GFI

Business Context and Reporting Period

Company: Gold Fields Limited (NYSE & JSE: GFI)
Filing Type: Form 6-K (Operational Update)
Reporting Period: Quarter ended 31 March 2018
Date of Filing: 25 April 2018

Gold Fields provided an operational update for the first quarter of 2018. The company is in the second year of its reinvestment programme. While international operations generally exceeded budgets, the South Deep mine in South Africa performed below expectations due to labour restructuring and operational disruptions. The Damang reinvestment project in Ghana progressed ahead of schedule, while the Gruyere project in Australia faced delays due to severe weather.

Key Financial and Operational Metrics

Note: Figures are in millions unless otherwise stated. Gold produced includes copper gold equivalents of approximately 7% of Group production.

Material Changes vs. Prior Periods

• Production: Attributable equivalent gold production decreased 1% year-over-year (YoY) and 10% quarter-over-quarter (QoQ). The YoY comparison is impacted by the divestment of the Darlot mine in Q4 2017.
• Costs: AISC decreased 6% YoY to US$955/oz but remained flat QoQ. Total AIC increased 3% YoY and 3% QoQ to US$1,150/oz.
• Gold Price: The average realized gold price increased 8% YoY to US$1,316/oz.
• Debt: Net debt increased modestly to US$1,373m from US$1,303m, despite higher project capital spending and the payment of the FY17 dividend.
• Regional Performance:
  • South Deep (South Africa): Production dropped 41% QoQ to 48koz due to labour restructuring and shift changes.
  • Ghana: Managed production was 167koz, down 4% YoY. Damang production was up 4% QoQ.
  • Australia: Production was 224koz, up 6% YoY, with AIC down 11% YoY.
  • Peru (Cerro Corona): Equivalent production was flat YoY but down 14% QoQ.

Guidance, Outlook, and Risks

Revised 2018 Guidance

Due to the underperformance at South Deep, the company has revised its full-year 2018 attributable equivalent gold production guidance downward to between 2.00Moz and 2.05Moz. The previous guidance was 10,000kg (321koz) for South Deep alone; the new forecast for South Deep is 7,600kg (244koz).

Project Updates

• Damang Reinvestment: 22% ahead of schedule on material mined; gold produced is 35% above plan.
• Gruyere: Impacted by abnormal rainfall. Capex is likely 10% higher than previously guided (A$532m), and first production is delayed to Q2 2019 (previously Q1 2019).
• Tarkwa: Transition to contract mining completed in April 2018.

Risks and Contingencies

• South Deep Operational Risks: Ongoing issues with equipment reliability, geological features (faults/dykes), and poor ground conditions. A 22-day safety-related stoppage occurred in April 2018.
• Labour: South Deep concluded a three-year wage agreement with an average annual increase of 7.3%. Restructuring involved 47 managerial and ~260 lower-level personnel.
• Strategic Transactions: Entered a joint venture with Asanko Gold to acquire a 50% stake in the Asanko Gold Mine for US$165m upfront plus US$20m deferred. Also subscribed to a 9.9% share placement in Asanko for US$17.6m.
• Hedging: Significant hedging activity in place for 2018, covering 72% of Ghana production and 78% of Australia production.

Investor Verification Checklist

• South Deep Recovery Plan: Verify the effectiveness of the new 11.5-hour shift cycle and the timeline for stabilizing production post-restructuring.
• Gruyere Capex and Timeline: Confirm the final capital expenditure and the feasibility of the new Q2 2019 production start date given weather impacts.
• Asanko Gold JV Integration: Monitor the closing of the US$165m transaction and the operational integration of the Asanko Gold Mine.
• Equipment Reliability: Assess the impact of the "urgent" sourcing of artisans and equipment on South Deep's ability to meet the revised 244koz annual target.
• Contract Mining Transition: Review the performance of the new contractors (BCM and E&P) at Tarkwa following the transition from owner mining.