Are S. Africa’s Gold Mining Companies Becoming Turnaround Specialists?

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Written by Dana Sanchez

There has been a shift in the South African gold sector with the formation of newly listed Sibanye Gold after the unbundling of three gold mines out of Gold Fields, according to a report in BusinessDayLive.

“Gone are the mining magnates from yesteryear,” said Sibanye CFO Charl Keyter. “The environment is ripe to collaborate, pool and share, look at boundary areas and to look at other synergies.”

Harmony Gold’s next mine will probably be an acquisition of another company’s gold mine that the miner believes it can turn around, CEO Graham Briggs said.

Harmony has closed all its original mines and is now operating mines bought from other companies to build the it into one of the world’s major gold producers, the report said. The newest mine in its stable is one it built with Australia’s largest gold producer, Newcrest Mining, in Papua New Guinea.

“Where the next mine is going to come from for Harmony is probably going to be acquired and it will probably be turning around someone else’s assets and making more money out of them,” Briggs said at the Investing in Resources and Mining in Africa conference in Johannesburg.

Gold Fields CEO Nick Holland and Sibanye CEO Neal Froneman said the new Sibanye could be a catalyst for consolidation of South African gold assets.

Gold Fields Ltd. is one of the world’s largest gold mining companies, and is listed on both the Johannesburg and New York stock exchanges. It was formed in 1998 by combining the gold assets of Gold Fields of South Africa Ltd. and Gencor Ltd. It owns and operates mines from South Africa to Australia and has a policy of exploring for gold in any country.

Harmony Gold Mining Co. Ltd. is the third-largest gold mining company in South Africa with a reported production of 1.27 million ounces of gold in 2012. Harmony’s main mining operations are in South Africa and Papua New Guinea.

Going into other countries would entail added expenses of not just running the mine but also setting up offices, networks and support, Briggs said. It would make sense to look for distressed assets in countries where Harmony already has a presence, he said. These would be mines operating at a loss for existing owners.

Investors in mining companies are reluctant to approve major capital expenditure on new, large mining projects, Briggs said. In the current market environment, investors are looking for near-term cash flow rather than investing in projects that will take years to build and to deliver returns.

In South Africa, gold companies regularly discuss and sharing thoughts on the industry.

“We talk about a range of things like boundaries or consolidation. Sense has to prevail in these things,” Briggs said. He added that major institutional shareholders held shares in all the leading gold companies and were pushing for sensible outcomes.