Gold Fields of South Africa to buy worlds biggest ore lodeadmin
Gold Fields, the world’s fourth-largest gold producer, said Monday that it planned to pay at least $2.5 billion for the world’s biggest deposit of gold ore, increasing its reserves by about half as new mines become harder to develop.
Gold Fields, based in Johannesburg, said it had agreed to pay Barrick Gold $1.53 billion for its 50 percent stake in South Deep mine. A company known as Western Areas owns the other 50 percent of the mine. Gold Fields also plans to offer 6.9 billion rand, or $927 million, to buy the 81.1 percent of Western Areas that it does not already own to take full control of the mine.
Global gold production lagged behind demand by more than a third last year, according to the World Gold Council. Adding South Deep would raise Gold Fields’ quarterly output by 200,000 ounces by 2011, closing the gap with its larger rivals, Barrick, Newmont Mining and AngloGold Ashanti.
“Over the long term, it’s a good deal for Gold Fields,” said Daniel Sacks of Investec Asset Management, including shares in Gold Fields. “It will extend the life of their South African gold assets.”
Mining companies have been acquiring rivals as gold prices rose, hitting a 26-year high of $732 an ounce on May 12. The price of bullion has averaged $602.50 this year, compared with $429.37 a year earlier.
A Gold Fields rival in Johannesburg, Harmony Gold Mining, said that it would not compete for control of South Deep. Harmony owns 29.2 percent of Western Areas and was a rival bidder for Barrick’s stake in South Deep, the Gold Fields chief executive, Ian Cockerill, said during a conference call.
There have been takeover offers worth more than $100 billion in the mining industry this year.
South Deep, west of Johannesburg, contains as much as 29.3 million ounces of gold, equal to about a third of the world’s annual gold production and almost half of Gold Fields’ reserves of 65.2 million ounces.
Gold Fields produced 1.02 million ounces in the first quarter of this year, lagging behind the 1.4 million ounces of Newmont, based in Denver, and the 1.34 million ounces of AngloGold, based in Johannesburg. Barrick, based in Toronto, the world’s biggest producer, had first-quarter output of 1.96 million ounces.
“I liken this to a beach-front property: You know it’s expensive, you know people covet it and you know you’re going to pay a full price. But in a few years time I’ll say, ‘Hey, why did I worry?’” Cockerill said during an interview.
South Deep’s output was more than halved by an accident in May that wrecked its main shaft. Repairs were to be completed by early next year.
Barrick said the sale “makes sense” for all parties. “Gold Fields has great expertise in deep level mining and there are synergies that they can realize in conjunction with their nearby flagship operations in South Africa,” the Barrick chief executive, Greg Wilkins, said in a statement.
Cockerill in 2002 commissioned a study to determine the feasibility of digging a three-kilometer tunnel from its Kloof gold mine, to access South Deep’s second phase. The study was code-named Project Meerkat.
Using the tunnel, Gold Fields could access the gold-bearing ore in three years, less than a third of the time needed to dig a new shaft, it said.