Vancouver — Venezuela’s vast gold potential and low-cost energy have prompted Johannesburg-based
Ian Cockerill, chief executive officer, said the proposed transaction is consistent with the company’s strategy to achieve 1.5 million additional ounces of international production by 2009. In a conference call with analysts, he insisted that Gold Fields is confident of a “warm welcome” in Venezuela, despite recent anti-capitalist rumblings from President Hugo Chavez.
“We’ve been active in Venezuela since 1992, and have been exploration partners with Bolivar since 2003,” Cockerill said. “We’re aware of the environment and know what we’re getting into. By no stretch of the imagination is this (deal) an impulsive buy.”
Gold Fields will pay US$3 per common Bolivar share in cash, or about US$249 million. The balance will be used to acquire options (US$15 million), warrants (US$42 million) and debentures (US$24 million) that will be redeemed as part of the transaction.
Gold Fields already owns about 11% of Bolivar’s outstanding common shares, plus about 32% of its Series A warrants. The proposed transaction has been approved by the boards of both companies, but regulatory approvals and the approval of two-thirds of Bolivar shareholders and warrant-holders is pending. A definitive agreement is expected by the end of November, and if all goes as planned, the transaction should be concluded early next year.
Cockerill says the Bolivar acquisition would give Gold Fields a strong operational presence in the prospective El Callao district, where Bolivar’s newly constructed mine is located.
At the end of 2004, proven and probable reserves stood at 21.4 million tonnes averaging 1.9 grams gold per tonne, containing 1.3 million oz. The reserves are contained within a measured and indicated resource of 1.8 million oz., plus a further 1.7 million oz. in the inferred category.
About US$68 million was spent to develop the Choco 10 open-pit mine, which achieved commercial production this summer. The mine is on target to produce about 48,000 oz. gold this year, with production expected to reach 190,000 oz. in 2006. Total cash costs are estimated at US$161 per oz.
Gold Fields sees potential to expand production in the years ahead, and cites Bolivar’s recent scoping study, which showed potential for throughput to be increased to 15,000-20,000 tonnes per day, triple the present rate. This would boost production to more than 400,000 oz. annually.
Gold Fields believes the historic El Callao district offers excellent exploration upside, as the Bolivar acquisition comes with a sizable land package with geological similarities to West Africa, where Gold Fields operates several mines.
Cockerill cited other advantages beyond expanding its global footprint, production and resources.
“The El Callao district has a long tradition of gold mining and excellent infrastructure, including roads and power,” he said. “Venezuela has some of the cheapest power and fuel costs in the world.”
Gold Fields also noted that North American equity and debt markets have provided more than US$500 million to Venezuelan gold projects over the past two years. Management cited other recent major investments, including an aluminum facility built by Australians and the awarding of some new offshore gas leases to Western oil companies.
Cockerill expressed confidence that the company will be able to operate successfully in Venezuela.
“We intend to be good corporate citizens and operate to the highest environmental and social standards,” he said.
Venezuelans go to the polls in early December. The election is expected to be highly polarized, as Chavez has openly called for expropriation of “under-used” farms and ranches and “idle” factories and businesses. About 20 farms have been claimed to date, while 136 businesses are being examined for possible expropriation. Even so, recent polls suggest that Chavez is leading over a number of opposition parties.
Gold Fields officials did not meet Chavez personally, but met with senior ministers of his government and were told that “south-south investment (such as between South Africa and Venezuela) is consistent with what Chavez is trying to encourage.”
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