Business Context and Reporting Period
Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended June 30, 2015 (Q2 2015)
Date of Filing: August 20, 2015
Gold Fields reported a return to profitability in Q2 2015, driven by improved production volumes and cost reductions despite a lower average gold price. The company declared an interim dividend and maintained its full-year production guidance, though it lowered the specific target for its South Deep mine to prioritize long-term safety and stability.
Key Financial Metrics
| Metric | Q2 2015 | Q1 2015 | Q2 2014 |
|---|---|---|---|
| Revenue | US$660.4 million | US$609.8 million | US$747.0 million |
| Net Profit (Attributable) | US$11.7 million | (US$13.9 million) | US$19.5 million |
| Normalised Earnings | US$22.0 million | (US$13.3 million) | US$25.0 million |
| Operating Profit | US$278.2 million | US$243.8 million | US$311.1 million |
| Free Cash Flow Margin | 9% | (3%) | N/A |
| Cash Flow from Operations | US$191.3 million | US$150.2 million | US$220.3 million |
| Net Debt | US$1,477 million | US$1,499 million | N/A |
| Net Debt/EBITDA | 1.44x | 1.41x | N/A |
| All-In Sustaining Costs (AISC) | US$1,029/oz | US$1,143/oz | US$1,050/oz |
| Gold Production (Attributable) | 535,000 oz | 501,000 oz | 548,000 oz |
Material Changes vs. Prior Periods
- Profitability Turnaround: The company swung from a normalised loss of US$13 million in Q1 2015 to normalised earnings of US$22 million in Q2 2015. Net cash flow improved by US$59 million, moving from an outflow of US$29 million in Q1 to an inflow of US$30 million in Q2.
- Production Growth: Attributable gold equivalent production increased 7% quarter-on-quarter to 535,000 ounces. Key drivers included Tarkwa (Ghana), Cerro Corona (Peru), and Granny Smith (Australia).
- Cost Efficiency: All-in sustaining costs (AISC) decreased 10% quarter-on-quarter to US$1,029/oz, primarily due to higher gold sold and lower sustaining capital expenditure.
- South Deep Performance: Production at South Deep increased 7% quarter-on-quarter to 1,203 kg despite a fatal accident in May and subsequent safety stoppages. However, the full-year production guidance for South Deep was reduced from 7,100 kg to 6,500 kg to focus on fixing operational fundamentals.
- Regional Highlights:
- Ghana: Tarkwa achieved record CIL plant throughput and production of 156,000 oz at an AIC of US$938/oz.
- Peru: Cerro Corona saw a 26% increase in gold equivalent production to 84,000 oz.
- Australia: Granny Smith was the standout performer with a 28% free cash flow margin. St Ives production was higher than anticipated despite underground interruptions.
Guidance, Outlook, and Risks
- Production Guidance: Full-year 2015 production guidance remains at approximately 2.2 million ounces. The reduction at South Deep is offset by better-than-expected performance at Tarkwa, St Ives, Granny Smith, and Cerro Corona.
- Cost Guidance: Full-year 2015 AISC guidance remains unchanged at US$1,055/oz, and Total All-In Cost (AIC) guidance remains at US$1,075/oz.
- Capital Expenditure: Forecast at US$660 million for 2015, weighted toward the first half of the year.
- Dividend: An interim dividend of 4 South African cents per share was declared, payable September 14, 2015. This represents a payout of 35% of normalised earnings.
- Strategic Disposal: Gold Fields agreed to sell its 51% interest in the Woodjam copper-gold-molybdenum projects in Canada, retaining a 19.9% equity stake and a 2% Net Smelter Return Royalty.
- Risks and Contingencies:
- Safety: A fatal accident occurred at South Deep in May 2015, leading to stoppages. The company is prioritizing safety and "stop and fix" interventions.
- Regulatory: The SEC concluded its investigation into the Black Economic Empowerment (BEE) transaction related to South Deep and will not recommend enforcement action, though the company notes this does not constitute exoneration.
- Operational: Geotechnical constraints at Agnew/Lawlers (Australia) and power load shedding in Ghana and South Africa continue to pose challenges.
Investor Verification Checklist
- South Deep Recovery: Verify the progress of the "stop and fix" initiatives and the ability to achieve the revised 6,500 kg production target while maintaining safety standards.
- Cost Discipline: Monitor whether the Q2 cost reductions (AISC of US$1,029/oz) are sustainable given the lower gold price environment and potential inflationary pressures in South Africa.
- Cash Flow Sustainability: Confirm the ability to maintain positive free cash flow in Q3 and Q4, particularly as capital expenditure is weighted to the first half of the year.
- Woodjam Transaction: Track the regulatory approval status of the Woodjam disposal and the valuation of the retained royalty and equity stake.
- Debt Covenants: Ensure the Net Debt/EBITDA ratio remains comfortably within covenants (currently 1.44x) as the company manages its debt maturity profile (no maturities before November 2017).