GFI

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 June 30, 2008 (Q4 Financial Year 2008)
Key Context: The quarter was marked by a tragic accident at the South Deep Gold Mine resulting in nine fatalities, prompting a comprehensive safety review and operational suspensions. Despite this, the company reported improved operational performance due to the stabilization of power supplies in South Africa following disruptions in the prior quarter.

Key Financial Metrics

Material Changes vs. Prior Period

• Production Recovery: Attributable gold production increased 5% quarter-on-quarter to 865,000 ounces, driven by the resolution of power supply interruptions in South Africa that had negatively impacted the March quarter.
• Earnings Decline: Net earnings decreased 33% from the prior quarter (R1,248m to R843m). This was primarily due to the absence of a R262 million gain on financial instruments recorded in the March quarter and increased exceptional costs.
• Cost Pressures: Total cash costs remained relatively steady in Rand terms but increased in US dollar terms due to the weakening Rand (R7.77 vs R7.45). Notional Cash Expenditure (NCE) rose to US$869/oz due to high capital investment in growth projects, specifically Cerro Corona and Tarkwa.
• Exceptional Items: The quarter included a R95 million exceptional loss, comprising R65 million for restructuring at South Deep and R51 million for asset impairments in Australia.

Guidance, Outlook, and Risks

Management Commentary & Outlook

CEO Nick Holland highlighted a "welcome recovery" in production following safety interventions. The company targets an annualized production rate of approximately 4 million ounces by early calendar 2009, with an NCE target of US$700–US$725 per ounce (at R/US$8.00).

September Quarter Forecast

• Production: Forecast to decrease by ~5% due to safety-related suspensions at Kloof and South Deep.
• Costs: NCE forecast at US$950/oz; Total Cash Costs at US$590/oz.
• Drivers: International operations (including first production from Cerro Corona) are expected to increase output by 9%, partially offsetting South African declines.

Risks and Contingencies

• Safety Interventions: The Main shaft at Kloof is suspended for ~6 months for steelwork rehabilitation, reducing production by 25–35%. South Deep and Driefontein are also undergoing safety-related support reinstatement, impacting near-term output.
• Power Costs: Eskom approved a 20% electricity rate increase effective July 2008, with a potential further 25% increase in April 2009, posing a significant cost risk.
• Inflation: Significant price increases in steel, fuel, and timber are impacting operating costs globally.
• Regulatory: The Fourth Draft of the Mineral and Petroleum Resources Royalty Bill was introduced, potentially altering royalty calculations from EBITDA to EBIT.

Investor Verification Checklist

• Safety Impact Duration: Verify the timeline for the restoration of Kloof Main shaft production (targeted for February 2009) and the extent of output loss at South Deep and Driefontein.
• Cerro Corona Commissioning: Confirm the schedule for first concentrate shipment (early September 2008) and the transition from construction to operational status.
• Power Cost Exposure: Assess the financial impact of the approved 20% Eskom tariff increase and potential future hikes on South African margins.
• Capital Expenditure: Review the cumulative spend on Cerro Corona (US$501 million to date) against the revised completion forecast of US$540–US$550 million.
• Dividend Policy: Note the final dividend of 120 SA cents per share, bringing the total 2008 dividend to 185 SA cents per share.