Sino Gold Mining and Gold Fields have announced that Sino Gold will undertake a A$136 million capital raising, the proceeds of which will be used primarily to retire its gold hedge position. Gold Fields has agreed to increase its stake in Sino Gold which, after the retiring of its hedge position, will be a financially stronger growth company. Furthermore, the existing exploration alliance between Sino Gold and Gold Fields Australasia, a wholly owned subsidiary of Gold Fields, in China, now the largest gold producing country in the world, will be broadened to include a greater range of potential projects.
Sino Gold will raise up to approximately A$204 million via a combination of:
1. An accelerated renounceable entitlement offer to existing shareholders to raise up to approximately A$136 million so as to allow the closing out of Sino Gold’s hedge book and for development, exploration expenditure, working capital and general corporate purposes. Thereafter, Sino Gold will become an unhedged gold producer with the potential to increase gold production controlled by Sino Gold towards 500,000 oz/y over the next two to three years
2. A placement to Gold Fields of up to approximately A$68 million, and thereafter Gold Fields will also exercise in full its entitlements under the entitlement offer. As a result of its participation and support, Gold Fields’ shareholding in Sino Gold will increase from 15.5% currently to 19.9% at completion of the capital raising to further consolidate Gold Fields’ position as Sino Gold’s major shareholder.
In November 2006, Gold Fields and Sino Gold announced the formation of a strategic alliance to explore and develop large-scale gold deposits in China, combining the `in-country’ exploration and commercial skills of Sino Gold with the large scale mine development skills of Gold Fields.
The alliance’s principal focus has been exploring prospective belts in China for resources hosting at least 5 Moz of gold or gold equivalent, with a production capability of 500,000 oz/y (rule of `fives’). On a technical level the alliance has concentrated its exploration efforts on porphyry, high-sulphidation epithermal or sediment-hosted disseminated orogenic style gold mineralisation which were not previously the focus of Sino Gold’s exploration program in China. Following a thorough review of 58 mineral belts in China, four belts have been identified as priority belts with the potential to host these styles of deposits. Work is ongoing in each of these belts.
Outside a 50 km buffer around Sino Gold’s existing operations (White Mountain, Jinfeng, Eastern Dragon, Sanjianfang, and Beyinhar), the parties have agreed to decrease the threshold for new investments to include gold deposits with resources hosting at least 3 Moz, and with annual production capability of 300,000 oz/y.
There is no change to the funding agreements that each party contribute equally to the activities of the alliance. For an asset to stay in the alliance, the two companies must equally fund its exploration and development. These changes therefore broaden and increase Sino Gold’s financial capacity to explore in new belts outside of its four development projects.
Nick Holland, newly appointed CEO of Gold Fields, said: “The alliance is of strong strategic importance to Gold Fields which has long recognised China and the Australasian region as highly prospective. Gold Fields views Sino Gold as the best partner, in China, to help us unlock that value for our shareholders. Increasing our shareholding in Sino Gold naturally strengthens our commitment to Sino Gold, but further strengthens our commitment to the alliance and our exposure to the Australasian region.”
Jake Klein, CEO of Sino Gold, said: “This is an important step for Sino Gold. We are delighted to have received such significant support from our major shareholder, Gold Fields, through its commitment to purchase shares at a premium to the entitlement issue and increase its holding in Sino Gold to 19.9%. With the close out of our forward sales, Sino Gold’s shareholders will now have the opportunity to fully participate in the value created by our growing gold production in a rising gold price environment.”