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Gold Fields Ltd

Gold Fields Ltd.

24 St. Andrews Road
Parktown, 2193
Postnet Suite 252
Private Bag X30500
Houghton, 2041 South Africa
Telephone: (+11) 644 2400
Fax: (+11) 484 0626
Web site:

Public Company
Incorporated: 1887 as the Gold Fields of South Africa Ltd.
Employees: 48,000
Sales: $1.53 billion (2003)
Stock Exchanges: South Africa New York London Paris Brussels Swiss
Ticker Symbol: GFI
NAIC: 212221 Gold Ore Mining

Gold Fields Ltd. is one of the world's largest producers of gold, with operations in South Africa, West Africa, and Australia. During 2003, the company's annual attributable gold production reached more than 4.3 million ounces of gold, while its attributable mineral reserves level stood at 81.5 million ounces. Gold Fields' wholly owned mines include Driefontein, Kloof, and Beatrix. Its international arm overseas includes Ghanaian and Australian mines, along with the Arctic Platinum Partnership in Finland. Gold Fields was created in 1998 after the merger of Gold Fields of South Africa Ltd. and Gencor Ltd.

History of Gold Fields of South Africa

Gold Fields of South Africa was formed in 1887 by Cecil Rhodes and Charles Rudd to hold properties they had acquired on the Transvaal's Witwatersrand gold fields. The first of the financial groups that were to characterize the South African mining industry's organization, it generally remained heavily dependent on one or two profitable South African mines, while going on to become a major international mining finance house. The company as it stood in the 1980s was formed to take over the African assets of Consolidated Gold Fields and was not included in that group's acquisition by Hanson PLC in 1989.

Reorganized as Consolidated Gold Fields of South Africa (Consgold) in 1892, it was plagued by uncertainties and found itself on a really firm footing only in the 1930s, when it took the lead in opening up the Western Randoften referred to as the West Wits Linein conjunction with, among others, the Anglo American Corporation. West Witwatersrand Areas Ltd. was formed in 1932 to work the new field. In 1959, as part of a major restructuring exercise, the name "Gold Fields of South Africa" was revived for a South African rather than a British domiciled company, a wholly owned subsidiary to take over the management of the parent company's southern African assets. In 1971, West Wits took over all of Gold Fields of South Africa's assets as well as its name.

In 1886, when gold was discovered on the Witwatersrand, Cecil Rhodes was skeptical because of earlier disappointments in the eastern Transvaal and was still very much preoccupied with De Beers Consolidated. Most of the properties acquired by Rhodes and his partner Charles Rudd when they finally joined the Rand rush were valueless, at least for the time being, due both to chance and to Rhodes' lack of firm commitment. He and Rudd formed Gold Fields of South Africa Ltd. on February 9, 1887 to hold their Transvaal interests but quickly turned their attention to the area further north, later known as Rhodesia, where they hoped to recoup some of their Transvaal losses and to further Rhodes' political and imperial ambitions. In 1889, the British South Africa Company (BSAC) was formed with a charter from the British government to administer the territory and with the right to a share in all mining operations that took place there. Rhodes, as joint managing director of Gold Fields, with wide personal power and freedom, was able to use that company to finance the BSAC through its early days, which were even less profitable than those of Gold Fields.

Although some of Rhodes' decisions had led to disastrous consequences for Gold Fields, it, like all other groups on the Rand, had to face difficulties caused by the fact that the Witwatersrand's gold-bearing reefs tilted sharply, with outcrops that tended to be depleted at relatively shallow levels. Sinking shafts necessary to work the reef at greater depths required capital that investors were reluctant to provide. In 1892, Alfred Beit, Rhodes' close colleague in De Beers and other ventures, supported by Rudd, persuaded Rhodes to involve Gold Fields in a company that would work deep levels, Rand Mines Ltd. To finance the venture, Gold Fields brought several Rand companies together in 1892 to form Consolidated Gold Fields of South Africa. Deep levels produced more gold and new problems.

The weathered, oxidized outcropping ores could be treated relatively easily and cheaply by crushing and amalgamation, essentially the same technique used by the Spanish in Mexico in the 16th century. Ores found below about 100 feet were pyriticcontaining sulphidesand therefore required more complex, expensive treatment. The 50 percent recovery rate of the chlorination process which was first used was too low for profit. The MacArthur-Forrest cyanide process, introduced into the Transvaal in 1889, solved the problem, ultimately convincing even the most pessimistic of the Rand gold fields' long-term viability.

Gold Fields acquired several new properties and began to change its management structure and style in the aftermath of the 1895 Jameson Raid, reducing Rhodes' unrestricted personal power. Substantial dividends were declared in 1895 and 1896 on profits derived from dividends paid on the company's holdings in De Beers Consolidated rather than from its own operational profits. Subsequent dividends were low or non-existent. Despite shareholder protests, this situation enabled the company to survive depression and accumulate reserves.

