GFI

Business Context and Reporting Period

Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended 30 June 2020 (H1 2020)
Date of Filing: 20 August 2020

Gold Fields reported H1 2020 results amidst the global COVID-19 pandemic. While operations in South Africa, Peru, and Ghana faced disruptions due to lockdowns and health protocols, the Group maintained production levels through resilience and strategic adjustments. The period was characterized by record-high gold prices, which significantly offset operational challenges and cost increases. The Group recorded one fatal accident at South Deep and three deaths related to COVID-19 infections among employees and contractors.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 27% driven by a 26% rise in the average gold price received (US$1,637/oz vs US$1,298/oz) and a 1% increase in gold sold.
• Profitability Surge: Normalised profit more than doubled, reflecting the benefit of higher gold prices delivered to the bottom line despite increased operating costs.
• Cost Pressures: AISC increased 11% YoY due to higher net operating costs (specifically at Damang where waste tonnes moved from capital to operating costs), sustaining capital, royalties, and lower by-product credits. COVID-19 related costs were estimated at US$20/oz.
• Production Stability: Attributable gold equivalent production remained flat (1,087koz vs 1,083koz). This stability was achieved despite COVID-19 stoppages at South Deep (24koz loss) and Cerro Corona (18koz loss), offset by extra production days (45koz gain) and contributions from the Gruyere mine.
• Regional Performance:
  • Australia: Production up 14% due to Gruyere inclusion; AIC down 13%.
  • South Africa (South Deep): Production up 10% despite lockdown; AIC down 6%.
  • Peru (Cerro Corona): Equivalent production down 31% due to pandemic restrictions and lower grades; AIC up 41%.
  • Ghana: Production down 4% due to Damang pit completion; AIC up 9%.

Guidance, Outlook, and Risks

• Production Guidance: Full-year 2020 attributable equivalent gold production guidance revised to 2.200Moz – 2.250Moz (down from original 2.275Moz – 2.315Moz) to account for pandemic-related losses.
• Cost Guidance:
  • AISC: US$960/oz – US$980/oz (up from US$920/oz – US$940/oz).
  • AIC: US$1,070/oz – US$1,090/oz (up from US$1,035/oz – US$1,055/oz).
• Dividend: Interim dividend of 160 SA cents per share declared, payable 14 September 2020.
• Capital Allocation: Management intends to use strong cash flows to delever the balance sheet, fund the Salares Norte project, and pay dividends. The Salares Norte project remains on schedule for construction start in Q4 2020.
• Risks and Contingencies:
  • COVID-19: Ongoing risk of further disruptions to production and costs. As of 17 August 2020, there were 1,443 total positive cases, with 658 active cases.
  • Legal: Provision of US$16m (nominal US$22m) for the silicosis and tuberculosis class action settlement (Tshiamiso Trust).
  • Operational: Geotechnical challenges at South Deep and potential labor disruptions.

Investor Verification Checklist

• Cost Trajectory: Verify if the revised AISC guidance (US$960-980/oz) is sustainable given the US$15/oz royalty increase and US$10/oz COVID-19 cost impact.
• Damang Transition: Confirm the timeline and grade improvement expected as mining transitions from Huni Sandstone to Tarkwa Phyllite in H2 2020.
• Salares Norte Progress: Monitor engineering progress (74.7% complete) and construction start in Q4 2020 against the US$544.5m hedged currency exposure.
• Debt Maturity: Review the extension of US$870m of bank facilities (Tranche A and B) and the impact on liquidity.
• Hedging Impact: Assess the US$275m loss on financial instruments (hedges) and its effect on normalised profit versus reported profit.