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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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This Gold Miner Is Buying Something No One Expected

The preference for gold miners these days has been to sell assets. Just this week, major bullion producer Barrick Gold said it will likely sell six mines in the U.S. by year end -- in order to reduce debt.

That's why it was surprising in the utmost last week to see one gold miner making a big asset purchase. In a commodity that's not even gold -- in fact, not even a metal.

The firm is South African miner Sibanye Gold. A company that's recently been in the news after buying a slate of South African platinum mines from Anglo American. Related: The Clock Is Ticking On The U.S. Dollar As World’s Reserve Currency

And last Thursday, Sibanye said it is making another unexpected purchase. Buying part of a coal mining operation.

The company announced it will buy debt in South African coal developer Waterberg Coal Group -- in the form of an A$22.5 million convertible note. Sibanye will also invest A$8.5 million of working capital into Waterberg Coal.

Overall, the new agreement gives Sibanye the right to acquire up to a 51 percent ownership in Waterberg through additional investments over the 18 months following the close of the initial deal. Related: Russian Oil Industry Braces For Tax Hike

Which all begs the question: why? What is management seeing here that's causing them to spend, at a time when most gold miners are frantically trying to preserve cash?

In this instance, Sibanye is looking to the future. With the purchase aimed at securing coal supplies within its operating sphere -- which could help ensure access to steady electricity.

Sibanye said earlier this year that it wants to build its own dedicated power plant -- of between 200 and 600 MW capacity. A move that would insulate the company from high power costs in South Africa, as well as limited availability of power that's been hitting the mining sector of late.

Waterberg Coal Group holds a massive coal endowment in South Africa's northeastern Limpopo province. In total, the company has identified 3.4 billion tonnes of coal here. Related: Can The Saudi Economy Resist ‘Much Lower For Much Longer’?

Waterberg Coal however, has yet to begin mining, with the project being outside of South Africa's main coal-producing region of Mpumalanga. And the challenges of bringing on a frontier mine here pushed the company into bankruptcy earlier this year.

Sibanye is thus buying cheap into a big asset. Of the kind that could support its ambitions in power generation.

This is an out-of-the-box move, which could give Sibanye a big leg-up in South Africa's mining sector. Watch to see how this unique strategy pays off.

Here's to knowing what drives you,

Dave Forest

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  • Bob Johnson on September 22 2015 said:
    Barrick thought they were smart buying Cadence Energy and other Alberta assets in 2008 to hedge their oil costs.

    Unfortunately, it did not work out they way and they sold it all in 2013 for a huge loss.

    http://www.calgaryherald.com/business/barrick+gold+takes+500m+loss+energy+sale/8698388/story.html
  • Philip Branton on September 25 2015 said:
    They are not buying the COAL mine for the production of energy. They are buying it for the coming CARBON Nano-tube 3D manufacturing economy. Oilprice had better step up and educate OIL workers and COAL Mine workers about the use of COAL in 3D printing and manufacturing. Their Pension stocks are actually getting shorted due to a fake commodity "glut"..! These workers are going to be livid when they look at their home printer next to their computer and realize that it can now print products that they otherwise "buy"..! Heck, when they ask themselves how Donald Trump is gonna help create more jobs....their gonna ask themselves what Donald knows that they don't...! Imagine what all those Caterpillar workers are gonna think when they realize that COAL is gonna be used in personal 3D Carbon Nano-tube manufacturing. ...and then ask themselves why they are being laid off....? Uh...oh.....

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