In 1908, using its reserves, Gold Fields began expanding investment outside Rhodesia and South Africa. Gold mines in Ghanathe Gold Coastwere not profitable; Nigeria's Ropp tin mines were. The gold of Siberia's Lena River basin also held considerable promise. When the Russian company operating there sought more advanced U.S. and British technology, Gold Fields became the largest single shareholder in Lena Goldfields Ltd., formed in 1908.

By 1911, Gold Fields had quietly disposed of its Lena share, using the profit on the sale to help replenish the reserves depleted by purchases in the Americas and elsewhere. Encouraged by its consulting engineer, John Hays Hammond, Gold Fields bought shares in U.S. gold and other mines, U.S. power companies, Mexican and Trinidadian oil, and American Telephone & Telegraph (AT&T), among others. In 1911, a new company, Gold Fields American Development Company (GFADC), was formed to administer holdings in the United States. These and other expansionist moves made at about the same time did not live up to expectations, in part perhaps because of American hostility to foreign investors who took an interest in mining enterprises but did not control them. However, not all of Gold Fields' investments were total failures. Investments outside mining, such as AT&T and Trinidad Oil, in activities in which they had no prior experience or expertise, tended to be more profitable than those in mining.

Throughout most of its history, Gold Fields was sustained by one or two particularly successful operations. During the period 190420, for example, these operations were two Transvaal mines, the Robinson Deep and the Simmer and Jack, whose profitable working protected the company from the burdens of developing and working less profitable mines, old and new. Nonetheless, by 1918 the Gold Fields' reserves and its Lena profits had disappeared, and the company faced hard times. Temporary relief was obtained in 1919 when all South African mining companies were allowed to sell their output on the free market, earning a premium of about 16 shillings per ounce. Reliance on gold minesa wasting asset in any case as they were finite and would eventually be exhaustedwas now seen as a fundamental weakness and diversification as essential for salvation.

Since Gold Fields' Articles of Association limited the company's activities to mining and kindred ventures, New Consolidated Gold Fields was created, a wholly owned subsidiary with the same directors; in effect, it was the same company but with greater freedom than its parent. The new company acquired a range of interests, including property, cement, and carpets, but the benefits of diversification were elusive.

The company hit its lowest depths in 1922, as even Robinson Deep and Simmer and Jack profits declined, and the entire industry was affected by the major white miners' strike, the Rand Rebellion. The rebellion was quelled by Prime Minister Smuts's politically disastrous use of the army, while financial rescue came from the Sub Nigel mine in the East Rand. Gold Fields had bought property in the Nigel district before the Boer War, but work there did not begin until 1909, reaching the commercial production stage in the early 1920s and continuing to produce gold into the 1990s, as did the Simmer and Jack and Robinson Deep, albeit at rather lower yields.

In Western Australia, Gold Fields moved from a profitable share in the Wiluna mine in 1926 into the rich Kalgoorlie field and secured a controlling interest in Gold Mines of Australia, formed by the Australian financier W.S. Robinson in 1930. Gold Fields also participated in Bulolo Gold Dredging, formed in 1930 to work alluvial gold in Papua New Guinea. This company produced about $60 million worth of gold by the time it stopped dredging in 1965, while New Guinea Goldfields, which had a less promising start in 1929, benefited from the late 1970s rise in gold prices. Gold Fields' Australasian interests were brought under the administration of a holding company, Gold Fields Australian Development Company, in 1932.

Company Perspectives:

Our vision is to be the leading, value-adding, globally diversified, precious metals producer through the responsible, sustainable, and innovative development of quality assets.

A relatively little-known and not particularly successful Australian venture was the Gold Exploration and Finance Company of Australia (GEFCA), established in 1934. In this venture, Gold Fields joined with two South African mining groups, Central Mining and Investment Corporation and Union Corporation, and an Australian consortium led by Robinson. Initially, GEFCA operated primarily in eastern Australia, with mixed success. There was considerable friction between the main London board and the Australian committee, in part because the Australians seemed to regard Gold Fields' finances as unlimited and in part because Gold Fields was reluctant to allow GEFCA to move into Western Australia. In 1949, GEFCA was transferred to Australia and absorbed by the Western Mining Corporation, previously a GEFCA subsidiary.

American, Australian, and other expansions were financed largely by the recovered Robinson Deep, the Simmer and Jack, and the Sub Nigel. Help also came from the sale of the American Potash and Chemical Corporation, originally the Trona Corporation, which extracted salt from Searles Lake in California's Mojave Desert. GFADC had helped rescue the undertaking as part of its early U.S. acquisitions. By 1929, it was sufficiently attractive for a European group to offer to buy up all the issued shares, and Gold Fields and GFADC made a profit on the deal. GFADC retained managerial control but lost it in 1942 for violating the Sherman Antitrust Act by the sale, including allegations of a secret sale to Germans.

