Johannesburg - Gold Fields had received board approval to invest A$125 million (R600 million) in its St Ives operation in Western Australia, the company said yesterday.
The investment comes just months after the company got the go-ahead for the US$159 million expansion of its Tarkwa gold mine in Ghana, and is evidence of local gold mining companies' search beyond the border to replace gold reserves as the rampant rand makes mining more expensive in South Africa.
Together the two capital projects represent a commitment of $250 million to better offshore assets, while Gold Fields has virtually frozen local capital expenditure.
But John Munro, executive vice-president and head of international operations for Gold Fields, said the decision to expand at St Ives was as much a defensive move as a financial one.
He said it was also part of Gold Fields' continued drive for organic growth when the market was on a shopping spree. Organic growth offered a return on investment in the mid-teens while acquisitions were offering only marginal returns, he said.
The bulk of the capital, A$110 million, would be spent on mill replacement.
Gold Fields plans to scrap the processing plant at St Ives, which it acquired from WMC Resources for A$470 million in late 2001, and build a new, 4.5 million-ton-a-year facility.
The new mill would boost production from 500 000 to 600 000 ounces a year and reduce total costs by $40 an ounce, claimed Munro. The facility would be on standby to accommodate further expansion.
Gold Fields reported that total cash costs at $271 an ounce had risen $50 an ounce during the September quarter.
Gold Fields has spent about A$50 million on exploration on its St Ives leases over the past two years and plans to spend another A$30 million a year on exploration in the next year or two.
Munro said the cost savings would position the world-class gold asset to take advantage of the upside in the dollar gold price and shelter it from further falls in the Australian dollar.
Gold bulls have banked on gold breaking through the key psychological barrier of $400 an ounce after several unsuccessful tries in the last few weeks. But South African companies have lost out in the gold price rush.
The price of gold in rand terms is lower than it was even three months ago, despite the climbing commodity price.
Munro said the Australian industry had also suffered.
The Australian dollar has risen 28 percent against the dollar so far this year. This has reversed the price of gold in Australian dollars, from A$618 to A$552 an ounce.
Munro said the capex could boost St Ives' A$2 million a month earnings by 10 percent to 25 percent. This would bolster the contribution of international operations to close to 50 percent of Gold Fields' total profit.
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