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Summary

  • Gold Fields continues to divest non-core assets in riskier jurisdictions with the sale of its 51% stake in Chucapaca - an exploration project in Peru - to JV partner Buenaventura.
  • This is in-line with my August 2013 thesis that the company is refocusing its business on cash-flow generating businesses in low-risk jurisdictions.
  • The company's transformation isn't over but it is getting there, and the stock remains compelling, particularly in a higher gold price environment.

Gold Fields (NYSE:GFI) just announced its intention to sell its 51% stake in the Chucapaca exploration project in Peru to Buenaventura (NYSE:BVN) in exchange for $81 million and a 1.5% NSR royalty. The project has an estimated resource base of over 6 million ounces of gold. Gold Field's CEO Nick Holland claims that the deal reflects the company's renewed emphasis on cash-flow. The deal follows another divestment in which the company sold its 85% stake in the Yanofolila Project in Mali to Hummingbird Resources (OTCPK:HUMRF).

As I argued last August Gold Fields is undergoing a transformation. The company is divesting assets that are none-core, located in high risk jurisdictions, and not generating cash-flow, while it is buying cash-flowing assets in low risk jurisdictions. This transformation has admittedly been slow despite management's aggressive steps. However it seems that management has the right attitude in divesting these non-core assets and, as I pointed out last August, in purchasing the Yilgarn assets in Australia from Barrick Gold (NYSE:ABX).

Near term the company should continue to struggle somewhat with high costs given that its primary asset remains its high cost South Deep Project in South Africa. But costs at this mine should come down over the next couple of years shifting the company's overall costs dramatically lower. With the announced divestment the company will be spending less money on exploration and it should generate more cash-flow as a result.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Update: Gold Fields Sells Its Stake In Chucapaca To Its JV Partner, Retains A 1.5% NSR Royalty