As Gold Fields fell prey to the worldwide depression of the 1930s, it was once again Witwatersrand gold that provided a foundation for recovery. In December 1930, Gold Fields financed a magnetometer survey of the West Rand, which was separated from the central fields by a major fault that had taken the gold-bearing reefs to substantially greater depths. The Rand strata were known to be very regular, however, and a layer of iron-bearing shales lay about 400 feet below the gold reef. The magnetometer survey, confirmed by subsequent boreholes, traced the reefs very accurately.

Earlier attempts to work these deposits had been defeated by uncontrollable flooding. An effective cementation or grouting process developed subsequently by a Belgian, Albert Francois, initially in connection with coal mining, solved the problem. In November 1932, Gold Fields formed West Witwatersrand Areas Ltd. (West Wits) to begin developing the West Rand. Several of the Rand mining groups were unable or unwilling to participate in financing the new company. The Anglo American Corporation of South Africa and the General Mining and Finance Corporation were among those who agreed to take part. Gold Fields had to retain 30 percent of the shares, unhappily at first but ultimately to its great advantage. By October 1939, when the first West Rand ores were being milled, Gold Fields was once again on a sound financial footing. In the 1950s, when further development was going on in the West Rand fields, Gold Fields was unable to participate as fully as it would have liked because of heavy financial commitments elsewhere. Anglo American took the lead here as it had already done in the Orange Free State.

Gold Fields and Anglo American worked together in other ventures as well, some in South Africa, notably in the Far East Rand, and some in other countries, including the United States. The most important area in which the two companies did not work together was in the Orange Free State gold fields. Geologically very different from the Rand, the Free State gold deposits lay at considerable depth and were not susceptible to magnetometer investigation. Prospecting there was very costly, with boreholes frequently proving the absence of gold rather than providing confirmation of its presence, as was the case in the West Rand.

In a manner reminiscent of the company's 19th-century Witwatersrand acquisitions, Gold Fields came late to the Orange Free State, although this time for financial reasons rather than lack of interest. When it did begin to acquire claims, most proved worthless. The Saaiplaas mine seemed a good proposition in 1955 but failed to live up to its promise. Earlier, Gold Fields had attempted to participate in the areas which ultimately proved to include the most profitable Free State mines but were rebuffed by the claim holders, African and European Investment, whose major shareholder was the Lewis and Marks group. Anglo American bought up enough African and European shares to take control of it, using it as the basis of its subsequent dominance of Free State gold mining. Gold Fields did have a share in the Harmony mine, but its involvement in the field was very limited. In 1990, the company anticipated that the next gold mine it opened would be in the southern Free State.

Although West Wits did not pay its first dividends until 1954, its success helped strengthen Gold Fields generally. Further support came from Rustenberg Platinum, the result of a series of mergers in the 1920s and 1930s, which began paying dividends in 1942. Gold Fields itself was able to pay dividends throughout the war.

The postwar period saw new mines coming into production, with profits flowing in from Venezuelan oil and the sale of the Trinidad Oil company. By the mid-1950s, Gold Fields had again built up substantial reserves and again began diversifying. In order to decrease dependence on gold, mining, and Africawhich by then appeared to be becoming less stableit began investing in a variety of industries, concentrating more on the United States, Canada, Australia, and New Zealand.

Key Dates:

Gold Fields of South Africa is formed by Cecil Rhodes and Charles Rudd.
George and Leopold Albu create the General Mining and Finance Corp.
The predecessor to Union Corp. is created by Adolf Goertz.
West Witwatersrand Areas Ltd. is formed to work the West Wits Line.
General Mining merges with Federale Mynbou.
West Wits takes over all of Gold Fields of South Africa's assets as well as its name.
Gencor Ltd. is born out of the merger between General Mining and Finance Corporation and Union Corporation.
Gold Fields of South Africa and Gencor merge to form Gold Fields Ltd.
The company enacts its first Black Economic Empowerment transaction to fulfill the new Mining Charter.

In 1956, New Consolidated Canadian Exploration Company was established in Toronto and New Consolidated Gold Fields (Australasia) in Sydney. The same year, Gold Fields and Central Mining and Investment Corporation discussed, but did not complete, a merger. Gold Fields continued its own takeover and diversification program, however, acquiring some other African mining companies and some British manufacturers as well. One takeover included a wine firm.

In 1959, a major restructuring led to the re-emergence of the name Gold Fields of South Africa, reorganized as a Johannesburg-based company which controlled all the company's African assets. Apart from any financial and administrative advantages that might have accrued from this restructuring, it also met the South African desire to have domestic companies, rather than London-based ones, exploiting the country's natural resources.

It is not likely that the decision to set up a separate South African company was specifically motivated, at the time, by political considerations. That separation did give Consolidated Gold Fields an excusenot necessarily acceptedto distance itself from its South African "associate" when the mining industry in general, and Gold Fields of South Africa in particular, began to come under fire as opposition to apartheid, domestic and international, strengthened after 1960. In addition to widespread general enthusiasm for the independence of Black African colonies at the time, there was a tremendous wave of revulsion against the South African regime because of the Sharpeville Massacre that year.

