In the words of singer Taylor Swift, Gold Fields shook it off. Five months after the resignation of CEO Chris Griffith, the gold miner’s share price is at a record high. Stand-in CEO Martin Preece tells the FM the dollar gold price is driving the stock, “but we hope the market is giving us a bit of credit as well” — a reference to two deals the company announced this year.
Last year was a nightmare for Gold Fields. On May 31, it bid $6.7bn in shares for Yamana Gold, a Canadian gold producer, only to be outbid by a joint offer from rival gold producers. Since then, it is joint ventures of its own — in Ghana and Canada — that have propelled the firm to a comeback and could boost Preece’s chances of permanent tenure.
“The board has indicated to us it has narrowed the field,” he says of the search for a new leader. “It wouldn’t be right to speak too much about the process, but I think interviews start next week.”
The first of the deals that have revived Gold Fields was a joint venture with AngloGold Ashanti involving neighbouring mines in Ghana. The second, a C$600m purchase of a 50% stake in the Windfall project in Quebec, includes exploration potential on Windfall’s 2,400km² property.
John Burzynski, CEO of Osisko Mining, the Toronto-listed miner that sold the Windfall stake, says the project’s 7.4-million ounces in resources will definitely be increased, possibly to 10-million ounces. “We’ll knock over tables and chairs to find more,” he burred in that hyperbolic way that is entirely typical of North America’s mineral developers. Unlike South Africans, Canadian institutional investors are comfortable with mineral speculation.
The deal is also less risky than the tilt for Yamana, which exposed Gold Fields to geopolitical and operational risk in Argentina
Local analysts are positive about Gold Fields’s Windfall investment because, combined with the Ghana joint venture, it helps soften an otherwise hefty decline in production due to gather pace in 2025. “On balance we see this deal as positive as it addresses the company’s longer-term production profile issues while adding further growth optionality,” says Arnold van Graan, an analyst for Nedbank Securities.
The deal is also less risky than the tilt for Yamana, which exposed Gold Fields to geopolitical and operational risk in Argentina.
Raj Ray, an analyst for BMO Capital Markets, describes Gold Fields’s recent dealmaking as “less transformational but more value accretive”. That’s not to say Gold Fields isn’t paying up for this real estate. Canada is as costly a mining address as any in the world. Taking Gold Fields’s share of an estimated C$1.1bn in project costs at Windfall into account, a gold price of $1,650 an ounce would be required for net present value neutrality, say analysts at RMB Morgan Stanley.
There’s also construction risk, says Van Graan — when all’s said and done, a mine still has to be built at Windfall. (Somewhat ironically, Burzynski’s CV at Osisko includes developing the Canadian Malartic mine, now the crown jewel in Yamana Gold.)
Gold Fields hasn’t entirely remedied its production decline, which is projected to fall by 500,000oz between 2025 and 2030. Attributable output from Windfall will be about 150,000oz per year while the Ghana joint venture with AngloGold adds roughly 125,000oz. So the question is, will Gold Fields hazard more mergers & acquisitions?
There’s no straightforward answer.
Preece says he will take a breather from deals given that, in addition to Windfall and the Ghana deal with AngloGold, Gold Fields this year has to commission its 500,000oz per year Salares Norte project in Chile. Yet in comments with its first-quarter numbers, Gold Fields said it remained on the lookout for more M&A. Ultimately, this ambivalence speaks to the uncertainty of who’ll be running the company in the long term.
“We’re comfortable with 2.4-million ounces in production by 2030,” Preece says. But this wasn’t the approach taken by Griffith, who said on taking the Gold Fields job in 2021 that more production meant more attention for a company. Yet the drawback of outsize output is the pressure of having to maintain it.
BHP, the world’s largest diversified miner, bought Oz Minerals for $6.4bn last month, while Newmont recently increased its offer for Newcrest Mining to $19.5bn. “Companies that do deals have no runway on resources,” Barrick Gold CEO Mark Bristow tells the FM. “Deals often don’t create value.”
No denying then that Preece has done well.
A Sudanese snafu
The annual Fraser Institute survey, which ranks the world’s mining districts based on such factors as policy attractiveness and infrastructure, sent South Africa to the back of the class for the second year running. Once the envy of the mining world, we’re now at the bike sheds hanging around with the Democratic Republic of Congo and Zimbabwe.
Mali, which has had two military coups in a year, ranks above us for policy certainty. So does South Sudan. Quebec, where Gold Fields recently invested, is eighth for mining attractiveness — the overall criteria used by the institute. Australia, where Harmony Gold recently bought a copper project, also occupies the top spots. Good for them.
Commenting on its methodology this year, the institute said survey respondents gave a 60% weighting to mineral potential and 40% to “politics” in its broadest sense.
Sudan, unsurprisingly, is nowhere to be seen. Actually, it isn’t officially ranked by the Fraser Institute even though its gold industry — mostly artisanal in nature — is Africa’s fourth largest. Gold mined in Sudan reportedly finances illegitimate paramilitaries and terrorist groups, which is why the country was only too pleased to attract Perseus Mining and Pan African Resources, from Australia and South Africa respectively, in the past two years.
Its hopes have detonated in spectacular fashion after fighting erupted between rival military factions last month. Prior to this, Pan African had carefully staked out how it might diversify away from South Africa’s ageing gold sector. It landed on Sudan because the mineral potential was so good. CEO Cobus Loots can’t be blamed too heavily for this. Sadly, Pan African spent $5m in Sudan that it might now not get back. Such are the risks.
Too late to pile into gold’s bullion bash?
You can blink now, because you’ve probably missed the extraordinary bolt in the local gold market. In two months, South African gold stocks have enjoyed an astounding rally — none more so than waste sifter DRDGold, which has added 99.8% year-to-date on a total return basis.
It’s followed by Gold Fields (up 79.5%), AngloGold Ashanti (up 60%) and even Harmony Gold, on which most analysts still have a “sell” recommendation (up 56.5%). Pan African Resources is the relative laggard, gaining 35%.
The run was prompted by a sudden rally in the dollar gold price which, at present exchange rates, saw a record rand gold price of R37,500 an ounce last week.
So, are you too late to pile in? Probably — and not just because the Public Investment Corp only last week upped its stake in Gold Fields to 15%.
Analysts at SBG Securities say valuations for gold miners are now “more demanding” based on the current spot price ($2,031 an ounce). “While we remain constructive on gold prices, we find it harder to justify equity prices and believe the outperformance has more to do with safe haven demand for the paper rather than an outlook for their earnings,” wrote SBG in a note to clients.
It singles out recessionary fears, inflation and concern for the health of banks as “obvious drivers” but also argues that the doubling in US M1 and M2 money supply “is fundamental to the shifting pattern, which has in fact been noticeable since the global financial crisis”.
While the US Federal Reserve has been on a rate-hiking crusade, it believes a decline in real rates could lift the gold price further. SBG has upgraded its long-term price to $2,200 an ounce by 2025.
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