Gold Fields Exaggerated Venezuela Risk, Scion Says (Update2)

Jan. 9 (Bloomberg) -- Gold Fields Ltd. exaggerated the risk of investing in Venezuela to justify bidding $330 million for Bolivar Gold Corp., said Scion Capital LLC, which is urging shareholders to demand a higher offer.

Scion, a Cupertino, California-based hedge fund that owns 19.1 percent of Bolivar's stock, is rallying shareholders to vote against the C$3 ($2.57) a share cash offer at a Jan. 12 meeting. Gold Fields' bid for Toronto-based Bolivar, which mines gold in Venezuela, was supported by Bolivar's management.

Venezuela's political risk is ``high'' and the business environment ``unpredictable,'' Gold Fields Chief Executive Officer Ian Cockerill said Dec. 6. Venezuelan President Hugo Chavez, who has said the U.S. plans to kill him and invade the country, embarked on a campaign to seize the assets of some companies to redistribute the nation's wealth to the poor.

``The other side has decided fear mongering is their best shot at getting this deal through,'' Scion's Chief Executive Officer Michael Burry said in a Jan. 6 e-mailed response to questions. ``They took advantage of the Chavez scare to buy Bolivar cheap.''

John Munro, head of corporate development at Gold Fields, declined to comment on Burry's remarks. Gold Fields' offer takes into account Bolivar's potential for expansion and Venezuela's political risk, he said today in an interview from Johannesburg.

``Against this backdrop, the pricing of our offer has received strong support in the market,'' he said. ``We wouldn't be investing in Venezuela if we didn't believe that the risk was manageable and that's been our stance all along.''

Capitalist System

Chavez told anti-U.S. demonstrators in Argentina on Nov. 4 that he wanted to put an end to the capitalist system.

Being a South African company will mitigate the risks posed by Chavez's policies, Munro said in a Jan. 5 interview from Durban, South Africa.

``Emerging market countries like to deal with emerging market companies,'' Munro said. ``As South Africans, we don't have many of the negative connotations that many of the North Americans do.''

Bolivar's Choco 10 mine is expected to produce 190,000 ounces of metal in 2006 and may increase that to more than 400,000 ounces, Cockerill said Nov. 21. Government approval for the expansion was granted Dec. 6.

Venezuelan Mining Minister Victor Alvarez said Jan. 6 that Bolivar's expansion is compliant with the country's mining policies, Dow Jones Newswires said, citing the minister. Foreign mining companies will be compelled to accept government involvement in their projects in the country, the newswire said.

Profitably Mined

Completing Bolivar's expansion and increasing its reserves, a measure of gold that can be profitably mined, will justify the price Gold Fields has offered, said Stephen Roelofse, who helps manage the equivalent of about $50 billion, including Gold Fields shares, at Sanlam Investment Managers.

``Without those things, it looks expensive,'' Roelofse said by telephone from Cape Town. ``As a stand-alone company operating in Venezuela, Bolivar was never going to get a proper rating.''

Gold Fields, based in Johannesburg, is the only bidder among three companies that undertook due diligence on Bolivar six months ago, Munro said, without naming the others.

Based on analysis of the more than 70 million shares traded since the offer was made, hedge funds, including Scion, now own as much as half Bolivar's stock, Munro estimated. That means the stock may plunge should shareholders reject the offer, he added.

``Should the plan be voted down, we could see large-scale selling, which could have a significant impact on the price,'' Munro said.

The offer needs the support of two thirds of the votes cast at the meeting, he added.

Gold Fields' shares rose 65 cents, or 0.6 percent, to 118 rand in Johannesburg, for a market value of 58 billion rand ($9.5 billion). It gained 61 percent last year, compared with a 48 percent gain by Bolivar.

To contact the reporter on this story: Stewart Bailey in Johannesburg Sbailey7@bloomberg.net

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net