Before the growth of that opposition began to impinge seriously on Gold Fields, the company continued to work its mines in different parts of the Rand. These remained generally profitable, but the fact that Gold Fields was not participating in the Orange Free State field limited the extent to which it could expand. The older Rand mines were moving towards depletion, requiring working at greater depth and consequently greater cost. Only by keeping labor costs very low was it possible to maintain profitability.

Working through its subsidiary, Gold Fields Mining and Development Corporation, Gold Fields also attempted to widen its asset base. Though not entirely failing in this endeavor, it was unable to compete successfully either with the Anglo American group, which came to have a substantial role, direct or indirect, in virtually every sector of the South African economy, or with that country's other major mining/industrial/financial conglomerate, Barlow Rand. Gold Fields did move into other minerals in South Africa, but, even as late as 1990, stated company policy was to concentrate on minerals in southern Africa. While newspapers reported that the group was about to embark on a foreign investment program, the company was officially willing to move only with considerable caution and to focus on the opening-up of new mineral fields rather than portfolio investment in existing operations.

Throughout the 1970s and 1980s, Gold Fields did indeed invest in a variety of other minerals, including zinc, lead, silver, and tungsten. The most important of these was platinum, which, with gold, accounted for 55 percent of the group's income in 1990 but constituted 74 percent of assets. In contrast, other minerals were responsible for 17 percent of group income against only 7 percent of its assets. However, these figures did not take account of the Northam platinum mine, which was expected to begin producing in 1991. The major producers of gold continued to be sufficiently successful to enable Gold Fields to rank as South Africa's second most important gold producer. There was also some involvement in engineering, generally related to mining; in mineral treatment; and, in a fairly small way, in property. Limited diversification did not alter the company's basic orientation.

During the 1980s, Gold Fieldsand Consgoldcame under particularly strong pressure from anti-apartheid groups and from supporters of the black trade union movement in South Africa. The group was criticized on the grounds of its safety record; accident and death rates, it was argued, were worse than in the industry as a whole. Gold Fields was also attacked because of its reluctance to recognize trade unions and for its relatively lower rates of pay. There was some justification in these claims. Gold Fields argued that its continued profitabilityand therefore its ability to employ peoplerequired it to remain a low-cost producer. Many of its mines were older and were worked at greater depth, and therefore higher cost, than those of other groups. Gold Fields also maintained that most of its workers were happy with their pay and conditions and appreciated the company's policy of training unskilled workers and employing the children of people it had employed previously. Unrest among the workers, the company argued, had been stirred up by a small number of militants.

Whether or not workers did in fact appreciate some aspects of the group's employment policies, the first and last of these arguments could not be sustained. Strikes of varying duration continued to affect Gold Fields' operations. The group followed rather than led as the South African gold mining industry moved towards the full recognition of the National Union of Mine Workers, the elimination of the color bar in job allocation and training, and in general improvement of housing and health provision for black workers. These changes took place against a background of political and social unrest, a declining real gold price, and retrenchment throughout the mining industry.

In 1989, Consolidated Gold Fields was taken over by Hanson PLC after Minorco, an arm of Anglo American, had attempted a strongly opposed takeover bid. Consgold's remaining 38 percent stake in Gold Fields was sold. In August 1989, 30 percent was acquired by Gold Fields of South Africa Holdings, in which the Rembrandt Group held a 40 percent interest, as did Asteroid, a company owned equally by Remgro and Gold Fields, with the insurance company Liberty Life holding the remaining 20 percent. Before the end of the year, Hanson had also disposed of the remaining 8 percent. Gold Fields was more than ever a South African company, firmly rooted in the Witwatersrand but still looking for other opportunities, expecting the next gold mine it opened to be in the southern Orange Free State.

History of Gencor Ltd.

Gencor was the product of a 1980 merger between General Mining and Finance Corporation and Union Corporation, both of which were founded in the 19th century. General Mining was founded on December 30, 1895 by two Germans, George and Leopold Albu, who controlled a number of gold mines. In the same year, they changed the name of their firm from G&L Albu to General Mining and Finance Corporation.

In its early years, the company's activities were focused primarily on developing new gold mines and managing existing ones. In 1910, the company had seven mines under its management, including such well-known names as Meyer and Charlton, Van Ryn Gold Mines Estate, and West Rand Consolidated Mines, and was developing another two.

World War I was a difficult time for the industry; a flat gold price was accompanied by flagging productivity and rising costs on all fronts. The shortage of unskilled labor was a major issue, and its costs increased as contractors, who had to recruit and deliver the workers to the mines, became involved. The mines also had problems during this period with labor unrest, principally among white miners. The best-known example was the 1922 General Strike, during which two months of production were lost. In 1919, activities were diversified with the formation of Transvaal Silver and Base Metals to mine the lode outcrops and lead-bearing ore which the company owned. After six years, this venture was closed owing to its poor prospects. More successful was General Mining's acquisition of a large stake, during the 1920s, in Phoenix Oil and Transport Company, which had major interests in Romanian oil companies.

