Gold Fields Ltd. (GFI), which spun off most of its South African assets this year, agreed to pay $300 million for three Barrick Gold Corp. (ABX) mines in Australia after posting a loss and scrapping its dividend in the second quarter.
Gold Fields will pay half the cost in cash and has the option of paying the rest in shares or cash, Chief Executive Officer Nick Holland said today in an interview. The company swung to a net loss of $36 million in the second quarter, compared with a $68.3 million profit in the first, it said today in a statement. The stock fell as much as 8.2 percent.
“I don’t think the market is going to look favorably” on the acquisition,’’ said Richard Hart, a Johannesburg-based analyst at Macquarie First South Securities Ltd. “It appears to be earnings dilutive, so I’m not quite sure why they’ve done it. At almost $1,200 an-ounce costs, there’s not much margin for safety there.”
South African miners including Gold Fields are battling rising power costs and union wage demands that exceed inflation at a time when gold prices have dropped 28 percent from their 2011 peak. AngloGold Ashanti Ltd. (ANG), Sibanye Gold Ltd. (SGL) and Harmony Gold Mining Co. (HAR) preserved cash by skipping dividends as gold prices sank and the threat of strikes loomed this year.
Gold Fields will pay $300 million, subject to capital adjustments of as much as $30 million, for Toronto-based Barrick’s Yilgarn South Assets in Western Australia, it said in a separate statement.
“We are buying assets that are in production and can be cash generative very soon,” Holland said in the telephone interview. “We can capture synergies pretty quickly. We’re buying at the bottom of the cycle.”
The deal will add 452,000 ounces of annual production and make Australia Gold Fields’ largest regional production center at 42 percent, with Ghana accounting for 34 percent and Peru and South Africa 11 percent each, it said.
The area around two of the acquired mines, Lawlers and Darlot, is “largely unexplored” and there is “good continuity of mineralized zones” at the third, Granny Smith, he said.
Gold Fields was 7.6 percent lower at 60.89 rand in Johannesburg trading by 10:08 a.m., after earlier falling the most on an intraday basis since April 15.
Gold Fields spun off all of its South African assets, aside from the largely mechanized South Deep mine, to create Sibanye and focus on higher-growth sites in Australia, Peru and Ghana.
Barrick CEO Jamie Sokalsky, who took over in June 2012, began selling assets and cutting costs before gold plunged in April by the most in three decades in London. The world’s biggest gold producer plans to sell, close or trim output at 12 of its 27 mines where costs are higher than $1,000 an ounce, it said Aug. 2.
Second-quarter production was 451,000 ounces of gold, 5 percent lower than in the previous three-month period, at a total all-in cost of $1,572 an ounce. The net loss was driven by $127 million of impairment charges taken at its Tarkwa and Damang mines in Ghana.
South Deep is unlikely to achieve the annual target of 700,000 ounces set for 2016, Gold Fields said in the statement. An impairment charge related to the mine is “almost certain” before the end of the year, Macquarie’s Hart said.
Gold dropped 0.1 percent to $1,365 an ounce by 9:35 a.m. in Johannesburg.
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