GOLD NEWS

A vision for a new South African gold miner

"I think the industry is past looking at how many ounces you produce, it is really now about the margin and the quality of the ounces in terms of profits." – Froneman

GRONINGEN (Mineweb) - 

On Monday Gold Fields CEO, Nick Holland, painted a very sombre picture of the South African gold sector and its future. His CFO, Paul Schmidt, went even further saying during a media roundtable that there won't be a gold industry in the country in five years, if the South African gold sector carries on in the same way it has been .

In Johannesburg this morning, Holland described the formation of Sibanye Gold (created by spinning out Gold Fields' KDC and Beatrix operations into a new listed entity) as a response to those warnings.

In a recorded address released onto the company's website this morning Holland said, "we have seen the SA gold industry decline from around 360 tonnes a year about seven years ago, to about 180 tonnes a year today. It is critical that we stop that decline in the industry.... So, what the board and management has decided to do is to create a new focused company, to put together a focused and dedicated management team in a separately listed entity.”

At the presentation Holland went further adding, "By liberating these assets … we are creating a new opportunity for us to turn these assets around; that is the key ingredient to all of this." Holland said.

If Holland is to be believed, this shift in focus will enable the newly formed miner to make better use of the capital it generates, to develop secondary reefs for example, that wouldn't be justifiable in a bigger portfolio, where the money could be more effectively deployed in other regions.

In other words, the safety net has been removed. Without the luxury of South Deep or Tarkwa's production, or any of Gold Fields' longer-term development ounces to fall back on, Sibanye is going to have to make KDC and Beatrix sing for as long as they can.

Holland adds that he sees this as the start of a consolidation in the South African industry.

"I think it is inevitable that other companies have to look at their portfolios. We have to work out how best those portfolios are going to be managed, including tearing down farm fences which has long been an issue."

And, both Holland and, incoming Sibanye CEO, Neal Froneman, formerly CEO at Gold One International, are positive that with a renewed focus on productivity these assets can be turned around.

Speaking to Mineweb, Froneman said that while no conversations have occurred as yet with other companies "I think it is clear to anyone in the industry that some of the historical farm boundaries contain extensive amounts of gold and, by taking down the boundaries between companies, you can access those. There are also regional synergies to be had - instead of two companies having two teams in the same area you can have one. I think it is inevitable there will be movement in this direction, I think it is good for the industry."

He adds, "I think the industry is passed looking at how many ounces you produce, it is really now … about the margin and the quality of the ounces in terms of profits."

For Froneman, being first mover should have an advantage in terms of this longer-term consolidation but, he says, "our primary focus is getting our core business working and then we can take some of the money post the declaration of dividends and invest it in smart projects - projects that are not capital intensive.”

The surface tailings project is one that fits in to that profile very nicely, he says, adding, "It is not so much growing ounces but rather margins and profits. It will be a focus of strong cash flows and yields going forward.”