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“Whoever builds first on Yamarna, controls it”: Gold Road's Murray -

Monday, 21 November 2016

GOLD Fields’ $270m (R3.6bn) investment in the Gruyere gold project, a venture in western Australia, takes total spending on new production over the next eight years to just over R21bn – just over half of the gold firm’s market capitalisation.

Spending on that scale represents a concerted and aggressive response to the improvement in the dollar gold price, especially as the recovery only started eleven months ago. Interestingly, analysts asked if the response could have been greater in respect of Gruyere.

Why, for instance, hadn’t Gold Fields bought 100% of Gruyere, a project discovered and investigated by Perth-based Gold Road Resources? “That was the deal on the table,| responded Nick Holland, CEO of Gold Fields. “A full buyout was not on the table.”

The South African firm also said that it “… didn’t want to bet the farm and throw everything into it”, and that “… we wanted to leave a little firepower to look at other opportunities as well”.

The company has already espoused a strategy to buy assets already in production which means Gruyere is something of a departure for Gold Fields. On October 14, Gold Fields said it planned to invest $1.4bn (R18bn) expanding its Damang mine in Ghana to about 2024.

It also seems that it would have taken an extraordinary offer to knock out the Australians.

Holland’s counterparty at Gold Road Resources is none other than Ian Murray, who once presided over the books of Durban Roodepoort Deep (DRD) in the period shortly after ousting of then chairman, the late Roger Kebble. Murray later became CEO of DRD.

He left the company in 2005, emigrating to Australia in which he honoured a pledge to his family to take 12 months off. This involved repairing to Bondi beach and other such surfing havens, as well as travelling the world and – reportedly – growing his hair long as might befit a surfer.

“I managed to stretch that to two years,” Murray says of his sabbatical. “Then I became a non-executive director of Gold Road Resources just in time for the GFC (Global Economic Crisis). A lot of the executives left the company, so they said: ‘You’re doing nothing’. So I became the firm’s chairman [later to become MD and CEO]”.

Murray then pointed the company towards a strategy of exploration at a time when the gold price had started its steep descent and consequently saw the major gold mining companies pull back on finding new discoveries. Murray’s decision proved to be an important one.

The big breakthrough for Gold Road Resources was in 2013 with the discovery of Gruyere, a gold resource with 3.5 million ounces of gold in reserves, a category of gold which is proven to be economic, and some 6.2 million oz in resources.

What’s perhaps most interesting about the Gruyere discovery is that it’s the first in its area which is in the so-called Yamarna greenstone belt, roughly 200km east of Laverton in Western Australia. “We have a 5,000 square kilometre claim over Yamarna and whoever owns the first process plant in the region has then got control over the belt,” said Murray.

The reason for bringing in a partner was because the investment is just too chunky, and risky, for a junior to undertaken. There were two steams of financing: debt and selling equity. As it turned out, Gold Fields was the name that survived in a whittling down process from 10 bidders, down to four. The South African link helped to oil the wheels of commerce, said Murray who’s executive head of exploration and growth, Justin Osborne, had already worked for Gold Fields.

“The first mine is always the most difficult in a new region. But once you’ve established the infrastructure – electricity, access to water, an airstrip – building subsequent mines becomes easier,” Murray added.

He can’t rule out ever selling out to Gold Fields in the future especially if the offer is good enough. “I could never say never; it would depend on the value offered bearing in mind that shareholders own the company,” he said.

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