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 March 31, 2009 (Q3 Financial Year 2009)
Announcement Date: May 7, 2009
Gold Fields reported a significant turnaround in performance for the March 2009 quarter, driven by a 4% increase in attributable gold production and a 14% rise in the average US dollar gold price. The company continues to focus on safety improvements, cost control, and increasing the production base across its South African and international operations.
Key Financial Metrics
| Metric | March 2009 (ZAR) | March 2009 (USD) | Dec 2008 (ZAR) | Dec 2008 (USD) |
|---|---|---|---|---|
| Revenue | R8,510 million | US$869 million | R7,074 million | US$718 million |
| Operating Profit | R3,986 million | US$416 million | R2,566 million | US$268 million |
| Operating Margin | 47% | 47% | 36% | 36% |
| Headline Earnings | R1,512 million | US$163 million | R484 million | US$55 million |
| Net Profit (Attributable) | R1,307 million | US$140 million | R483 million | US$54 million |
| Headline Earnings Per Share | 225 SA cents | US$0.24 | 74 SA cents | US$0.08 |
| Net Debt | R7.7 billion | US$810 million | R9.4 billion | US$970 million |
| Cash Balance (End of Period) | R2,537 million | US$265 million | R1,054 million | US$109 million |
Operational Highlights
- Gold Production: Attributable production increased 4% to 871,000 ounces (839,000 oz in Dec 2008).
- Total Cash Cost: Decreased 2% to R150,301/kg (US$471/oz) from R153,893/kg (US$487/oz).
- Notional Cash Expenditure (NCE): Decreased 13% to R213,403/kg (US$668/oz) from R244,210/kg (US$774/oz).
- Gold Price: Average realized price increased 14% to US$906/oz (R289,095/kg).
Material Changes vs. Prior Period
Revenue and Profit Growth: Revenue rose 20% quarter-on-quarter to R8.51 billion, while operating profit surged 55% to R4.0 billion. This was primarily due to higher gold prices and increased production volumes, despite a challenging operating environment.
Cost Efficiency: Operating costs remained flat (less than 1% increase) despite a 4% production increase, resulting in a significant expansion of the operating margin from 36% to 47%.
Balance Sheet Strengthening: Net debt decreased by R1.7 billion (US$160 million) to R7.7 billion. Cash reserves more than doubled to R2.5 billion due to strong operating cash flows and reduced capital expenditure.
Operational Variance:
- South Africa: Production increased 3% to 517,000 ounces. Driefontein (+10%) and Kloof (+15%) outperformed, while Beatrix (-25%) suffered from lower mining volumes and yield issues.
- International: Production increased 5% to 354,000 ounces. Tarkwa (+9%) and Damang (+4%) saw gains, though Tarkwa faced commissioning delays with its new CIL plant.
Guidance, Outlook, and Risks
Management Commentary
CEO Nick Holland highlighted a "positive trajectory" with production up 10% over the last two quarters. The company remains committed to a "zero harm" safety policy, noting that fatalities for the year-to-date (13) are significantly lower than the prior year (47), despite 5 fatalities in the quarter.
Operational issues at Beatrix and Tarkwa are expected to be resolved, with significant improvements anticipated in the June quarter.
June 2009 Quarter Guidance
- Production: Forecast to increase 3% to 900,000 ounces.
- Total Cash Cost: Forecast to increase to US$510/oz (from US$471/oz) primarily due to a stronger Rand forecast (R9.00/USD vs R9.93 actual).
- NCE: Forecast at US$730/oz.
Risks and Contingencies
- Safety: Five fatalities were recorded in the quarter, primarily at South African operations.
- Operational: Commissioning problems at Tarkwa's CIL plant and lower yields at Beatrix impacted performance.
- Market: Exposure to gold and copper price fluctuations and foreign exchange volatility (Rand, Australian Dollar).
- Regulatory: Potential impact of new mining royalty legislation in South Africa (implementation postponed to March 2010).
Investor Verification Checklist
- Debt Refinancing: Verify the terms and impact of the new R1.5 billion 5-year revolving credit facility and US$311 million syndicated facility secured post-quarter.
- Credit Rating: Confirm the implications of the new S&P "BBB-/A-3" investment grade rating on future borrowing costs.
- Beatrix Recovery: Monitor the June quarter results to confirm the anticipated recovery in production and yield at the Beatrix mine.
- Tarkwa Commissioning: Track the ramp-up of the CIL plant at Tarkwa to ensure it reaches design capacity as projected.
- Uranium Project: Review the progress of the feasibility study for the South African tailings uranium project, with an investment decision expected in early 2010.
- Exchange Rates: Assess the sensitivity of future margins to the Rand/AUD exchange rates, as the June forecast assumes a stronger Rand (R9.00) than the actual March rate (R9.93).