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Why Gold Fields is sticking with SA

Friday, 30 June 2017

Despite new Mining Charter sending shock waves through the industry, company says it will retain South Deep

Gold Fields will not dispose of its South Deep mine in SA to focus on its international portfolio of assets, says CEO Nick Holland as a new version of the Mining Charter sends shock waves through the industry.

Some analysts have suggested JSE-listed companies with external assets, such as AngloGold Ashanti, Gold Fields and Anglo American, could spin off their South African mines and focus on their offshore assets due to the risks and costs raised by a damaging third version of the charter released in mid-June. The new charter imposes hefty additional charges on the industry and raises black ownership requirements to 30%, from 26%.

In a recent note, JP Morgan Cazenove argued that those mining stocks could be rerated if their boards came up with "strategic solutions to reduce their exposure to SA, while minimising value destruction" in the event of the political, legal and social landscape worsening in the country.

Gold Fields has spent R29bn on buying and developing South Deep and needs to spend R2bn more over five years to finish it.

South Deep had a book value of about $2bn and JP Morgan placed a net present value on it of $719m. "However, we believe South Deep attracts minimal, or even negative value, within Gold Fields’ $4bn enterprise value," JP Morgan said.

"Analysts and bankers are having a field day figuring out how we are all going to reconfigure our companies," said Gold Fields’ Holland.

"By and large, moving the deck chairs around is not necessarily going to create value. Beware of the sophistry that things like listings and separation of assets purport to create in terms of value."

Asked if the disposal or exit of South Deep was the subject of board discussion, Holland said: "Our strategies encompass looking at different ways to extract value for the company. A lot of the arguments for doing this are too superficial. It needs deeper analysis. Unless or until you hear otherwise, we are where we are."

He was clear that Gold Fields had come too far to give up on South Deep now.

"We are determined to make it work. We’ve not changed our view. We shouldn’t see what’s happened with the charter as a deterrent to that. If we have to fight, we’ll fight. If there’s a way to find an agreed solution, that’s preferable. In the absence of that, we’ll fight for our rights. We’ll not throw in the towel."

The Chamber of Mines, of which Gold Fields is a member, has launched an urgent court application to interdict implementation of the charter, citing law transgressions, contradictions, confusion and poor decision-making.

Talking about the breakdown in the relationship between the chamber and the Department of Mineral Resources, Holland urged parties to begin talking to each other or face the steady demise of the industry.

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