Business Context and Reporting Period
Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended March 31, 2014
Announcement Date: May 8, 2014
Gold Fields reported Q1 2014 results with a strategic focus on improving execution, driving margins, and reducing net debt. The quarter was fatality-free. Key operational priorities included rebasing the South Deep project to achieve cash break-even by late 2014 or early 2015, consolidating the Damang turnaround, and optimizing newly acquired Yilgarn South assets in Australia.
Key Financial Metrics
| Metric | Q1 2014 | Q4 2013 | Q1 2013 |
|---|---|---|---|
| Revenue | US$714.6 million | US$780.7 million | US$805.2 million |
| Operating Profit | US$291.9 million | US$312.3 million | US$404.0 million |
| Net Loss (Continuing Ops) | US$0.3 million | US$491.0 million | US$26.5 million (Profit) |
| Normalised Earnings | US$21.0 million | US$14.0 million | US$68.0 million |
| Headline Earnings | US$4.8 million | US$23.0 million (Loss) | US$27.6 million |
| Gold Production (Attributable) | 557,000 oz | 598,000 oz | 477,000 oz |
| Gold Sold (Gold Only) | 524,800 oz | 576,100 oz | 495,000 oz |
| All-in Sustaining Costs (AISC) | US$1,066/oz | US$1,054/oz | US$1,303/oz |
| Total All-in Costs (AIC) | US$1,114/oz | US$1,095/oz | US$1,476/oz |
| Free Cash Flow Margin | 13% | 11% | N/A |
| Net Debt | US$1,686 million | US$1,735 million | N/A |
| Cash Balance | US$374 million | US$325 million | US$569 million |
Material Changes vs. Prior Periods
- vs. Q4 2013: Revenue decreased 8% due to lower production volumes, partially offset by a 1% increase in the average gold price. Net loss narrowed significantly from US$491 million to US$0.3 million, driven by the absence of large impairments recorded in the prior quarter (which totaled US$713 million in non-recurring items). Cash flow from operating activities after net capex and debt service improved 42% to US$54 million.
- vs. Q1 2013: Despite a 21% decline in the gold price (from US$1,625/oz to US$1,283/oz), attributable production increased 17% to 557,000 oz, largely due to the inclusion of Yilgarn South assets. AISC improved 18% and AIC improved 25%. Cash flow swung from a net outflow of US$46 million in Q1 2013 to a net inflow of US$54 million in Q1 2014.
- Operational Shifts: South Deep production decreased 26% quarter-on-quarter due to Christmas breaks and transformation disruptions. Australian production decreased 4% quarter-on-quarter but increased 68% year-on-year.
Guidance, Outlook, and Risks
Full-Year 2014 Guidance (Reaffirmed):
- Production: ~2.2 million gold equivalent ounces (attributable); ~2.1 million gold only ounces.
- Costs: AISC of US$1,125/oz; AIC of US$1,150/oz.
- Capital Expenditure: US$693 million.
- South Deep Specifics: Full-year production expected to be ~10% lower than previous guidance (360,000 oz) due to transformation disruptions. Targeting cash break-even by late 2014 or early 2015.
Management Commentary: The Group remains on track to meet full-year cost guidance. The transformation process at South Deep is expected to gain traction in the second half of the year. The company is prioritizing debt reduction and shareholder dividends (25-35% of normalised earnings).
Risks and Contingencies:
- SEC Investigation: Gold Fields is subject to a regulatory investigation by the US SEC regarding the Black Economic Empowerment transaction associated with the South Deep mining license. No financial adjustment has been made due to the early stage of the investigation.
- Legal Proceedings: Ongoing native title proceedings in Australia regarding St Ives tenements; a decision is expected in 6-12 months.
- Operational Risks: Execution constraints at South Deep, currency fluctuations (ZAR, AUD), and potential labor disruptions.
Investor Verification Checklist
- South Deep Transformation: Verify the progress of the mechanised mining culture shift and the timeline for achieving cash break-even, given the 10% production downgrade for the year.
- SEC Investigation Status: Monitor updates regarding the SEC inquiry into the South Deep BEE transaction for potential regulatory or financial impacts.
- Cost Discipline: Confirm if the Group can maintain AISC of US$1,125/oz given the temporary cost pressures at South Deep and Australian operations.
- Asset Disposal: Track the status of negotiations for the disposal of non-core assets (Yanfolila, Arctic Platinum, Woodjam, and Royalty portfolio) to assess debt reduction capabilities.
- Yilgarn South Integration: Assess the realization of synergies from the Barrick acquisition, specifically the closure of the Lawlers Mill and rationalization of employee numbers.