Gold Fields of South Africa Ltd.

views updated

Gold Fields of South Africa Ltd.

75 Fox Street
Johannesburg 2001
Republic of South Africa
(11) 639-9111
Fax: (11) 639-2101

Public Company
Incorporated: 1887
Employees: 98,580
Sales: R5.65 billion (US$2.20 billion)
Stock Exchanges: Johannesburg London Paris Zurich Basel Geneva

Gold Fields of South Africa was formed in 1887 by Cecil Rhodes and Charles Rudd to hold properties they had acquired on the Transvaal’s Witwatersrand gold fields. The first of the financial groups that were to characterize the South African mining industry’s organization, it generally remained heavily dependent on one or two profitable South African mines, while going on to become a major international mining finance house. The present company was formed to take over the African assets of Consolidated Gold Fields, and was not included in that group’s acquisition by Hanson PLC in 1989. The company has diversified into the production of other minerals, notably platinum, but unlike Anglo American Corporation and some other mining houses, it has not made any significant impact outside the mining sector.

Reorganized as Consolidated Gold Fields of South Africa (Consgold) in 1892, it was plagued by uncertainties, and found itself on a really firm footing only in the 1930s when it took the lead in opening up the Western Rand—often referred to as the West Wits Line—in conjunction with, among others, the Anglo American Corporation. West Witwatersrand Areas Ltd. was formed in 1932 to work the new field. In 1959, as part of a major restructuring exercise, the name “Gold Fields of South Africa” was revived for a South African rather than a British domiciled company, a wholly owned subsidiary to take over the management of the parent company’s southern African assets. In 1971, West Wits took over all of Gold Fields of South Africa’s assets as well as its name.

In 1886, when gold was discovered on the Witwatersrand, Cecil Rhodes was sceptical because of earlier disappointments in the eastern Transvaal, and was still very much preoccupied with De Beers Consolidated. Most of the properties acquired by Rhodes and his partner Charles Rudd when they finally joined the Rand rush were valueless, at least for the time being, due both to chance and to Rhodes’s lack of firm commitment. He and Rudd formed Gold Fields of South Africa Ltd. on February 9, 1887, to hold their Transvaal interests, but quickly turned their attention to the area further north, later known as Rhodesia, where they hoped to recoup some of their Transvaal losses and to further Rhodes’s political and imperial ambitions. In 1889, the British South Africa Company (BSAC) was formed with a charter from the British government to administer the territory and with the right to a share in all mining operations that took place there. Rhodes, as joint managing director of Gold Fields, with wide personal power and freedom, was able to use that company to finance the BSAC through its early days, which were even less profitable than those of Gold Fields.

Although some of Rhodes’s decisions had led to disastrous consequences for Gold Fields, it, like all other groups on the Rand, had to face difficulties caused by the fact that the Witwatersrand’s gold bearing reefs tilted sharply, outcrops tending to be depleted at relatively shallow levels. Sinking shafts necessary to work the reef at greater depths required capital that investors were reluctant to provide. In 1892 Alfred Beit, Rhodes’s close colleague in De Beers and other ventures, supported by Rudd, persuaded Rhodes to involve Gold Fields in a company that would work deep levels, Rand Mines Ltd. To finance the venture, Gold Fields brought several Rand companies together in 1892 to form Consolidated Gold Fields of South Africa. Deep levels produced more gold and new problems.

The weathered, oxidized outcropping ores could be treated relatively easily and cheaply by crushing and amalgamation, essentially the same technique used by the Spanish in Mexico in the 16th century. Ores found below about 100 feet were pyritic—containing sulphides—and therefore required more complex, expensive treatment. The 50% recovery rate of the chlorination process which was first used was too low for profit. The MacArthur-Forrest cyanide process, introduced into the Transvaal in 1889, solved the problem, ultimately convincing even the most pessimistic of the Rand gold fields’ longterm viability.

Gold Fields acquired several new properties and began to change its management structure and style in the aftermath of the 1895 Jameson Raid, reducing Rhodes’s unrestricted personal power. Substantial dividends were declared in 1895 and 1896, on profits derived from dividends paid on the company’s holdings in De Beers Consolidated rather than from its own operational profits. Subsequent dividends were low or nonexistent. Despite shareholder protests, this situation enabled the company to survive depression and accumulate £2 million reserves.

