Major.
Despite gold’s 38% climb since his appointment in May 2008, and the rand’s depreciation against the US dollar, Gold Field’s shares have slumped 59% over the course of his tenure. Rivals haven’t fared much better, with Africa’s largest gold miner, AngloGold Ashanti, falling 54%. Harmony Gold has slumped about 75% over that time.
Anglo American’s Cynthia Carroll, Rio Tinto’s Tom Albanese and BHP Billiton’s Marius Kloppers all stepped down after costly mistakes brought the share of their companies under pressure.
The common thread is that these executives bought other people’s assets that had run for years, and bought them at high prices, said Major. Gold Fields purchased South Deep in 2006 under Ian Cockerill as CEO and Holland as CFO. Holland was appointed CEO in 2008. “It was an attractive asset, I just thought they bought it at a crazy price,” said Major. Thinking it might lose the asset to other buyers, Gold Fields panicked and acquired it for R22bn, he said. “It was a knee-jerk acquisition. Had they waited they could have bought it at half price.”
The unique structure of the ore body at South Deep, it has long been thought, made it ideal for mechanisation. However, so far Gold Fields has failed to make a success of it.
Holland has blamed high turnover of senior management at the mine. Major agreed, but said the CEO was to blame for that.
“Nick had so many teams in there . . . I lost track. He’s the one constant,” he said. “Heads do need to roll, you can’t just keep funding this thing year after year.”
Analyst at Noah Capital, Rene Hochreiter, said in a note that it was hard to see the operation making a profit anytime soon. After R32bn invested, Gold Fields has taken an impairment and brought the “carrying value” of South Deep down to R20.7bn on its books. “So, only R20bn of impairments to go before the CEO admits to having lost all the money poured into the mine?” Hochreiter wrote. “Perhaps it’s time to do an ‘Anglo Gold Ashanti’ and sell the mine whilst there is still some perceived value in it?”
But Gold Fields said it would not take further action as yet.
“We would only consider closing or selling South Deep or any other actions if the continued losses are not arrested by the restructuring initiatives we have announced this week. By next year we will be able to assess if these restructuring initiatives have made an impact,” said company spokesperson Sven Lunsche.
Gold Fields as a group has performed well over the past few years and has met most of its strategic objectives such as diversifying operationally and geographically and reducing its exposure to SA significantly, Lunsche said. “Our international operations are very cash generative . . .”
Any time a company loses R32bn heads should roll. As an asset manager I start at the top
Peter Major
Director of mining at Cadiz Corporate Solutions