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 September 30, 2009 (Q1 Financial Year 2010)
Announcement Date: October 29, 2009
Gold Fields is a global gold producer with operations in South Africa, West Africa (Ghana), South America (Peru), and Australia. The quarter was characterized by stable production despite safety-related interruptions at key South African assets and industrial relations challenges in Ghana.
Key Financial Metrics
| Metric | Sept 2009 (R) | Sept 2009 (US$) | June 2009 (R) | June 2009 (US$) |
|---|---|---|---|---|
| Revenue | 7,416 million | 948 million | 7,779 million | 902 million |
| Operating Profit | 2,787 million | 356 million | 3,338 million | 385 million |
| Net Earnings | 1,007 million | 129 million | (293) million (Loss) | (29) million (Loss) |
| Headline Earnings | 452 million | 58 million | 855 million | 99 million |
| Operating Margin | 38% | 38% | 43% | 43% |
| Net Debt | 6,694 million | 908 million | 6,092 million | 756 million |
| Debt/EBITDA Ratio | 0.58x | 0.58x | N/A | N/A |
| Cash Balance (End of Period) | 2,278 million | 309 million | 2,804 million | 348 million |
Operational Metrics
- Attributable Gold Production: 906,000 ounces (In line with June 2009; +14% vs Sept 2008).
- Total Cash Cost: US$586/oz (R147,343/kg), up 14% from June 2009 (US$512/oz).
- Notional Cash Expenditure (NCE): US$826/oz (R207,754/kg), up 12% from June 2009 (US$738/oz).
- Average Gold Price Received: US$959/oz (R241,164/kg).
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability with net earnings of R1.0 billion, reversing a loss of R293 million in the prior quarter. This was driven by a significant exceptional gain of R667 million (US$85 million) from the sale of investments (Sino Gold and Eldorado shares), partially offset by a R57 million impairment.
- Revenue Decline (Rand): Revenue decreased 5% in Rand terms (R7.4 billion vs R7.8 billion) due to a 5% decrease in the Rand gold price, despite stable production volumes.
- Revenue Increase (USD): Revenue increased 5% in USD terms (US$948 million vs US$902 million) due to a 4% increase in the average USD gold price.
- Cost Inflation: Operating costs increased 3% in Rand terms and 14% in USD terms. South African operations saw a 10% cost increase due to wage hikes, higher electricity tariffs, and winter tariffs.
- Production Variance:
- South Africa: Production decreased marginally (527k oz vs 529k oz). Driefontein (-11%) and Kloof (flat) were impacted by safety stoppages. Beatrix (+7%) and South Deep (+26%) exceeded guidance.
- West Africa: Production increased 4% (161k oz). Tarkwa (+6%) benefited from CIL plant stabilization.
- Australia: Production decreased 5% (146k oz). St Ives (-8%) was impacted by rehabilitation work at Belleisle.
Guidance, Outlook, and Risks
Management Commentary & Outlook
CEO Nick Holland highlighted stability in production despite safety challenges. The company aims to increase production to approximately 925,000 ounces in the December 2009 quarter. Forecasts for the December quarter include:
- Production: ~925,000 ounces.
- Total Cash Cost: US$590/oz (R140,000/kg).
- NCE: US$870/oz (R207,000/kg).
Specific mine outlooks:
- Driefontein & Kloof: Expected to improve as safety stoppages resolve; target production levels of ~209k oz and ~177k oz respectively.
- Tarkwa: Capable of 190k-200k oz/quarter, subject to resolution of industrial relations in Ghana.
- South Deep: Continuing build-up toward 300k oz target for FY2010.
Risks and Contingencies
- Safety: Six fatalities occurred in the quarter at South African operations. The Lost Day Injury Frequency Rate (LDIFR) regressed to 4.21 from 3.48.
- Industrial Relations: Protracted wage negotiations in Ghana pose a risk to Tarkwa and Damang production in the December quarter.
- Commodity Prices: Exposure to fluctuations in gold and copper prices; the company remains unhedged to gold price generally.
- Regulatory/Environmental: Ongoing legislative approval processes for the West Wits Tailings Retreatment (Uranium) project.
Investor Verification Checklist
- Exceptional Items Impact: Verify the sustainability of earnings by excluding the R667 million gain from investment sales (Sino Gold/Eldorado) to assess core operational performance.
- Safety Metrics: Monitor the trend in Lost Day Injury Frequency Rate (LDIFR) and fatality rates, given the six fatalities and recent safety stoppages at Driefontein and Kloof.
- Ghana Industrial Action: Track the status of wage negotiations in Ghana, as this is a material contingency for Q4 production guidance at Tarkwa and Damang.
- Cost Trajectory: Assess the impact of rising electricity tariffs and wage increases on the Total Cash Cost, which rose 14% in USD terms quarter-on-quarter.
- Debt Profile: Confirm the net debt increase to R6.7 billion (US$908 million) and the utilization of new loans to fund the St Ives royalty termination (A$308 million).