In 1908, using these reserves, Gold Fields began expanding investment outside Rhodesia and South Africa. Gold mines in Ghana—the Gold Coast—were not profitable; Nigeria’s Ropp tin mines were. The gold of Siberia’s Lena River basin also held considerable promise. When the Russian company operating there sought more advanced U.S. and British technology, Gold Fields became the largest single shareholder in Lena Goldfields Ltd., formed in 1908.

By 1911 Gold Fields had quietly disposed of its Lena share, using the £360,000 profit on the sale to help replenish the reserves depleted by purchases in the Americas and elsewhere. Encouraged by its consulting engineer, John Hays Hammond, Gold Fields bought shares in U.S. gold and other mines, U.S. power companies, Mexican and Trinidadian oil, and American Telephone & Telegraph (AT&T), among others. In 1911, a new company, Gold Fields American Development Company (GFADC), was formed to administer holdings in the United States. These and other expansionist moves made at about the same time did not live up to expectations, in part perhaps because of American hostility to foreign investors who took an interest in mining enterprises, but did not control them. However, not all of Gold Fields’s investments were total failures. Investments outside mining, such as AT&T and Trinidad Oil, in activities in which they had no prior experience or expertise, tended to be more profitable than those in mining.

Throughout most of its history, Gold Fields was sustained by one or two particularly successful operations. During the period 1904-1920, for example, these operations were two Transvaal mines, the Robinson Deep and the Simmer and Jack, whose profitable working protected the company from the burdens of developing and working less profitable mines, old and new. Nonetheless, by 1918 the £2 million reserves and the Lena profits had disappeared, and the company faced hard times. Temporary relief was obtained in 1919 when all South African mining companies were allowed to sell their output on the free market, earning a premium of about 16 shillings perounce. Reliance on gold mines—a wasting asset in any case as they were finite and would eventually be exhausted—was now seen as a fundamental weakness, and diversification as essential for salvation.

Since Gold Fields’s Articles of Association limited the company’s activities to mining and kindred ventures, New Consolidated Gold Fields was created, a wholly owned subsidiary with the same directors, in effect the same company, but with greater freedom than its parent. The new company acquired a range of interests including property, cement, and carpets, but the benefits of diversification were elusive.

The company hit its lowest depths in 1922, as even Robinson Deep and Simmer and Jack profits declined, and the entire industry was affected by the major white miners’ strike, the Rand Rebellion. The Rebellion was quelled by Prime Minister Smuts’s politically disastrous use of the army, while financial rescue came from the Sub Nigel mine in the East Rand. Gold Fields had bought property in the Nigel district before the Boer War, but work there only began in 1909, reaching the commercial production stage in the early 1920s, and continuing to produce gold into the 1990s, as did the Simmer and Jack and Robinson Deep, albeit at rather lower yields.

In Western Australia, Gold Fields moved from a profitable share in the Wiluna mine in 1926 into the rich Kalgoorlie field, and secured a controlling interest in Gold Mines of Australia, formed by the Australian financier, W.S. Robinson, in 1930. Gold Fields also participated in Bulölo Gold Dredging, formed in 1930 to work alluvial gold in Papua New Guinea. This company produced about US$60 million worth of gold by the time it stopped dredging in 1965, while New Guinea Gold-fields, which had a less promising start in 1929, benefited from the late 1970s rise in gold prices. Gold Fields’s Australasian interests were brought under the administration of a holding company, Gold Fields Australian Development Company, in 1932.

A relatively little-known and not particularly successful Australian venture was the Gold Exploration and Finance Company of Australia (GEFCA), established in 1934. In this venture, Gold Fields joined with two South African mining groups, Central Mining and Investment Corporation and Union Corporation, and an Australian consortium led by Robinson. Initially GEFCA operated primarily in eastern Australia, with mixed success. There was considerable friction between the main London board and the Australian committee, in part because the Australians seemed to regard Gold Fields’s finances as unlimited, and in part because Gold Fields was reluctant to allow GEFCA to move into Western Australia. In 1949 GEFCA was transferred to Australia and absorbed by the Western Mining Corporation, previously a GEFCA subsidiary.

American, Australian, and other expansion was financed largely by the recovered Robinson Deep, the Simmer and Jack, and the Sub Nigel. Help also came from the sale of the American Potash and Chemical Corporation, originally the Trona Corporation, which extracted salt from Searles Lake in California’s Mojave Desert. GFADC had helped rescue the undertaking as part of its early United States acquisitions. By 1929, it was profitable and sufficiently attractive for a European group to offer to buy up all the issued shares. Gold Fields and GFADC made a total profit of £1.09 million. GFADC retained managerial control, but lost it in 1942 for violating the Sherman Antitrust Act by the sale, including allegations of a secret sale to Germans.

