Bank unhappy with Gold Fields ‘debacle’

By Business Day

Questions latest attempt at South Deep revival Project has already cost investors R32bn

Bank of America Merrill Lynch, one of the world’s biggest investment banks, describes Gold Fields’ latest attempt to revive South Deep mine, which has already cost investors R32bn, as a & debacle& and has questioned whether heads should roll.

Shareholders punished Gold Fields, pushing its market capitalization down by about R4.75bn after the company said it would fire as many as 1,560 workers as part of a plan to stem losses of R100m from South Deep, which has the world’s second-largest unmined gold resource, despite numerous restructurings and failed plans.

The journey we’ve been on at South Deep, it’s been bit of a misadventure, Bank of America’s Jason Fairclough said on a conference call with CEO Nick Holland. Where does the responsibility lie? Is it with the executive or with the board, and do we actually see someone fall on his or her sword for this debacle? he asked.

The news is another blow for an industry that was once the mainstay of SA’s economy. The Minerals Council SA said in July that fewer than 20% of the country’s gold mines were making money at prevailing prices.

Impala Platinum, the world’s second-biggest miner of the metal, ignited a political firestorm when it said it would cut 13,000 jobs, prompting a furious response from mineral resources minister Gwede Mantashe

Holland blamed the high turnover of management at South Deep, which he described as a difficult mine doing something pioneering in developing a bulk, mechanised mine at 3km below surface.

Overall, the accountability rests with the board and management. That’s one of the reasons we are making the significant restructuring decision. We believe in the asset and that it can be successful,& Holland said, declining to give any production forecast until February 2019.

Gold Fields has eroded the mine’s production target, dropping it from 800,000oz a year in 2014 to 480,000oz by 2022 in a 2017 plan that would entail a further R2bn investment. & They’ve never met targets and now they’re not giving them.

That’s worrying, said Daniel Sacks, a portfolio manager at Investec Asset Management.

There’s uncertainty about the lack of a plan that the market doesn’t like. Cutting workers just isn’t enough, he said.

Investec is the largest shareholder in Gold Fields with an 8.95% stake, according to Bloomberg.

The share price fell 13.82% on Tuesday to R41.84, the biggest drop since March 2016, according to Bloomberg.

Closing or selling South Deep would be damaging for the underlying value of Gold Fields because about 70% of the company’s unmined gold resources were held in the asset, said Leon Esterhuizen, Nedbank’s precious metals analyst.

The reaction in the share price has very little to do with the South Deep asset and almost everything to do with a significant loss of credibility,& he said.

Mantashe said while Holland and his team had notified him of the pending job cuts, he felt the company had not fully complied with the Mineral & Petroleum Resources Development Act.

We are beginning to notice a worrying trend where some mining companies do not meaningfully engage with the department on their restructuring plans, and only brief us as a mere formality, ignoring processes outlined in the law which are binding to every mining right holder, Mantashe said.

This article provided by NewsEdge.