THE JSE’s mining index bounced on Thursday on the news that the world’s fourth-largest miner, Gold Fields, is to split into a largely international entity and an exclusively local operation.
The company’s share price took off like a rocket, but many other companies, including Anglo American and AngloGold Ashanti, followed as investors anticipated the possibility that they might follow suit.
With their hands on their hearts, Gold Fields management rejected the suggestion that splitting the company into the new Gold Fields and Sibanye Gold, the latter comprising the local Kloof-Driefontein Complex (KDC) and Beatrix mines, has anything to do with the parlous South African mining environment. But we all know better.
Gold Fields argues that this is not a South African-international split, as the "international" part of the company will be holding on to its major South African asset, the South Deep mine. Furthermore, both companies will be domiciled and listed in Johannesburg.
The company’s position is that KDC and Beatrix are different kinds of mines that require different kinds of management attention, and possibly also different management teams entirely.
There is no question the mines are deeper and more complicated to operate, yet, as the song goes, you don’t need a weatherman to know which way the wind blows. The South African mining environment has become simply a sea of troubles. One prominent South African miner has said privately that it is now easier to run a mine in Afghanistan than it is to run one in South Africa.
One problem is that nationalist populism, including calls for nationalisation, has encouraged labour demands that are difficult for mine owners to refuse, but just as challenging to meet.
Exploding electricity and transport costs have also changed the cost side of the equation, and new mine-safety laws now make it possible for regulators to close mines on a whim in a way that can appear punitive.
The longer-term trend in the gold industry is also obvious for all to see. South Africa used to be the largest gold producer in the world by a country mile. It now scrapes into third spot and may lose even that place soon.
Only 40 years ago, South Africa produced more than 1,000 tons of gold a year, but it will produce only about 220 tons this year. In this context, it’s easy to see why shareholders are enthused by the idea of cauterising the low-margin South African mines, which are contaminating the rest at the moment.
This doesn’t mean splitting the company is all bad news. In a sense, the KDC and Beatrix mines have provided the cash required for Gold Fields’s international expansion. By locating them in a specialised unit, they become responsible, and accountable, for their own future.
The company can no longer rely on its international counterparts to bail it out. It stands, or falls, on its own merits and qualities — or the lack thereof.
Still, the split constitutes simultaneously a warning and a subtle change in the lay of the land. For the past millennium, the tide of mining investment has flowed into the country, sometimes slowly and sometimes at a healthy clip, but that tide seems to be turning.
From now on, to win new investment in the mining industry, South Africa will have to prove its case, not rest on its laurels. New mining investments will look more like South Deep, with facilitating labour agreements and new technology.
The question being asked of old-style mining is whether it is possible to continue mining in the traditional way. Only a week ago, Gold Fields executives were warning that the South African gold mining industry might only have five years left if the current trend continues unchecked.
By splitting its assets, Gold Fields has in effect acknowledged that a new reality exists.