The mining houses were equally hard hit by World War II, which resulted in shortages of all forms of labor, lack of machinery, and delays in plant and machinery delivery. Good news came soon after, however, with the discovery of the Free State gold fields, which General Mining, together with other mining houses, had the right to develop. It also participated in the opening of gold mines on the Far West Rand. General Mining achieved some notable firsts: it was the first mining house to use the cyanide process for the extraction of gold and, through West Rand Cons, it was the first mining house in the country to produce uranium.

During the 1950s, the company's activities were boosted when it gained control of the Consolidated Rand-Transvaal Mining Group. This control brought with it a substantial interest in the gold mine Geduld, platinum (through Lydenburg), pipe fabrication, and sugar.

In 1964, the company merged with Strathmore Consolidated Investments and came to control two mines on Klerksdorp gold fieldStilfontein and Buffelsfontein. A major change took place during the 1960s when the Afrikaner-dominated mining house Federale Mynbou took control of General Mining. This was effected with the assistance of Anglo American, and its chairman Harry Oppenheimer in particular, who wished to assist the Afrikaans business community in attaining a better foothold in the mining industry. This aim had a political purpose: to counteract government policies which sought to separate Afrikaners from the English and whites from blacks by showing that these groups could cooperate in the same spheres of interest.

The outcome was that Federale made the takeover while Anglo took a substantial minority interest. Later, in 1965, it was decided to merge Federale and General Mining with Federale gaining effective control.

The merger resulted in the creation of the Federale Mynbou/General Mining group, the country's largest producer of uranium, accounting for more than one-third of output, and also the producer of approximately 7.25 percent of the country's gold. "Federale Mynbou" was dropped from the group's name in 1965. The group's ten collieries produced 10 percent of the country's output, and it had further mineral interestsasbestos fiber production, platinum, and copper. It was also involved in oil production, exploration, and marketing and managed the petroleum company Trek.

The late 1960s saw a program of diversification. It was the era of conglomerates and the prospects for gold were not exciting. However, many new projects pursued, particularly in the industrial field, were not compatible with the company's expertise and eventually failed. The turnaround came in 1970 with the arrival of Dr. Wim De Villiers as chief executive. He instituted a rationalization of activities which led to improved profitability. The major changes he implemented concerned decentralized management, strategic planning, and better utilization of labor. On the industrial side, De Villiers sold off the consumer interests of General Mining.

The other company involved in the eventual 1980 merger, Union Corporation, had been active about the same length of time as General Mining. It was founded in 1897 by a German, Adolf Goertz, the local representative of Deutsche Bank, and was initially known as A. Goertz and Co. Goertz became involved in the gold rush and staked 326 claims on the Modderfontein farm on the East Rand, from which emerged the Modder Deep Levels mine, "the jewelbox of the Reef," in Goertz's words.

In 1902, Goertz and Co., with the assistance of U.K. and French investors, who took up shares, became the first Transvaal finance house to obtain a London listing. During World War I the company changed its name to Union Corporation.

There was much uncertainty in the early days, with financing for the Modderfontein mine being obtained literally hours before war broke out. After the declaration of war, all transactions with Germany were frozen.

Beginning in 1908, Union Corporation pioneered the Far East Rand, and in 1938 it discovered the Orange Free State gold fields. The first shaft was sunk at St. Helena, which became the first mine to produce gold in the Orange Free State, in 1947. In 1951 came the discovery of the Evander gold field, over which Union Corporation had sole control. It established four mines there: Bracken, Kinross, Leslie, and Winkelhaak.

Later mining ventures included involvement in Impala Platinum in 1969. Impala was the first platinum concern in the world to provide an integrated operation from the mining of the ore to the marketing of high purity platinum group metals. The gold mine Unisel was developed in 1974, and in 1978 Beisa, the first mine in the country to be established as a primary uranium producer, was opened.

Union Corporation also owned the original interest in Richards Bay and helped put together Richards Bay Minerals, which mines heavy mineral deposits from sand dunes north of the harbor, recovering ilmenite, rutile, zircon, and titanium. General Mining's rights in Richards Bay were later merged with these.

Union Corporation's diversification into the manufacturing industry started in earnest in 193637 with the formation of the paper company Sappi in the East Rand town of Springs. It was a long-term grassroots project which did not become significantly profitable until the 1970s.

During the 1960s, investments were acquired in the packaging company Kohler Brothers; African Coasters, forerunner of Unicorn Shipping Lines; and engineering companies Darling and Hodgson and Evelyn Haddon. At the time of the 1980 merger, Union Corporation had a 58 percent stake in Sappi, 74 percent of Kohler Brothers, 55 percent of Darling and Hodgson, 17 percent of Haggiea wire rope manufacturerand 27 percent of Kanhym. It also held a stake in Capital and Counties, the U.K. property concern which later became the major investment of First International Trust, the overseas arm of the Liberty Life group, a major player in the South African insurance field.

