The price of gold was fairly buoyant on Monday, but we can't say the same for the equity of Gold Fields (GFI +0.81%). The mining company's American Depositary Receipts (ADRs) sank by over 10%, on a media report that it might lose control of its No. 1 play.
All that glitters in Ghana
Early Friday morning, Bloomberg published an article stating that the government of Ghana was considering shifting control of Tarkwa, Gold Fields' largest mine, away from the company.
Image source: Getty Images.
Citing unidentified "people with knowledge of the matter," the financial news agency wrote that the African country's authorities are considering handing over control of Tarkwa to local businesses after the five current Gold Fields leases expire in April 2027.
Ghana is the largest source of gold in the sprawling continent, and lately its government has taken steps to increase the country's share of the lucrative enterprise. It recently raised the royalty rate on the previous metal to 12% from 5%, among other favorable measures.
Tarkwa is currently leased by a subsidiary, Gold Fields Ghana Limited, in which Gold Fields holds a 90% stake.
Gold Fields responded with a lengthy statement, stating that the company submitted an early application to renew the leases. It added that it and government representatives are presently in discussions; these now focus on the terms of the renewal.
NYSE: GFI
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Tough talks?
Gold Fields added that it "remains committed to both the Tarkwa mine and its continued operation in Ghana." The negative investor reaction, however, indicates plenty of doubt that it'll be able to achieve that goal.
This is the latest manifestation of an old dynamic, in which a country or municipality where a valuable mining asset is located seeks greater control over the play. I don't think Gold Fields is dealing from a position of strength here -- if it ultimately secures a renewal of the leases, we can imagine it'll be on terms more favorable to Ghana than the last arrangement.
