Gold mining: Why the giants are stepping away from SA
Search for cheaper ounces drives them far afield
Two South African stalwart gold miners have in a relatively short period of time reduced their exposure to the country to little more than 10% of group production as they look – and invest – abroad for cheap ounces that will make profits through the price cycle.
AngloGold Ashani, once the colossus of the South African gold mining industry, and Gold Fields have both sold and closed mines in short order. In a relatively short space of time they have become owners of just one underground mine each and, in the case of AngloGold, a tailings retreatment operation.For Gold Fields the strategy was clear, says CEO Nick Holland. This was to find cheap, good-quality ounces in mechanised mines, either with smart acquisitions at a good price that gave the company long-term potential, or through a focused exploration programme to add those sought-after ounces on or around the tenements in Australia, Ghana and Peru. There are not many of those opportunities in the South African gold industry, which is shrinking annually.
Gold Fields has been pouring hundreds of millions of dollars into new projects in Australia and Ghana between 2017 and early 2019, buying strategic stakes in projects and junior or mid-tier gold companies, conducting a feasibility study into a new mine in Chile, and on exploration, particularly in Australia where it is by far the largest spender on drilling for new resources and reserves, he says.Gold Fields will not invest in another mine in SA outside its South Deep project, which has absorbed $2-billion to buy and build and needs another $200-million more before it will reach a steady state from 2020 and begin returning capital to investors.
“The mines we are building now are designed to bring down the overall cost of production and increase the margin. We believe that is the game rather than chasing growth. It’s all about cash flow growth,” Holland says. “Investors want stocks at the low end of the cost cycle and which will make good money when the gold price goes up.”Gold Fields has completed its portfolio restructuring, selling the Darlot mine in Australia, unbundling three South African mines and selling the Arctic Platinum Project. Arguably the last asset that does not fit the new strategy is the Far South East project in the Philippines. It will be a big investment in a large project and would need partners to bring it to account.
Given Gold Fields’s experience with its large South Deep mine in SA, the board will be wary of committing to a large project in an uncertain mining environment like the Philippines.
For AngloGold, its long history in SA meant that a suite of mines had aged and been mined to the point where they were unprofitable in the large multi-national group or simply had too little gold left in them to justify keeping them open.
CEO Srinivasan Venkatakrishnan has outlined a strategy of internal growth rather than the opportunistic deals Gold Fields has struck. While AngloGold has invested in the Mponeng mine, the bulk of its 2018 project budget of up to $250m will be spent at its African mines. SA accounts for just 14% of AngloGold’s annual output.