In 1978, 56 percent of Union Corporation's assets were in minerals, including 33 percent in gold. It was operating seven gold minesMarievale, Bracken, Kinross, St. Helena, Winkelhaak, Leslie, and Grootvleiin addition to developing the Unisel gold mine. Approximately 50 percent of net income came from industrial interests in the fiscal year 197778.

Although the General Mining/Union Corporation merger was not consummated until 1980, the courtship began in 1974 when General Mining acquired a 29.9 percent stake in Union Corporation after a battle with Gold Fields of South Africa. A further step was taken in 1976 when Union Corporation became a subsidiary of General Mining; the takeover, which is known as the country's most bitterly contested hostile bid, was completed four years later.

The decade under De Villiers had been a golden one for General Mining, whose earnings per share increased at an average rate of 26.2 percent per annum over the period. Prior to De Villiers's arrival, the company had paid a maintained dividend that was unchanged for the ten years up to 1968, with the dividend becoming only marginally higher in 1969. At the time of the merger, Union Corporation and General Mining were the fourth-and fifth-largest mining houses in South Africa, ranked by equity capitalization. More than one-third of each company's income derived from manufacturing.

The major reason for the merger was General Mining's need to create an improved capital base from which to undertake new investments, such as the first phase of Sappi's Ngodwana mill, the Beatrix mine, which was initially funded from within, and the Beisa uranium mine. There were also the additional benefits of manpower rationalization and, with the exception of gold, the two groups' activities supplemented each other rather than overlapping. It was also felt that Union Corporation's growth prospects would be improved through closer links with the ruling Afrikaner power bloc.

Given the hostile nature of the bid, it was inevitable that merging the two corporations would take time. Initially they remained separate operating entities, merging their corresponding product divisions whenever conditions were favorable. The process was apparently more complex than anyone imagined, and the period 198086 was to prove difficult for the group. In 1982, the two major stakeholders, Sanlam and Rembrandt, clashed over Gencor. Sanlam, the second-largest South African life insurer, had been a major shareholder in the two companies that joined to form Federale Mynbou, thus becoming involved in General Mining and subsequently Gencor. The result of the clash was the replacement of De Villierslater a member of the cabinetas chief executive by former Union Corporation managing director Ted Pavitt. This change of guard followed a conflict between De Villiers and Dr. Andries Wassenaar, head of Sanlam, about the management of Gencor.

The perception that all was not well within the group was compounded in 1983 by the group's failure to find a new chief executive to succeed De Villiers. It settled instead for management by its five most senior executives: Johan Fritz, George Clark, Basil Landau, Tom de Beer, and Hugh Smith. Pavitt had relinquished executive responsibilities in August 1984.

Over the course of that year, manufacturing interests were underperforming; there was massive foreign loan exposure, and Gencor appeared to be something of a rudderless ship. The executive committee was thought to be concerning itself too much with operational issues and not enough with strategy and planning. Investor confidence waned. To some extent, this perception was unfair. Steps were being taken to address problems, such as the 1984 reorganization of mining and industrial interests in line with a policy of greater divisional autonomy.

While the 198485 period was a difficult one for the South African economy, Gencor's particular difficulties were compounded by an identity crisis. Staff had not outgrown their previous allegiances and still tended to see themselves as Union Corporation or General Mining employees. The two corporate cultures were very different. Union Corporation had a reputation for good engineering and exploration and General Mining for financial engineering.

Gencor's failings were analyzed in 1986 in a report commissioned by Federale, at that time controlling company of Gencor, and produced by Arthur D. Little, the U.S.-based management consultants. The report contained some strong criticisms, accusing the group of lack of focus and direction, weak leadership, and of failing to inspire corporate loyalty among its employees. The report served as a spur to change, but the man to whom it fell to implement this, Derek Keys, appointed executive chairman in April 1986, had no background in mining, having come from the industrial group Malbak. The appointment was not universally popular and caused Johan Fritz to resign and Basil Landau to take early retirement.

Keys made a number of important moves, one of which was to separate Gencor's manufacturing interests. He brought Malbak into the group and then sold into it all the manufacturing interestsSappi, which was much too large, and Trek, which later found a home in Engen. Thus, at one stroke the manufacturing interests were separated from the mining interests, and Malbak was given the task of managing them. Previously, the manufacturing interests had been managed in true mining house stylefrom the center. Keys and Grant Thomas, managing director at Malbak, introduced a new decentralized structure.

The period from Keys's arrival was one of considerable expansion and growth, both organic and through acquisitions. On the mining side, the Oryx gold mine was developed as well as the smaller Weltevreden mine near Klerksdorp, and Impala Platinum developed the Karee mine. In 1989, Gencor bought a 30.7 percent controlling interest in Alusaf, the Richards Bay aluminum smelter, from the Industrial Development Corporation for R270 million. A R1.47 billion rights issue in 1989 helped fund these developments and acquisitions. Other acquisitions included Sappi's purchase of Saiccor, which specializes in the productions of chemical cellulose pulp, and of a 49 percent interest in the Usuthu pulp mill in Swaziland. In mid-1990, Sappi also bought five paper mills in the U.K. subsidiary Malbak, while Abercom Holdings bid £42 million for the U.K.-quoted packaging group MY Holdings.

