JOHANNESBURG (Business Day) -- Investors appeared to be taking an increasingly cautious approach towards investments in South Africa, judging from the rising number of calls Gold Fields [NYSE:GFI] had received in the past few months, Gold Fields CEO Ian Cockerill said yesterday.
He told a media briefing on the group’s quarterly results that the recent subprime mortgage crisis in the U.S. and a global reassessment of the risk attached to emerging markets were general reasons for the change in attitude.
Gold Fields had also reported rising costs and its March quarterly performance was not especially good so it needed to show it could manage its mines properly, he said.
In the September quarter Gold Fields performed close to target and it was making progress on two key projects, the South Deep mine in South Africa and the Cerro Corona mine in Peru.
Investors appeared unaware of the effect Cerro Corona would have on Gold Fields, Cockerill said. At full production, it would generate about $100 million of cash flow a year based on spot prices now.
Cockerill said recent movements in the gold price were uncannily similar to trends seen in the 1970s, before gold reached its peak of more than $800/oz.
In 1980 money terms, the gold price now was equivalent to about $400/oz, which indicated that it still had “a long way to go.”
There were no new significant gold discoveries, gold output was declining and demand from Asia, exchange-traded funds and the Middle East was rising strongly. Political developments in the Middle East could also affect the price.
“I don’t discount the possibility of a far higher gold price than we are seeing now,” Cockerill said at the briefing.
No Profitless Growth
Gold Fields said five years ago, when it invested in Chinese gold miner Sino Gold, that it would be at least a 10-year investment, CEO Ian Cockerill said yesterday.
Gold Fields holds 17% of Sino Gold [ASX:SGX], an ASX-listed company building a mine at Jinfeng that will be China’s second-largest, with annual production of about 180000oz of gold.
Sino Gold’s shares were trading at A$7.90 this week compared with A$4.55 in August, boosted by its takeover offer for Golden China. That has lifted the market value of Gold Fields’ 31.4-million shares to about R1.5 billion (US$230.8 million) from R858 million (US$132 million). Although Sino Gold is obviously a fast-growing company, Gold Fields has demonstrated that it is not wedded to its offshore assets.
It recently sold two offshore projects: the potential Essakane mine in Burkina Faso, because the size of the project was below Gold Fields’ minimum, and the Choco 10 mine in Venezuela, because of political uncertainty. Cockerill said Gold Fields was continuing to look for valueaccretive assets but it would not look at “profitless growth.”
Cockerill said Gold Fields was pleased with progress made at Sino Gold’s operations and continued to work closely with the group. Sino Gold and Gold Fields had merged their regional exploration teams to look at gold deposits together and they had identified some interesting areas in mainland China.
He said it had been “a great investment for us … We are providing some technical support and the focus is on exploration to try to grow the business in that part of the world.”
See RI’s exclusive coverage of Gold Fields’ Q1 results.
