Two South African stalwart gold miners have in a relatively short 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 Ashanti, once the colossus of the South African gold mining industry, and Gold Fields have both sold and closed mines and in a relatively short time became 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. It 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 is pouring hundreds of millions of dollars into projects in Australia and Ghana, buying strategic stakes in projects and junior or mid-tier gold companies and conducting a feasibility study into a new mine in Chile. It is also spending on exploration, particularly in Australia, where it is by far the largest spender on drilling for new resources and reserves, Holland says. Gold Fields will not invest in another mine in SA outside South Deep, which has absorbed $2bn and needs another $200m before it reaches steady state in 2020 and begins returning capital.
"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 South Deep, the board will be wary of committing to a large project in an uncertain mining environment.
For AngloGold, its history in SA meant a suite of mines had aged and been mined to the point where they were unprofitable in the large multinational group or had too little gold left 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.