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, 2012 (Announced August 23, 2012)
Overview: Gold Fields reported improved performance in its South African region, offset by safety incidents, environmental directives, and industrial relations challenges. The company restated its dividend policy to prioritize payouts between 25% and 35% of normalised net earnings.
Key Financial Metrics
| Metric | June 2012 (Q2) | March 2012 (Q1) | June 2011 (YoY) |
|---|---|---|---|
| Net Earnings (R million) | 1,606 | 2,082 | 1,267 |
| Net Earnings (US$ million) | 198 | 268 | 186 |
| Revenue (R million) | 11,364 | 11,206 | 9,581 |
| Revenue (US$ million) | 1,408 | 1,442 | 1,411 |
| Gold Production (000 oz) | 862 | 827 | 872 |
| Total Cash Cost (US$/oz) | 851 | 870 | 816 |
| Notional Cash Expenditure (US$/oz) | 1,308 | 1,280 | 1,178 |
| Operating Margin | 47% | 48% | 47% |
| NCE Margin | 18% | 24% | 21% |
| Free Cash Flow (R million) | 865 | 93 | 669 |
| Net Debt (R million) | 11,457 | 11,008 | 9,460 |
| Cash Balance (R million) | 6,669 | 5,152 | 4,345 |
Material Changes vs. Prior Periods
- Production: Group attributable production increased 4% quarter-over-quarter (QoQ) to 862,000 ounces, driven by a 13% increase in the South Africa region (KDC +12%, South Deep +33%). Year-over-year (YoY) production was flat compared to June 2011.
- Costs: Total cash cost in US dollars decreased 2% QoQ to $851/oz due to the weakening Rand, despite a 1% increase in Rand terms. NCE increased to $1,308/oz due to higher capital expenditure.
- Earnings: Net earnings decreased 23% QoQ to R1,606 million (US$198 million) but increased 27% YoY to R1,606 million (US$198 million).
- Cash Flow: Free cash flow surged to R865 million (US$100 million) from R93 million in the prior quarter, driven by lower royalties/taxes paid and a release of working capital.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
- Production Guidance: Full-year 2012 attributable gold production is expected to be no more than 3.4 million ounces, down from previous expectations due to operational disruptions.
- Cost Guidance: Full-year total cash cost is estimated at ~$880/oz (2% higher than prior guidance); NCE (excluding growth projects) at ~$1,340/oz (3% higher).
- Dividend Policy: Restated to pay 25-35% of normalised net earnings. An interim dividend of 160 SA cents per share was declared.
Risks and Contingencies
- Safety Incidents (KDC): A fire at the Ya Rona shaft (KDC West) resulted in 5 fatalities. Operations were suspended; production loss estimated at 50,000 ounces. A separate tramming fatality occurred, bringing the quarter's total to 6 fatalities.
- Environmental Directive (Tarkwa): The Ghana EPA ordered a suspension of heap leach facilities (July 16 - Aug 9) pending water treatment plant installation. Production loss estimated at 15,000 ounces.
- Industrial Relations (South Deep): A Section 189(3) notice was issued to the National Union of Mineworkers (NUM) regarding restructuring. Potential work stoppages could materially affect production.
- Legal: A class action application regarding silicosis was served on August 21, 2012. The company is reviewing the application.
Investor Verification Checklist
- Safety Recovery: Verify the timeline for flushing noxious gases at KDC West and the resumption of full operations in Q4 2012.
- South Deep Labor: Monitor the outcome of the 60-day consultation period with the NUM to assess the risk of strikes or production delays.
- Tarkwa Compliance: Confirm the installation and operational status of the new water treatment plants by year-end to prevent future suspensions.
- Cost Inflation: Assess the impact of the 16.7% electricity tariff increase in South Africa on future operating margins.
- Dividend Sustainability: Review the new dividend policy's impact on capital allocation for growth projects like South Deep and Chucapaca.