Gold Fields, the world’s No. 4 gold producer, said on Friday it would fight fraud claims against a unit of the group totaling 11 billion rand ($1.44 billion), news of which pushed its shares 2% down.
Gold Fields said it had received summonses over what it said were “historic liabilities” from two companies alleging fraud against its unit Western Areas Ltd. (WAL). Gold Fields stock later traded 1.30% lower at 68.16 rand against the background of a much weaker gold index. WAL was acquired after Gold Fields bought the South Deep mine, which is the world’s biggest gold deposit.
Gold Fields bought South Deep from partners Barrick Gold of Canada and South Africa’s Western Areas, which each held a 50% stake in the joint venture mine. Randgold and Exploration Company Ltd. (Randgold) and African Strategic Investment (Holdings) Ltd. lodged the claim against Golf Fields, citing a shares scam whereby stock belonging to Randgold and Uranium One were sold unlawfully by a company that at the time owned WAL. The firms claim that the fraud took place when WAL was controlled by JCI Ltd., a company led by slain mining magnate Brett Kebble, his father Roger and others.
Brett Kebble was gunned down in his car at night in Johannesburg in September 2005. Controversial businessman Glenn Agliotti has been charged with the murder. Gold Fields said the claims had been calculated in various ways, with the highest amount at 11 billion, based on the highest prices of the shares of Randgold and Uranium One between the dates of the alleged fraud and March this year. Randgold and African Strategic Investments also lodged alternative claims worth 519 million rand, calculated based on the actual amounts received by WAL to fund its operations.
Gold Fields said WAL would defend itself against the claims. “This alleged liability is historic and relates to a period of time prior to Gold Fields purchasing the company (WAL),” Gold Fields said in a statement. “WAL’s preliminary assessment is that it has strong defences to these claims and accordingly, WAL’s attorneys have been instructed to vigorously defend the claims.”
Gold Fields bought South Deep, which was at the time starved of investment, in order to replace dwindling reserves at its other South African properties and the mine promises to keep producing for Gold Fields for the next four decades. Since paying $2.5 billion in cash and shares for the mine in 2006, Gold Fields has been trying to develop it but has struggled following a series of accidents. The mine’s first phase has already begun producing.
Analysts said the news of the claim would upset investors in the company, especially as the mine has been struggling, and the outlook could depend on how quickly the claims can be settled. “Gold Fields don’t need this. These things can drag on for years and will cloud their outlook for some time,” Stephen Roelofse, an analyst at Metropolitan Asset Managers said. “With South Deep not living up to expectations and you have some other things coming out of the woodwork, it’s not good.” (Reuters)