Gold miners get their glitter back

21 August 2016 - 02:00 By LUTHO MTONGANA

The shine is back for South Africa's gold mining companies, which are paying dividends and seeking possible acquisitions thanks to the strong gold price and weak rand. Gold Fields and Harmony Gold this week both declared dividends of 50c a share. For Gold Fields it was the biggest dividend since 2012 while for Harmony it was the first in almost four years.But AngloGold Ashanti, still trying to fix problems at its Obuasi mine in Ghana, played it safe and paid no dividend.Izak van Niekerk, an analyst at Mergence Investment Managers, said the dividend payments were an indication that the companies were comfortable with their balance sheets.Gold Fields CEO Nick Holland said the company was on the lookout for merger and acquisition opportunities, with Canada and Australia the favoured territories.Holland, citing the increasing depths at which gold miners had to operate in South Africa and the associated costs in time and capital, said Gold Fields was content to own just one mine locally, South Deep.story_article_left1South Deep, which itself had been draining cash, was slowly increasing gold production, Holland said. The mine produced 140,000 ounces of gold in the six months to end-June 2016 compared to 75,000 ounces in the same period last year.However, the mine still has a long way to go before it reaches the target of 750,000 ounces which Gold Fields set when it began mechanising South Deep in 2011. It was supposed to have been reached two years ago.Holland said South Deep still required more capital as mining deepened."It will take two to four years to get our operators and artisans to the [skills] level we want," he said. "Maintenance has not been great; we need to keep buying new fleets [of equipment]."The company put its production guidance for the year at between 2.1million and 2.15million ounces.Some analysts say Gold Fields is spending too much on South Deep, given that the company failed to meet the results expectations generated by the surge in the gold price and the weaker rand."There's going to be things that need to be refurbished [or] replaced and the cost of replacing them has gone up," Holland acknowledged."So there is going to be this issue as we continue to keep the entire footprint in shape for the entire 50 years, unlike a mine that's got five to 10 years to go where you can stint on the capital," he said.At AngloGold, the main headache is Obuasi, which was invaded by illegal miners earlier this year and is now idle.CEO Srinivasan Venkatakrishnan said he was looking to come up with a sustainable dividend policy by early next year.Van Niekerk said AngloGold was in a position to reduce or cancel spending if the gold price dropped."Whereas if Harmony goes to buy a big operation somewhere in Africa based on a $1350 an ounce gold price and the gold price reverses again, it might look like bad capital allocation," he said.story_article_right2Harmony is hoping to increase output to 1.5million ounces in the next three years from the 1.1million ounces it currently produces.Meeting this target will to a large extent depend on mergers and acquisitions, which CEO Peter Steenkamp said were being sought in South Africa, the rest of Africa and Papua New Guinea.Harmony Gold has announced it will place three mines in South Africa - Kusasalethu, Masimong and Unisel - and Hidden Valley in Papua New Guinea on "harvest" status, which means it will mine at the lowest possible cost until reserves are depleted, then close the mines.The four mines provide a total of 220,000 production ounces a year for Harmony.Analysts were sceptical about whether the company could keep up with dividend payments, invest in mergers and acquisitions, and expand its Golpu project in Papua New Guinea.But Steenkamp said there was no dividend formula and Harmony would take things as they came. When the company started expanding Golpu in the next two years it would reconsider dividends, but capital expenditure at Golpu was on hold until Harmony received a mining licence from Papua New Guinea.Sibanye, another gold company also promising shiny results, sees its profits growing sixfold. The company expects its earnings to be between 120 and 122 cents per share compared to 19 cents per share for the six months ended June 2015...

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