Birth of a new giant.


South Africa's large mining houses are adjusting to new realities through several approaches, including mergers. Priscilla Ross outlines one of the most significant developments.

Gold Fields, the new mega South African gold mining group created from the gold assets of Gold Fields of South Africa and Gencor, was listed on the Johannesburg stock exchange on 2 February 1998.

On 10 October 1997, Gencor had announced an agreement with GFSA in which the gold interests of the two groups would be merged. The intricacies of the merger transaction were so designed that Gencor's participation in Gold Fields is now by both direct and indirect shareholding.

The core assets of the new Gold Fields are amongst South Africa's best: namely Driefontein, Kloof and the Southern Free State complex. Gold Fields owns around 40% of Driefontein and 100% of Kloof. Driefontein and Kloof lie on the West Wits line and Beatrix and Oryx are part of the Southern Free State complex. The lives of the mines of the West Wits line complex and the Southern Free State complex will extend well into the 21st century.

The challenge for the new Gold Fields is to bring the three core mines to peak operating efficiency, and to extend substantial improvements in operating costs and cash flow to shareholders. The company is currently producing 3.5m ounces of attributable gold a year from a reserve base of around 100m ounces. This production level is likely to decrease over the next year as decisions are made about whether or not to retain the higher cost non-core mines in the Gold Fields portfolio. These decisions are being prompted by the need to chase profitability at a time when the gold price has reached an 18 year low. If these decisions are carried out, Gold Fields' average operating costs could decline from the current $280/ounce to around $250/ounce.

At Beatrix, production for the first half of the 1998 financial year was 243,000 ounces which was consistent with that achieved for the previous six months. Cash operating costs during the second quarter were brought down to $216/ounce. This means that Beatrix retained its position as South Africa's lowest cost producer. Despite high levels of capital expenditure at the No.3 shaft, Beatrix earned R51m profits for shareholders at the half way stage. For the financial year ended June 1997, gold output was 490,524 ounces.

Oryx's gold output to end December 1997 was more than double that achieved in the...

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