As Gold Fields fell prey to the world Depression, it was once again Witwatersrand gold which provided a foundation for recovery. In December 1930, Gold Fields financed a magnetometer survey of the West Rand, which was separated from the central fields by a major fault that had taken the gold bearing reefs to substantially greater depths. The Rand strata were known to be very regular, however, and a layer of iron-bearing shales lay about 400 feet below the gold reef. The magnetometer survey, confirmed by subsequent boreholes, traced the reefs very accurately.

Earlier attempts to work these deposits had been defeated by uncontrollable flooding. An effective cementation or grouting process developed subsequently by a Belgian, Albert Francois, initially in connection with coal mining, solved the problem. In November 1932, Gold Fields formed West Witwatersrand Areas Ltd. (West Wits) to begin developing the West Rand. Several of the Rand mining groups were unable or unwilling to participate in financing the new company. The Anglo American Corporation of South Africa and the General Mining and Finance Corporation were among those who agreed to take part. Gold Fields had to retain 30% of the shares, unhappily at first, but ultimately to its great advantage. By October 1939, when the first West Rand ores were being milled, Gold Fields was once again on a sound financial footing. In the 1950s, when further development was going on in the West Rand fields, Gold Fields was unable to participate as fully as it would have liked because of heavy financial commitments elsewhere. Anglo American took the lead here as it had already done in the Orange Free State.

Gold Fields and Anglo American worked together in other ventures as well, some of them in America and elsewhere, some in South Africa, notably in the Far East Rand. The most important area in which the two companies did not work together was in the Orange Free State gold fields. Geologically very different from the Rand, the Free State gold deposits lay at considerable depth, and were not susceptible to magnetometer investigation. Prospecting there was very costly, with boreholes frequently proving the absence of gold rather than confirmation as they had done in the West Rand.

In a manner reminiscent of the company’s 19th-century Wit-watersrand acquisitions, Gold Fields came late to the Orange Free State, although this time for financial reasons rather than lack of interest. When it did begin to acquire claims, most proved worthless. The Saaiplaas mine seemed a good proposition in 1955, but failed to live up to its promise. Earlier, Gold Fields had attempted to participate in the areas which ultimately proved to include the most profitable Free State mines, but were rebuffed by the claimholders, African and European Investment, whose major shareholder was the Lewis and Marks group. Anglo American bought up enough African and European shares to take control of it, using it as the basis of its subsequent dominance of Free State gold mining. Gold Fields did have a share in the Harmony mine, but its involvement in the field was very limited. In 1990, the company anticipated that the next gold mine it opened would be in the southern Free State.

Although West Wits only paid its first dividends in 1954, its success helped strengthen Gold Fields generally. Further support came from Rustenberg Platinum, the result of a series of mergers in the 1920s and 1930s, which began paying dividends in 1942. Gold Fields itself was able to pay dividends throughout the war.

The postwar period saw new mines coming into production, with profits flowing in from Venezuelan oil and the sale of the Trinidad Oil company. By the mid-1950s Gold Fields had again built up substantial reserves and again began diversifying. In order to decrease dependence on gold, mining, and Africa—which by then appeared to be becoming less stable—it began investing in a variety of industries, concentrating more on the United States, Canada, Australia, and New Zealand.

In 1956, New Consolidated Canadian Exploration Company was established in Toronto and New Consolidated Gold Fields (Australasia) in Sydney. The same year, Gold Fields and Central Mining and Investment Corporation discussed, but did not complete a merger. Gold Fields continued its own takeover and diversification program however, acquiring some other African mining companies, and some British manufacturers as well. One takeover included a wine firm.

In 1959, a major restructuring led to the re-emergence of the name Gold Fields of South Africa, reorganized as a Johannesburg-based company which controlled all the company’s African assets. Apart from any financial and administrative advantages that might have accrued from this restructuring, it also met the South African desire to have domestic companies, rather than London-based ones, exploiting the country’s natural resources.

