The joint venture by gold mining companies Gold Fields and AngloGold Ashanti, which created Africa’s largest gold mine in Ghana, has raised speculation of a possible merger between the two mining houses, amid consolidation in the gold mining industry.
Both companies are listed on the JSE and operate mines in various jurisdictions around the world including in Ghana.
The joint venture will bring together Gold Fields’s Tarkwa Mine and AngloGold Ashanti’s Iduapriem Mine, both of which are located near the town of Tarkwa in western Ghana.
This will create Africa’s largest gold mine with an estimated life of 18 years.
AngloGold Ashanti CEO Alberto Calderon said he would not “entertain any speculation” this collaboration might spark about a merger between the two companies.
“These has been no conversation about that. This [joint venture in Ghana] was the obvious deal. I am sure this could open opportunities for future collaboration where we operate in the same jurisdictions, but I won’t speculate on anything further.”
Calderon said that the joint venture was long overdue. “This should always have been one asset. Two operations now produce about 780,000oz, operated as a single mine it will produce 900,000oz,” he said.
Martin Preece, interim CEO of Gold Fields, said the project would combine the two mining operations that were essentially part of the same mineral deposit.
“The ability to optimise mining and the use of shared infrastructure across the combined operation will result in significant flexibility in mine planning, materially enhancing the economics of the mine and ensuring quality and scale of operation that will be world class,” he said.
Preece steeped into the CEO role after his predecessor, Chris Griffith, fell on his sword after failing to clinch a deal for the takeover of Canadian precious metals miner Yamana Gold.
The merger talks between Gold Fields and Yamana collapsed in November due to a rival bid.
Preece said that the collaboration with AngloGold Ashanti in Ghana would have proceeded regardless of the outcome of the Yamana deal.
Both companies have been considering this opportunity for many years. Negotiations started in earnest about a year ago, Preece said.
The companies said on Thursday it was intended that the proposed venture will be an incorporated joint venture, constituted within Gold Fields Ghana and operated by Gold Fields. AngloGold Ashanti will contribute its 100% interest in Iduapriem to Gold Fields Ghana in return for a shareholding in that company.
The parties said operational synergies will be achieved by optimising mining of the combined ore bodies and consolidating the infrastructure of the immediately adjacent mines for the long-term benefit of all shareholders.
Andrew Bahlmann, CEO of Deal Leaders International, said the long discussions leading up to this deal suggest there are considerable strategic synergies behind the deal given the two mines are virtually adjacent.
“There are not great operational competitive issues at stake and it certainly makes sense from that point of view. Shareholders appear set to benefit from increased production and reserves. It certainly appears from a distance that this is a win-win for shareholders,” he said.
US-based Newmont Corporation, the world’s top gold producer, in February tabled a $16.9bn bid for Australia’s Newcrest Mining, igniting speculation of a new wave of merges & acquisition activity in the gold industry.
“The top four gold miners account for only 20% of global production, indicating a fragmented industry,” said Stephan Erasmus, investment analyst at Anchor Capital, citing the 2022 CreditSights report.
“In our view, the strategic rationale behind mergers & acquisitions is to achieve scale, diversify geographically, and replenish the project pipeline.”
Erasmus said the growth of gold mines in organic volume has stagnated in recent years due to natural declines in existing mines.
In addition, the execution risks, time and cost overruns associated with gold mining greenfield projects are well known, he said. “Therefore, we believe that the gold mining industry will likely consolidate further.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.