Gold Fields buys Barrick’s South Deep stake

Barrick Gold (ABX-T, ABX-N) is selling its half interest in the South Deep gold mine in South Africa to Gold Fields (GFI-N) for US$1.525 billion.

Gold Fields will pay US$1.2 billion in cash and the rest in shares valued at the average of the previous five days of trading in New York.

Barrick’s 50-50 partner at South Deep, Western Areas (WARSF-O, WAR-J), is waiving its right of first refusal on Barrick’s interest, though Gold Fields already owns 19% of Western Areas.

Situated 45 km southwest of Johannesburg, South Deep produced a total of 461,119 oz. gold at a cash cost of US$387 per oz. in 2005, up from the 428,585 oz. poured at US$383 apiece a year earlier.

However, the South Deep mine was severely damaged in early May when a loaded skip broke free of its winder drum during regular maintenance. The skip plunged some 1.6 km down the mine’s main shaft, damaging it in several locations along the way and knocking the shaft out of commission.

Gold output has been roughly halved ever since, but Western Areas believes it can recommission the shaft early next year following an estimated 80 million rand (US$11.7 million) worth of repairs.

At last count, South Deep hosted proven and probable reserves of 147 million tonnes running 6.2 grams gold per tonne, for 29.3 million contained ounces. Measured and indicated resources amounted to 109.9 million tonnes averaging 7.3 grams gold per tonne, for 25.9 million contained ounces. The estimates are based on a gold price of US$400 per oz.

Western Areas has also been hampered by its hedge book. At the end of March, the company’s hedging commitments amounted to a derivative liability of 3.6 billion rand (US$566 million), when marked to market. That hedge book saw the company realize an average of US$403 for each of the 55,460 oz. gold sold during the first three months of 2006, compared with an average spot price of US$561 per oz.

Barrick had acquired the South Deep interest via its US$10-billion takeover of Placer Dome in January 2006. It says its remaining employees in South Africa will remain focused on advancing the Sedibelo platinum project and providing support to Barrick operations and projects in Africa.

For Gold Fields, the South Deep acquisition complements its recent decision to deepen its two largest gold mines in South Africa, Driefontein and Kloof gold mines, at a cost of R4.7-billion ($708-million).

The South Deep deal still requires South African regulatory approval, but should close in early 2007.