Another important event was the publication in 1988 of the Gencor mission, a brief statement of the group's fundamental corporate goals, which went a long way toward clarifying to the public and to its employees what Gencor stood for. In Keys' words, "Now they know that Gencor has only two businessesto start or to acquire major businesses and to accelerate the development of those businesses which it already has."

Two major developments took place within Gencor in 1989. The first was the formation of General Mining Metals and Minerals Limited (Genmin) in March 1989. Genmin was made responsible for managing the group's mining, metals, and minerals interests, which comprise some 60 operations. These included 14 gold mines, the base metals group Samancor, the platinum producer Impala, the coal group Trans-Natal, and the minerals division.

The second major development was the formation of Engen, the company responsible for the group's energy interests, which included exploration and refining of crude oil and marketing of the final products. General Mining had first become involved in the petroleum sector back in 1968, when it participated in a joint venture launching the country's first petrol marketing company, Trek Beleggings (Trek Investment). The key event in the formation of Engen took place in July 1989 with Gencor's purchase, for $150 million, of Mobil Southern Africa from its disinvesting parent company. Its major assets were a refinery in Durban, the Mobil management team, and a country-wide network of approximately 1,150 service station sites.

Engen's other major interests included the Trek network of petroleum outlets, 20 percent interest in the oil and gas exploration outfit Soekor, and a 30 percent stake in, as well as the management contract for, Mossgas, a synthetic fuels venture.

The decade since Gencor's formation was a time of upheaval for the group. In the first half of the 1980s there was a lack of direction at Gencor, but this had changed under the leadership of Derek Keys. Keys was succeeded by Brian Gilbertson, who presided over Gencor at a time when politicians viewed the pyramid organization of such conglomerates with suspicion. Unbundling these complicated structures would also tend to increase share prices, which were traditionally undervalued in this system. Subsequently, Gencor divested itself of Engen, Genbel, Malbak, and Sappi.

Gencor bought Billiton International from Royal Dutch Shell in 1994 for £780 million, giving Gencor the opportunity to operate as an aluminum trader as well as producer. However, Billiton was not to remain very long under Gencor's umbrella.

In 1995, Alusaf began operating the mammoth Hillside Aluminum Smelter, which, when combined with the upgrade of a smaller Alusaf facility, nearly doubled Africa's production of the metal. The company planned an even larger smelter in Mozambique. Rangold bought some of Gengold's less profitable mines in 1995, while Gengold acquired some new mines of its own.

The European Commission scuttled Gencor's plans to merge Implats with Lonrho's platinum interests on anti-competition grounds. The only other competitor in South Africa, the EC reasoned, would have been Amplats (the platinum interests of Anglo American Corp.), and Russia was the only other external supplier. Gencor already owned a 27 percent share in the Lonrho operations Western Platinum and Eastern Platinum.

Steel and ferroalloys contributed most (31.7 percent) to revenues in 1996; aluminum accounted for the next largest share (27 percent). Other operations each contributed less than a tenth of total revenues. Approximately half the company's revenues came from abroad.

In 1997, Gencor's base metals and non-gold interests were split off as a separate company, Billiton, to be based in London. Alusaf, titanium producer Richards Bay Minerals, and the steel and ferroalloys division remained part of Billiton after the transition. The company had a market capitalization of £4.6 billion ($7.7 billion). The new Gencor would henceforth specialize in precious metals.

Gold Fields and Gencor Unite in 1998

By the time Gold Fields and Gencor made the decision to merge in the late 1990s, the South African gold mining industry was faltering. Gold production had fallen due to declining ore grades, higher mining costs, unhappy laborers, and overall industry restructuring. In 1997, gold production bottomed out, reaching its lowest level since 1956. In 1998, the gold assets of both Gencor and Gold Fields were merged, bringing together three of South Africa's most significant minesDriefontein, Kloof, and Beatrix. The deal created Gold Fields Ltd., the country's second-largest gold concern and one of the largest in the world. At the same time, competitor Anglo American consolidated all of its gold assets into Anglogold, creating the world's largest producer of gold. Both transactions proved that the landscape of South Africa's mining industry was indeed experiencing considerable change.

"The challenge for the new Gold Fields is to bring the three core mines to peak operating efficiency, and to extend substantial improvements in operating costs and cash flows to shareholders," reported an April 1998 African Business article. Indeed, profits appeared hard to come by as a result of the gold price hovering at an 18 year low. While Gold Fields worked to bolster profits during the merger integration process, it made several purchases. In 1999, it bought the remaining shares of St. Helena Gold Mines Ltd. that it did not already own. In November 2001, St. Ives and Agnew Gold Mines was added to the company's holdings. Abosso Goldfields Ltd. was acquired the following year.