It is not likely that the decision to set up a separate South African company was specifically motivated, at the time, by political considerations. That separation did give Consolidated Gold Fields an excuse—not necessarily accepted—to distance itself from its South African “associate” when the mining industry in general, and Gold Fields of South Africa in particular, began to come under fire as opposition to apartheid, domestic and international, strengthened after 1960. In addition to widespread general enthusiasm for the independence of Black African colonies at the time, there was a tremendous wave of revulsion against the South African regime because of the Sharpeville Massacre that year.

Before the growth of that opposition began to impinge seriously on Gold Fields, the company continued to work its mines in different parts of the Rand. These remained generally profitable, but the fact that Gold Fields was not participating in the Orange Free State field limited the extent to which it could expand. The older Rand mines were moving towards depletion, requiring working at greater depth and consequently greater cost. Only by keeping labor costs very low was it possible to maintain profitability.

Working through its subsidiary, Gold Fields Mining and Development Corporation, Gold Fields also attempted to widen its asset base. Though not entirely failing in this endeavor, it was unable to compete successfully either with the Anglo American group, which came to have a substantial role, direct or indirect, in virtually every sector of the South African economy, or with that country’s other major mining/industrial/ financial conglomerate, Barlow Rand. Gold Fields did move into other minerals in South Africa, but even as late as 1990, stated company policy was to concentrate on minerals in southern Africa. Newspapers reported that the group was about to embark on a foreign investment program, but the company was officially only willing to move cautiously, and to focus on the opening-up of new mineral fields rather than portfolio investment in existing operations.

Throughout the 1970s and 1980s, Gold Fields did indeed invest in a variety of other minerals, including zinc, lead, silver, tungsten, and others. The most important of these was platinum which, with gold, accounted for 55% of the group’s income in 1990, but constituted 74% of assets. In contrast, other minerals were responsible for 17% of group income against only 7% of its assets. However, these figures do not take account of the Northam platinum mine, which was expected to begin producing in 1991. The major producers of gold continued to be sufficiently successful to enable Gold Fields to rank as South Africa’s second most important gold producer. There was also some involvement in engineering, generally related to mining; in mineral treatment; and, in a fairly small way, in property. Limited diversification did not alter the company’s basic orientation.

During the 1980s, Gold Fields—and Consgold—came under particularly strong pressure from anti-apartheid groups and from supporters of the black trade union movement in South Africa. The group was criticized on the grounds of its safety record; accident and death rates, it was argued, were worse than in the industry as a whole. Gold Fields was also attacked because of its reluctance to recognize trade unions, and because of its relatively lower rates of pay. There was some justification in these claims. Gold Fields argued that its continued profitability—and therefore its ability to employ people-required it to remain a low-cost producer. Many of its mines were older and were worked at greater depth, and therefore higher cost, than those of other groups. Gold Fields also maintained that most of its workers were happy with their pay and conditions and appreciated the company’s policy of training unskilled workers and employing the children of people it had employed previously. Unrest among the workers, the company argued, had been stirred up by a small number of militants.

Whether or not workers did in fact appreciate some aspects of the group’s employment policies, the first and last of these arguments cannot be sustained. Strikes of varying duration continued to affect Gold Fields’s operations. The group followed rather than led as the South African gold mining industry moved towards the full recognition of the National Union of Mine Workers, the elimination of the color bar in job allocation and training, and in general improvement of housing and health provision for black workers. These changes took place against a background of political and social unrest, a declining real gold price, and retrenchment throughout the mining industry.

In 1989, Consolidated Gold Fields was taken over by Hanson PLC after Minorco, an arm of Anglo American, had attempted a strongly opposed takeover bid. Consgold’s remaining 38% stake in Gold Fields was sold. In August 1989, 30% was acquired by Gold Fields of South Africa Holdings, in which the Rembrandt Group held a 40% interest as did Asteroid, a company owned equally by Remgro and Gold Fields, with the insurance company Liberty Life holding the remaining 20%. Before the end of the year, Hanson had also disposed of the remaining 8%. Gold Fields was more than ever a South African company, firmly rooted in the Witwatersrand but still looking for other opportunities, expecting the next gold mine it opened to be in the southern Orange Free State.

Principal Subsidiaries

Gold Fields Mining and Development Corporation Ltd. (South Africa); Northam Platinum Ltd. (South Africa); Gold Fields Coal Ltd. (South Africa); Black Mountain Mineral Development Company (Proprietary) Ltd. (South Africa); Gold Fields Namibia Ltd. (Namibia); Witwatersrand Deep Ltd. (South Africa).