Editorial: Gold Fields has its fill of Hugo

There were more tectonic shifts in the landscape of gold mining during the week ended Oct. 13, the 41st trading week of 2007.

* The world’s fourth-largest gold producer, South Africa’s Gold Fields, signalled that it’s pulling in its horns after a decade of expansion and selling distant mines to fund development work at its huge, but difficult, South Deep gold mine in South Africa, where the company is grappling with how to make the most of a minimum 40-year mine life.

Gold Fields is kissing goodbye geologically attractive Venezuela and its anti-capitalist government after 15 years in the country, and unloading all its Venezuelan assets, including the troublesome Choco 10 mine acquired in the US$330-million cash takeover of Bolivar Gold in November 2005. Gold Fields is selling it all to Rusoro Mining for cash, debt and shares worth roughly half a billion dollars.

Rusoro has been operating in Venezuela both as a private and public company for more than a decade, and is considered more experienced technically and better connected in the country than Gold Fields. Rusoro has been run and largely owned by Russian entrepreneur Vladimir Agapov and his son Andre, who are described as being well connected politically in both Venezuela and Russia. Rusoro, in turn, has unveiled a $210-million financing that will allow it to fund the US$150-million cash portion of the deal.

For the Crystallex and Gold Reserve watchers out there, Gold Fields’ exit removes a substantive potential bidder for both juniors, which are sitting on large gold deposits in Venezuela. Undervalued on a per-ounce basis relative to their peers in politically stable jurisdictions, Crystallex and Gold Reserve may just wind up in the hands of Russian or Chinese investors in a few years.

* Meanwhile, in Burkina Faso, Gold Fields is selling for US$200 million in cash and shares its 60% stake in the too-small-for-a-major Essakane gold project to its joint-venture partner and Ottawa’s biggest mining company, Orezone Resources. Led by Ron Little, Orezone will soon be heading to the equity markets to fund the deal’s US$150-million cash portion.

* Another gold major shedding West African assets is Barrick Gold, which is handing off its project portfolio in Guinea, Burkina Faso and Mali to Goldbelt Resources in return for work commitments and clawback provisions.

Goldbelt has also completed a final feasibility study for its small, but economically robust Inata gold project in Burkina Faso. Using a US$650-per-oz. gold price, Inata’s internal rate of return is 49.75% and the undiscounted net present value is US$128 million.

* Closer to home, Newmont Mining tabled a friendly takeover for Miramar Mining, valuing the Canadian junior at $1.5 billion. In a sign that majors will go just about anywhere these days to replenish reserves, Newmont is taking on its first Arctic mine-building challenge, as it seeks to develop Miramar’s high-grade but very remote Hope Bay gold project, on Nunavut’s northern coast.

* Brazilian heavyweight Companhia Vale do Rio Doce is proving to be very bullish on metals and coal, and has outlined an US$11-billion capital-expenditure program for next year, the largest capex program ever undertaken by a mining company. And it’s just the beginning of a 5-year, US$59-billion investment program, up from US$18 billion spent during the previous five years.

The nickel assets acquired in the Inco takeover are getting plenty of money pushed at them, as CVRD seeks to double its nickel output: Goro in New Caledonia will see US$723 million spent there next year; US$66 million is earmarked for developing the new Totten nickel mine in Sudbury, Ont., which will cost US$362 million in total, and will come on-stream in 2011; and US$110 million will be spent building a nickel refinery in the province of Newfoundland and Labrador — a project that will cost US$2.2 billion once it’s ready in 2011. CVRD also plans to spend US$581 million at the Ona Puma nickel laterite project in Brazil.

* Lowly lead is red hot these days, hitting an all-time, nominal high on Oct. 10 of US$1.80 per lb., owing to both strong demand and constrained supply, particularly in China. Suddenly, a company like Silvercorp is seeing lead account for roughly 40% of its aggregate metals sales.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.