Gold Fields Ltd. (GFI), the fourth-biggest producer of the metal, will spin off part of its South African business as a wave of strikes and above-inflation pay gains add to costs and curb output for mining companies in the country.
Sibanye Gold Ltd. will trade in Johannesburg and New York and include the Kloof-Driefontein Complex, Africa’s largest gold operation, and the Beatrix mines, Gold Fields said today in a statement. The company will keep South Deep, its second-biggest facility, and mines in Peru, Ghana and Australia. The stock rose the most in 14 months in Johannesburg.
The company is partly reacting to rolling wildcat strikes that began in South Africa’s platinum industry, before spreading to gold, iron-ore, coal and diamond mining. About 29,000 Gold Fields workers walked out in the past two months, winning pay gains that added to rising power costs and capital spending.
“If anything, the strike has accentuated the need for a different focus so that we can stop a decline in production and increase in costs,” Chief Executive Officer Nick Holland said. “This is something we’ve been thinking about for some time.”
Gold Fields has won approval from the South African Reserve Bank for the spinoff and is waiting for the Johannesburg Stock Exchange, where Sibanye will begin trading in February, he said.
Gold Fields gained 5.7 percent to 108.60 rand by the close, the most since Sept. 19 last year. The stock is still down 15 percent since the end of 2006, while spot gold prices have almost tripled.
“We’ve seen a gold price that’s gone way beyond our wildest dreams in the last five or six years and yet our equities are stuck in the mud, not just Gold Fields,” Holland told investors on a call. “If that continues into the future, then this industry will be in for a massive shakeup.”
AngloGold Ashanti Ltd. (ANG), the third-biggest producer of the metal, retains the option of splitting off its South African operations, CEO Mark Cutifani said Nov. 21. “Nothing has changed,” Alan Fine, an AngloGold spokesman, said today by phone. “He’s been consistent in that message.”
About a third of AngloGold’s metal comes from South Africa, the continent’s biggest economy, where it employs about 35,000. The company’s stock rose by the most in three weeks, gaining 3.9 percent to 275 rand.
Labor unrest this year will lower economic growth in the country and cut exports by more than 12.5 billion rand ($1.4 billion), the National Treasury says. Mining, contributing 6 percent of the economy and employing almost half a million people, will take a year to recover from job losses after the strikes, Finance Minister Pravin Gordhan said Nov. 26.
The newly created Sibanye will be the largest gold-mining company in South Africa and be headed by Neal Froneman, who is resigning as CEO of Gold One International Ltd. (GDO), according to Gold Fields.
“There will be opportunities for regional consolidation,” Froneman said. Gold One won’t initially be looked at, he said.
The South African share of Gold Fields’ total output will fall to 13 percent from 47 percent after its unbundling, the company said. That proportion will grow to 28 percent in 2016 with the planned increase in production at the South Deep mine.
“The KDC and Beatrix gold mines, which are being hived off, are cash-generative and the plan is to use the cash to extend the mine life of these assets and pay a dividend,” John Meyer, a mining analyst at SP Angel in London, said in a note. “This may also enable international investors who do not want to own South African assets to retain a holding.”
Gold Fields’ dollar-denominated debt will remain with the company and it won’t have a stake in Sibanye, Holland said.
Sibanye Gold will retain Gold Fields’ net debt of around 4 billion rand, while about $1.4 billion of offshore debt will be retained by Gold Fields, the company said in a statement.
Credit Suisse Group AG and JPMorgan Chase & Co. are acting as financial co-advisers on the transaction, while Credit Suisse is also an underwriter of the company’s debt facilities.
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