During the early years of the new century, Gold Fields had to deal with remaining competitive in the gold mining industry while facing changes in South Africa's political system that brought about the Broad Based Socio-Economic Charter for the South African Mining Industryknown as the Mining Charter. According to the company, the Charter allowed the Mineral and Petroleum Resources Development Act of South Africa to take effect. Its goal was to remedy the imbalances previously found in the mining industry and was designed to create a "globally competitive industry that will reflect the promise of a non-racial South Africa." As part of the charter, mining companies were required to transfer 15 percent ownership of their South African mining assets to historically disadvantaged South Africans (HDSAs) within five years, and then 26 percent over the next ten years. In June 2003, Gold Fields enacted its first Black Economic Empowerment transaction when it allowed Mvelaphanda Resources Ltd., an empowerment consortium representing HDSAs, to acquire a 15 percent beneficial interest in its South African assets.

By 2003, gold production as well as revenue had climbed from its 1999 levels. Net earnings had also increased, reaching $326 million (the company had reported losses in both 1999 and 2001). Gold Fields remained focused on diversification and acquisitions, exploration, and increasing worker safety. The company also pledged to fulfill the criteria of the Mining Charter, which included human resource development, employment equity, community upliftment, improved housing and living conditions, procurement, beneficiation, and ownership. Gold Fields faced challenges in its future, however, that ranged from changing legislation and cost pressures to South Africa's aging gold ore reserves and mining infrastructure. Nevertheless, company management appeared optimistic that a bright future lay ahead for Gold Fields.

Principal Subsidiaries

African Eagle Resources plc (23.3%); Abosso Goldfields Ltd. (71.1%); Agnew Gold Mining Company (Pty) Ltd.; Beatrix Mines Ltd.; Beatrix Mining Ventures Ltd.; Driefontein Consolidated (Pty.) Ltd.; GFL Mining Services Ltd.; Gold Fields Guernsey Ltd. (Guernsey); Gold Fields Ghana Ltd. (71.1%); Kloof Gold Mining Company Ltd.; Orogen Holdings (BVI) Ltd.; Oryx Gold Holdings Ltd.; St. Ives Gold Mining Company (Pty) Ltd.

Principal Competitors

AngloGold Ltd.; Barrick Gold Corporation; Newmont Mining Corporation.

Further Reading

"All That Glitters: Gencor," Economist, March 9, 1996.

Benjamin, Paul, "Mining Stands on the Brink of New Era," Business Day, September 20, 1996.

Beresford, Belinda, "Gencor to Separate Gold, Other Interests," Business Day, June 2, 1997.

"Business: Panned," Economist, February 7, 1998, p. 65.

Cartwright, A.P., Gold Paved the Way: The Story of the Gold Fields Group of Companies, London: Macmillan, 1967.

Consolidated Gold Fields, London: Counter Information Services, 1973.

Consolidated Gold Fields PLC: Partner in Apartheid, London: Counter Information Services, 1986.

Dhliwayo, Dominic, "Mega Aluminum Smelter for Maputo?" African Business, January 1997, pp. 2728.

"Empowerment Deal for Gold Fields," Mining Journal, June 13, 2003, p. 393.

Freimond, Chris, "Rob AngelDriving Engen," Executive, May 1990.

"Gencor to Shed Base Metals and Buy Australian Nickel," New York Times, June 19, 1997.

"Gold Fields Looks to Expand Abroad," Platt's Metals Week, November 24, 2003, p. 4.

Green, Timothy, The New World of Gold, New York: Walker and Co., 1981.

Johnson, Paul, Consolidated Gold Fields: A Centenary Portrait, London: Weidenfeld & Nicolson, 1987.

Jones, J.D.F., Through Fortress and Rock: The Story of Gencor 1895 1995, Johannesburg: J. Ball, 1996.

Kilalea, Des, "Gencor Looks Ahead," Finance Week, April 27May 3, 1989.

McKay, David, "Gencor, Australian Firm in Indonesian Deal," Business Day, October 23, 1996.

, "Gencor to Revise Mozambique Plan," Business Day, February 26, 1997.

McNulty, Andrew, "Man of the YearGencor's Derek Keys," Financial Mail, December 25, 1987.

Ross, Priscilla, "Implats' Impasse," African Business, June 1996, p. 22.

, "Birth of a New Giant," African Business, April 1998, p. 14.

Ryan, Brendan, "GFSA-Gencor Gold Merger," Financial Mail, October 17, 1997, p. 32.

Scudder, Brian, "Tiny Shouts, But Nobody Listens," African Business, January 1996, p. 23.

"South African Conglomerates: The Unbundling Begins," Economist, May 15, 1993.

"South African Gold: A New Vein," Economist, September 27, 1997.

"South African Gold Giants to Combine," New York Times, October 11, 1997, p. D14.

"Unbundling: Restructuring the Corporate Scene," Barron's, October 11, 1993, p. 72.

Philip Gawith and

Simon Katzenellenbogen

updates: Frederick C. Ingram and

Christina M. Stansell

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