Business Context and Reporting Period
Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter ended June 30, 2013 (Announced August 22, 2013)
Context: Gold Fields reported a net loss for the quarter driven by a significant decline in the gold price, lower production volumes due to industrial action in Ghana, and substantial non-recurring impairment charges. The company is executing an aggressive cost-cutting and portfolio rationalization strategy to adapt to a lower gold price environment.
Key Financial Metrics
| Metric | Q2 2013 | Q1 2013 | Q2 2012 |
|---|---|---|---|
| Revenue (US$) | $637 million | $805 million | $823 million |
| Net Loss from Continuing Ops (US$) | ($129 million) | $27 million (Profit) | $105 million (Profit) |
| Net Loss per Share (US$) | ($0.18) | $0.04 | $0.15 |
| Attributable Gold Production (000 oz) | 451,000 | 477,000 | 502,900 |
| Average Gold Price (US$/oz) | $1,372 | $1,625 | $1,582 |
| Total Cash Cost (US$/oz) | $857 | $819 | $760 |
| All-in Sustaining Cost (AISC) (US$/oz) | $1,416 | $1,303 | $1,308 |
| Capital Expenditure (US$) | $187 million | $244 million | $310 million |
| Net Debt (US$) | $1,656 million | $1,263 million (Dec 2012) | N/A |
| Cash Balance (US$) | $443 million | $569 million | $795 million |
Material Changes vs. Prior Period
- Revenue Decline: Revenue fell 21% quarter-on-quarter (QoQ) and 23% year-on-year (YoY), primarily due to a 16% drop in the average gold price and a 5% decrease in production.
- Production Impact: Attributable gold production decreased 5% QoQ to 451,000 ounces. This was largely caused by illegal strike action at Tarkwa and Damang (Ghana), which resulted in a loss of approximately 21,700 ounces.
- Impairment Charges: The quarter included non-recurring items of $143 million, of which $127 million related to impairment charges at Tarkwa and Damang. This included a full write-off of the Tarkwa North heap leach inventory ($43 million) and asset write-downs due to the decision to curtail heap leach activities.
- Cost Metrics: While net operating costs decreased slightly (1% QoQ), Total Cash Cost per ounce increased 5% QoQ due to lower production volumes. AISC increased to $1,416/oz, though normalised AISC (excluding impairments) was $1,280/oz.
- Operating Profit: Operating profit dropped 41% QoQ to $240 million, with the operating margin contracting from 50% to 38%.
Guidance, Outlook, and Management Commentary
- Production Guidance: Reaffirmed full-year 2013 production guidance of 1.825 million to 1.900 million ounces.
- Cost Guidance Revision: Revised full-year Total Cash Cost guidance down to $830/oz (from $860/oz) and Notional Cash Expenditure (NCE) down to $1,240/oz (from $1,360/oz). This reflects expected savings of approximately $200 million from restructuring and capital cuts.
- Dividend: The Board deemed it prudent not to declare an interim dividend due to the quarterly loss and concerns regarding short-term gold price volatility.
- Strategic Rationalization:
- Closures: Decided to close the North heap leach operations at Tarkwa by end-2013 and ceased heap leach activities at St Ives (Australia) and Agnew (Australia).
- Project Cancellations: Cancelled the Tarkwa Expansion Phase 6 (TEP6), Cerro Corona Oxides, and Sulphides projects due to inadequate returns at current prices.
- Asset Disposals: Earmarked the Arctic Platinum Project (Finland), Woodjam (Canada), and Talas Copper/Gold (Kyrgyzstan) for potential disposal.
- South Deep: Production build-up is slower than anticipated; the mine is unlikely to achieve its previous 2016 target of 700,000 ounces annually. A review of the cost base and production profile is underway.
- Safety Incident: Reported one fatality at South Deep due to a fall of ground accident. Manual support-drilling has been stopped Group-wide in favor of remote operation.
Investor Verification Checklist
- Impairment Validity: Verify the assumptions used for the $127 million impairment charge at Tarkwa and Damang, specifically regarding the net realizable value of heap leach inventory and ore stockpiles.
- South Deep Viability: Monitor the outcome of the comprehensive review of South Deep's production profile and cost base, as the mine may not break even in 2013 under current configurations.
- Cost Reduction Execution: Track the realization of the projected $200 million in full-year cost savings to ensure the revised guidance of $830/oz cash cost is achievable.
- Labor Relations: Assess the stability of operations in Ghana (Tarkwa and Damang) following the illegal strikes and "go-slow" actions that impacted Q2 production.
- Asset Disposal Progress: Monitor the strategic review process for the Arctic Platinum, Woodjam, and Talas projects to determine if and when they will be divested.