Gold Fields (JSE: GFI) has increased its stake in its Chinese partner, Sino Gold (ASX: SGX), to 19.9% as the company announced today it planned to close out its gold hedge position.
Gold Fields spokesperson Andrew Davidson said today Gold Fields was demonstrating its commitment to the highly prospective China and Australasian region by taking a larger stake in Sino Gold. Gold Fields was known as a large, unhedged gold producer and Sino's move to retire its hedge position was in line with the company's policy.
Davidson said Gold Fields' shareholding in Sino Gold and the Sino Gold Fields Alliance represented a large interest in China for the major company. Gold Fields previously held a 15.5% stake in Sino Gold.
The alliance has also shifted its focus from finding new gold deposits of at least 5m ounces to include smaller deposits of 3m ounces capable of producing 300,000 ounces annually. The alliance is currently focusing on four priority gold belts in the country in its quest to find new gold mines.
Gold Fields, the largest shareholder in Sino Gold, also stands to benefit from Sino Gold's production that will be lifted to 500,000 ounces annually over the next two to three years.
Sino Gold owns 82% of the Jinfeng gold mine in the Guizhou Province in southern China, which has resources of 4.6m ounces and the potential to be one of the largest gold mines in China when it reaches planned production of 180,000 ounces annually. Sino Gold plans to increase Jinfeng's gold production to this level as quick as possible.
The company (Sino Gold) is developing the White Mountain project in northeast China as its second mine, while it took over the Golden China Resources Corporation and made the Eastern Dragon acquisition in December last year.
The alliance is seeking new development projects outside of Sino Gold's existing assets and each party contributes equally to the exploration and development funding of the asset.
Sino Gold announced today it will raise about A$204m through an entitlement offer to existing shareholders and a placement of about A$68m to Gold Fields in order to close its hedge book and for purposes such as development and exploration expenditure.
Gold Fields will acquire its first tranche of shares at A$5.03 per share, a 4% discount to the five day average ending on 16 May. Its second tranche of shares that will be taken up under the offer to existing shareholders, will be priced in a similar manner.