Business Context and Reporting Period
This Form 6-K, filed on October 13, 2004, by Gold Fields Limited (JSE, NYSE:GFI), reports the signing of a definitive agreement on September 30, 2004, with IAMGOLD Corporation. The transaction involves IAMGOLD acquiring Gold Fields' mining, development, and exploration assets located outside the Southern African Development Community (SADC). Upon completion, expected around December 31, 2004, IAMGOLD will be renamed Gold Fields International Limited and will become a subsidiary of Gold Fields, which will retain approximately 70% ownership.
Key Financial Metrics and Transaction Terms
- Consideration: IAMGOLD will issue approximately 351,690,218 common shares to Gold Fields. Based on the 20-day volume-weighted average price prior to the August 11 announcement, this consideration had a market value of approximately US$2.1 billion.
- Special Dividend: Existing IAMGOLD shareholders will receive a special cash dividend of C$0.50 per share shortly before the transaction closes.
- Production Forecast: The new entity, Gold Fields International, is forecast to produce 2.0 million ounces of gold in 2005.
- Cost Estimates: The 2005 forecast average cash cost is approximately US$250 per ounce.
- Reserves and Resources: Gold Fields International will hold attributable proven and probable reserves of approximately 19.3 million ounces and measured and indicated resources of 26.0 million ounces.
- Break Fee: A US$20 million break fee is payable under certain termination conditions.
Material Changes and Pro Forma Effects
The transaction represents a material restructuring of Gold Fields' global portfolio, separating its South African operations (retained by Gold Fields) from its international assets (transferred to Gold Fields International). Based on Gold Fields' audited results for the year ended June 30, 2004, the pro forma financial effects indicate:
- Headline Earnings Per Share: Decrease of 10.2% (from 157 SA cents to 141 SA cents).
- Earnings Per Share: Decrease of 10.8% (from 158 SA cents to 141 SA cents).
- Net Asset Value Per Share: Increase of 13.1% (from 3,042 SA cents to 3,442 SA cents).
- Tangible Net Asset Value Per Share: Decrease of 2.3% (from 3,042 SA cents to 2,972 SA cents).
The filing notes that the pro forma earnings decrease is partly due to the adoption of IFRS 3, which requires goodwill to be tested for impairment rather than amortized.
Guidance, Outlook, and Risks
Outlook and Rationale: Management states the transaction creates a financially independent international growth vehicle better equipped to access global capital markets. The consolidation of assets in Ghana and Mali is expected to add approximately 0.4 million ounces of annual production. Gold Fields International will focus on non-SADC growth opportunities.
Conditions Precedent: The deal is subject to shareholder approval from both companies (meetings expected in early to mid-December 2004), regulatory approvals (including the South African Reserve Bank and JSE), and the absence of material adverse effects.
Risks and Contingencies: The filing includes standard safe harbor statements regarding forward-looking information. Key risks identified include integration challenges, production cost increases, international operational risks, joint venture complexities, gold price volatility, currency devaluations, labor disruptions, and changes in government regulations. Additionally, the transaction is contingent on Gold Fields maintaining a minimum 50.1% shareholding in Gold Fields International to satisfy South African exchange control requirements.
Investor Verification Checklist
- Verify the final approval status of the transaction by Gold Fields and IAMGOLD shareholders at the December 2004 meetings.
- Confirm receipt of all necessary regulatory approvals, specifically from the South African Reserve Bank (SARB) and the Johannesburg Securities Exchange (JSE).
- Monitor the actual closing date, currently expected to be on or around December 31, 2004.
- Review the technical reports compiled by SRK Consulting regarding the mineral reserves and resources of the transferred assets.
- Assess the impact of the US$2.1 billion share issuance on the fully diluted equity structure of the enlarged company.
- Track the implementation of the special C$0.50 dividend to IAMGOLD shareholders prior to closing.