Business Context and Reporting Period
Company: Gold Fields Limited (NYSE & JSE: GFI)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended December 31, 2011, and Year ended December 31, 2011.
Announcement Date: February 17, 2012
Gold Fields reported significantly improved earnings for the December 2011 quarter and the full year 2011, driven primarily by higher realized gold prices and effective cost control measures. The Group operates major gold mines in South Africa, West Africa (Ghana), South America (Peru), and Australasia (Australia).
Key Financial Metrics
| Metric | Q4 2011 (USD) | Q3 2011 (USD) | Full Year 2011 (USD) | Full Year 2010 (USD) |
|---|---|---|---|---|
| Net Earnings | $336 million | $293 million | $973 million | $153 million |
| Revenue | $1,534 million | $1,570 million | $5,800 million | $4,705 million |
| Operating Profit | $877 million | $804 million | $2,924 million | $1,983 million |
| Operating Margin | 56% | 51% | 50% | 42% |
| Notional Cash Expenditure (NCE) Margin | 28% | 29% | 25% | 16% |
| Total Cash Cost | $767/oz | $851/oz | $795/oz | $703/oz |
| Gold Production (Attributable) | 883,000 oz | 900,000 oz | 3,485,000 oz | 3,497,000 oz |
| Net Debt | $1,164 million | $589 million (Dec 2010) | $1,164 million | $589 million |
| Cash Balance | $744 million | $548 million | $744 million | $810 million |
Material Changes vs. Prior Period
- Earnings Surge: Net earnings for the December 2011 quarter increased 27% quarter-on-quarter to $336 million, reversing a loss of $106 million in the same period in 2010. Full-year 2011 earnings of $973 million represented a massive increase from $153 million in 2010.
- Price vs. Volume: Despite a 2% decrease in attributable gold production (883,000 oz vs. 900,000 oz), earnings rose due to a 13% increase in the realized Rand gold price and a 10% decrease in total cash costs in USD terms ($767/oz vs. $851/oz).
- Cost Control: Net operating costs decreased from $766 million in Q3 to $656 million in Q4. The Group-wide Business Process Re-engineering (BPR) program contributed to savings, limiting operating cost inflation to 3% for the year.
- Debt Increase: Net debt increased to $1,164 million (from $589 million in Dec 2010) primarily to fund the buy-out of non-controlling interests in Ghana and Peru, capital expenditure, and dividend payments.
Guidance, Outlook, and Risks
2012 Guidance
- Production: Estimated between 3.5 million and 3.7 million attributable equivalent ounces.
- Total Cash Cost: Estimated at $860 per ounce.
- Operational NCE: Estimated at $1,300 per ounce.
- Capital Projects: Anticipated spend of $40–$70 per ounce on project realization costs.
Management Commentary
CEO Nick Holland highlighted improved safety performance, with the fatal injury frequency rate dropping to 0.02 in Q4 (from 0.15 in Q3), though one fatality occurred in South Africa. The project pipeline is gaining momentum, with feasibility studies on schedule for Chucapaca (Peru) and the Far Southeast project (Philippines).
Risks and Contingencies
- Safety: Continued focus on reducing lost-time injuries and managing seismic risks in South Africa.
- Regulatory: Potential negative impact from proposed tax and royalty changes in Ghana on the Damang Super-pit project.
- Operational: Production variations due to statutory holidays, seasonal electricity tariffs, and safety-related stoppages.
- Market: Exposure to fluctuations in gold and copper prices and exchange rates (specifically the weakening Rand).
Investor Verification Checklist
- Production vs. Cost Trade-off: Verify if the 2% production decline is a temporary operational issue or a structural trend, and confirm the sustainability of the $767/oz cash cost in a higher inflation environment.
- South Deep Build-up: Monitor capital expenditure at the South Deep mine (R607 million in Q4) to ensure it remains on schedule for the 2015 run-rate target of 700,000 oz/year.
- Ghana Regulatory Risk: Assess the outcome of discussions regarding proposed tax/royalty changes in Ghana and their potential impact on the Damang Super-pit economics.
- Debt Servicing: Review the debt maturity ladder and cash flow coverage given the increase in net debt to $1.16 billion.
- Project Pipeline Execution: Track the progress of the Far Southeast (Philippines) and Chucapaca (Peru) projects, specifically the timing of the FTAA grant and feasibility study completion.