GFI

Business Context and Reporting Period

Company: Gold Fields Limited (NYSE & JSE: GFI)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended 30 June 2017 (H1 2017)
Date of Filing: 17 August 2017

Gold Fields reported H1 2017 results, highlighting a strategic reinvestment programme to sustain production for the next 8–10 years. Key projects include Damang and Gruyere, which are tracking well, while South Deep experienced a slower start due to safety incidents in Q1 but showed significant recovery in Q2.

Key Financial Metrics

Material Changes vs. Prior Period

• Earnings Decline: Normalised earnings decreased by 25% (US$26.3 million) primarily due to stronger exchange rates (ZAR and AUD) impacting cost translation and increased amortisation at Tarkwa linked to new reserves.
• Cost Structure: While AISC decreased slightly (1%), Total All-in Costs (AIC) increased by 8% due to significant growth capital expenditure at Damang (US$53m) and Gruyere (US$37m).
• Cash Flow: The Group shifted from a US$60m cash inflow in H1 2016 to a US$102m outflow in H1 2017. Excluding project capital of US$141m, the underlying cash flow would have been a US$39m inflow.
• Production Mix: South Deep production fell 15% YoY due to Q1 safety incidents, while West Africa (Tarkwa and Damang) production rose 4% and South America (Cerro Corona) rose 7%.
• Dividend: Interim dividend declared at 40 SA cents per share, down from 50 SA cents in H1 2016.

Guidance, Outlook, and Risks

Guidance and Outlook

• 2017 Production: Expected between 2.10Moz and 2.15Moz (unchanged from Feb 2017 guidance).
• 2017 Costs: AISC expected between US$1,010–US$1,030/oz; AIC expected between US$1,170–US$1,190/oz due to project spend.
• Long-term: Management believes the current production profile can be maintained for 8–10 years. Benefits from Damang, Gruyere, and South Deep investments are expected to materialise from 2019, targeting ~2.3Moz production and sub-US$900/oz AIC.

Risks and Contingencies

• Silicosis Provision: A US$30 million (after-tax) provision was raised for potential settlement of silicosis class action claims. The ultimate outcome remains uncertain.
• South Deep Safety: Two fatalities and falls of ground in Q1 impacted production. While Q2 showed improvement, safety remains a critical operational risk.
• Regulatory (Mining Charter): The 2017 South African Mining Charter is subject to an interdict application by the Chamber of Mines, with a hearing expected in mid-September 2017. Gold Fields supports a viable solution but views the current charter as problematic.
• Project Execution: Gruyere and Damang projects are on schedule, but delays or cost overruns could impact the long-term cost profile.

Investor Verification Checklist

• South Deep Recovery: Verify if Q3 and Q4 production volumes sustain the Q2 recovery trend following Q1 safety incidents.
• Project Capital Spend: Monitor actual capital expenditure at Damang and Gruyere against the budgeted US$141m for H1 to ensure AIC guidance remains intact.
• Silicosis Settlement: Track developments in the Occupational Lung Disease Working Group negotiations and the status of the class action appeal.
• Exchange Rate Sensitivity: Assess the impact of ZAR and AUD fluctuations on reported US$ costs, given the significant exposure in South Africa and Australia.
• Darlot Sale: Confirm the completion of the sale of the Darlot mine to Red 5 Limited (scheduled for September 2017) and the receipt of the A$12m cash component.