Gold Fields inks empowerment deal with Mvelaphanda

Gold Fields (GFI-N) has agreed to sell a 15% stake in its South African gold mining assets to Mvelaphanda Resources, a black economic empowerment group led by Mvela Resources for R4.1 billion.

The assets include the Beatrix (which produced 655,000 oz. of gold at a total cash cost of US$173 per oz. in 2002), Driefontein (1.3 million oz. at US$158 per oz.) and Kloof (1.1 million oz. at US$179 apiece) mines and ancillary service companies.

Gold Fields, South Africa’s second-largest gold producer, figures the mines represent about 70% of its total value, based on its weighted average share price for the 30 business days prior to the deal’s unveiling.

The Mvelaphanda group plans to fund the acquisition with a combination of equity capital and debt financing arranged by Mvela Resources, and a R300 million financing from Gold Fields. Details of the financing were not provided, but Gold Fields’ CEO Ian Cockerill assures that the plan will be of limited recourse to his company.

Also included under the Mvelaphanda umbrella are community-based trusts and women and youth empowerment groups, which will be able to buy a minority position in the 15% empowerment stake.

Under South Africa’s mining empowerment charter, companies operating in South Africa must have 15% of their assets in the hands of sanctioned black economic empowerment groups within five years; in 10 years, the BEE stake must be 26%.

The charter also calls for 40% of South African mining companies’ management to be made up of historically disadvantaged South Africans, and 10% of the industry’s labour force to be made up of women within five years.

As part of the deal, Mvelaphanda has agreed not to sell off its stake until Gold Fields’ "old order" mining rights at the three mines have been converted into "new order" mining rights, or the five-year lock-in period.

Under South Africa’s new minerals bill, mineral rights were transferred back to the state; companies are now required to re-apply for new order rights.

After the lock-in period, Mvelaphanda can exchange its stake for shares in Gold Fields; the major has a reciprocal right to require the exchange.

Under a 120-day exclusivity arrangement, neither side is allowed to pursue any similar transaction with other parties. If financing details and a formalized agreement aren’t ironed out during by the end of the period, the deal lapses.

Gold Fields shares were off 25 at $11.32 in mid-afternoon trade in New York, following the news on June 10.