Gold Fields is to spend at least R8bn to secure a 50% stake in the Windfall gold project in Canada in an apparent shift in strategy, six months after it submitted its proposal to acquire Yamana Gold.
The disappointment at the failure to clinch the Yamana deal led to the resignation of then CEO Chris Griffith.
Gold Fields’ proposal to acquire Yamana Gold in a R120bn all-share deal was criticised at the time by shareholders arguing that management was overpaying for an asset with limited growth potential.
Gold Fields was scooped to the potentially lucrative deal by a rival joint bid by Agnico-Eagle and Pan American Silver.
Yamana is also based in Canada, which is considered one of the world’s top gold mining jurisdictions. Gold Fields, like many other gold mining houses, has long coveted investment in Canada and the joint venture gives it that opportunity.
In another attempt to beef up its future production profile, Gold Fields said on Tuesday it had formed a 50/50 partnership with the Canadian company Osisko Mining to develop the gold project, which will require C$1.1bn or R15bn in capital expenditure.
Under the agreement, Gold Fields will make a C$300m initial cash payment to Osisko plus an additional payment of C$300m on issuance of the applicable permits authorising the construction, operation and mining of the project.
The Johannesburg-based company will also fund spending for regional exploration up to a maximum of $75m, after which regional exploration programmes would be proportionately funded by each company.
In addition, Gold Fields will make two additional payments of $17m for reimbursement of money already spent by Osisko on preconstruction work.
The projected lifespan of the mine is about 10 years, according to the feasibility study, with average all-in-sustaining-costs estimated at about $758/oz, making it one of the lowest-cost mines among Gold Fields’ asset base straddling Australia, Ghana, Chile and SA.
Gold Fields said the transaction will not affect its policy of paying out 30%-45% of normalised earnings as dividends.
The group added that the Windfall project had the potential to be extended beyond a 10-year life horizon. It was expected to produce about 294,000oz on average once production comes online in 2025.
Interim CEO Martin Preece said while mergers and acquisitions were likely to be part of Gold Fields’ future growth, large transactions were unlikely options. Acquisitions of this nature have become expensive as global production inches towards its peak and exploration activities yield limited success.
“The Yamana deal was not the only option Gold Fields considered when assessing our strategic options, and we have already implemented two alternative deals. The proposed establishment of a bigger ... Tarkwa mine — by incorporating Anglo Gold Ashanti’s neighbouring Induapriem mine through a JV [joint venture] — is one such opportunity,” Preece said.
“The other JV option is our Windfall deal with Osisko Mining announced today. Beyond JV options, other growth opportunities could include greenfields exploration targets, development projects or bolt-on acquisitions of producing assets. Greenfields exploration will potentially include exploring targeted jurisdictions and taking minority stakes in exploration companies, like we did in 2022 with Chakana Copper in Peru and Tesoro Gold in Chile.”
In mid-March, Gold Fields and rival AngloGold Ashanti announced the creation of Africa’s largest gold mine in Ghana, sparking speculation of a possible merger between the two gold majors.
The joint venture brought together Gold Fields’ Tarkwa Mine and AngloGold Ashanti’s Iduapriem Mine, both of which are located near the town of Tarkwa in western Ghana.
In terms of the proposal, tabled with the government of Ghana in March 2023, Gold Fields will own 60% of the JV, AngloGold Ashanti 30% and the government 10%.
The benefits of the transaction, if approved, are almost immediate with higher combined production of 900,000oz at a cost of less than $1,000/oz over the first five years and the life-of-mine extended to 2038.
Gold Fields is looking to secure its future as production at its non-SA mines start to decline in the coming decade, analysts have said.
“The transaction for a Canadian asset is positive insofar as it enables diversification into a low-risk jurisdiction while reducing all-in-sustaining costs for Gold Fields,” said Stephan Erasmus, investment analyst at Anchor Capital.
“Moreover, we believe this transaction and the previously announced Ghana joint venture with AngloGold signal a shift from transformative mergers like Yamana.”
The group’s share price ended 3.50% higher to a record R294.06 on the JSE on Tuesday, valuing Gold Fields at R262.7bn, boosted mainly by the higher gold price on the day.
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