Top financial advisor David Melvill is crunching numbers again, and this time he’s comparing the returns of Gold Fields and Sibanye Gold. In 2013 Sibanye was split out of Gold Fields, holding on to the local gold assets, except the much valued South Deep Mine. And looking at the returns one could argue it’s a classic case of the ugly duckling turned swan. It’s some exciting analysis, although those managers who sold out of Sibanye, may not agree. – Stuart Lowman
By David Melvill*
Here is a comparison of assets where the holding company Gold Fields, decided to separate their old SA assets into a new company, Sibanye.
These assets were span off. They were tarnished as they were very much disregarded by analysts on the basis that they were the old SA assets of Driefontein, Kloof and Beatrix, supposedly old mines with a very limited lifespan left.
Gold Fields retained all the offshore assets and the valuable South Deep mine (the only SA asset with one of the richest gold grades in the world).
Below please see the chart how wrong the analysts were:
Since the splitting of the assets, some three years ago, Gold Field’s share price has gone form around R100 to R63 (that is a loss of 37%). By contrast Sibanye’s share price has gone form around R16 to R56 (that is a profit of R 250%).
In addition to this, we recently saw Sibanye’s sum of the parts rise to a nett worth of R51 billion, while Gold Fields is now of lesser value, worth only R49 billion.
Sibanye is now ranked the 44th biggest company of the JSE, while Gold Fields has slipped to the 46th position.
What does this say?
It probably says many things, but for me the most important point is the difference a good gold miner can make to a company. Neal Froneman, Sibanye’s CEO, has used his skills and strategy to turn the company around. He is mining the assets efficiently and profitably, as well as making good acquisitions particularly in the platinum sector. In addition to this he is seeking energy stocks and the ability to be able to have access to their own electricity.
His dynamic leadership and vision has turned the company around dramatically. It is now the second biggest gold miner listed on the JSE and the biggest gold producer in SA.
The analysis
The SENS of 11 Feb 2013 declared:
“Today, 11 February 2013, Sibanye Gold was listed on the JSE and began trading at around R14/share, giving it a market capitalisation of approximately R10 billion. Gold Fields shares closed at R105.80 on Friday 8 February and started trading at R93 this morning, making its market capitalisation approximately R68 billion.”
Thus meaning 1 GFI + 1 SGL = R93 + R14 = R107 (it includes R1.20 increase on the first day of trading) as it was R105.80 on the last day of trading.
I think this is the truer way of examining the regression made by GFI and the progress made buy SGL
If added together it does represent 1 GFI + 1 SGL = R63 + R56 = R119.
The most significant ratio is the asset appreciation ratio. GFI + SGL was R68 bn + R10 bn = R78 bn.
It now reads GFI + SGL = R 49 bn + R51 bn = R100 bn.
GFI has eroded R19 bn of wealth (R68 bn – R49 bn).
Whereas SGL has created R41 bn (R 51 bn – R10 bn).
That is a variable of R60 bn, depending on whose side you were on.
Put differently, GFI lost 28% in asset value over the three years, while SGL added a whopping 410% to their asset value.
Sadly, as many fund managers sold their SGL’s off, in favour of keeping their GFI’s, they have paid a dear price.
- David Melvill has practised as a financial advisor for 30 years. He used to present Financial Focus, a weekly program for approximately 3 years on both Link FM (East London) and CCFM radio (Cape Town) community radio stations. He is largely contrarian in his advice, thanks to the wonderful inputs and mentoring from the economist, Peter George. He believes in the diversification of assets and has a passion for gold, as a currency – the purest form of money. He too sees the value of investing in gold still in the ground through the gold mining shares, as these are leveraged and can give excellent returns when the fundamentals are in their favour. David is fascinated by the history of gold, he loves hiking in the mountains, good red wine and pizza as well as the joy of being alive.
