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, 2007
Announcement Date: October 25, 2007
Gold Fields reported a steady quarter with attributable gold production maintained above 1 million ounces. The company operates primarily in South Africa, Ghana, Venezuela, and Australia. Post-quarter end, the company announced significant strategic asset disposals in Burkina Faso and Venezuela.
Key Financial Metrics
| Metric | Sept 2007 (R) | Sept 2007 (US$) | June 2007 (R) | June 2007 (US$) |
|---|---|---|---|---|
| Revenue | 5,119 million | 721 million | 5,113 million | 719 million |
| Operating Profit | 1,731 million | 244 million | 1,950 million | 274 million |
| Net Earnings (Ordinary Shareholders) | 429 million | 60 million | 528 million | 74 million |
| Headline Earnings | 411 million | 58 million | 506 million | 71 million |
| Normalized Earnings (Excl. FX, financial instruments, exceptional items) |
400 million | 56 million | 488 million | 69 million |
| Operating Margin | 34% | 34% | 38% | 38% |
| Total Cash Costs | R99,227/kg | US$435/oz | R92,273/kg | US$405/oz |
| Net Debt | 6.0 billion | 862 million | 4.6 billion | 640 million |
| Cash Balance (End of Period) | 1,470 million | 210 million | 2,310 million | 323 million |
Material Changes vs. Prior Comparable Period
- Production: Attributable gold production decreased slightly to 1,001,000 ounces (from 1,015,000 in June 2007). South African production increased to 689,000 ounces, while international production fell to 312,000 ounces due to lower output at St Ives and Tarkwa.
- Costs: Total cash costs rose 7% quarter-on-quarter to US$435/oz. This was driven by a 9% wage settlement in South Africa, lower production volumes at Tarkwa and St Ives, and higher input costs (fuel, steel, cyanide).
- Profitability: Operating profit declined 11% to R1.73 billion. Net earnings fell 19% to R429 million. The decline was primarily due to higher operating costs and lower production, partially offset by a 2% increase in the average gold price (US$685/oz).
- Debt: Net debt increased from R4.6 billion to R6.0 billion due to planned capital program funding and loan drawdowns.
- Cash Flow: Operating cash inflow dropped significantly to R985 million (from R1,969 million) due to a working capital outflow of R224 million and higher tax payments.
Guidance, Outlook, and Material Events
Strategic Asset Disposals (Post-Quarter)
- Essakane (Burkina Faso): Agreed to sell 60% stake to Orezone Resources Inc. for US$200 million (cash or securities).
- Venezuela Assets: Agreed to sell assets (including Choco 10 mine) to Rusoro Mining Ltd. for an indicative US$532 million (cash, convertible debt, and shares).
- Use of Proceeds: Management intends to use proceeds to reduce debt and fund the capital program.
Operational Outlook
- December Quarter: Excluding Choco 10, gold production is expected to increase and unit costs to decline compared to September 2007.
- Cerro Corona (Peru): On track to produce concentrate in the March 2008 quarter. Construction completion forecast for January 2008.
- Cost Initiatives: "Project 500" and "Project Beyond" initiatives continue to target cost reductions and supply chain optimization.
Risks and Contingencies
- Safety: Seven fatal accidents occurred in the quarter (all in South Africa). The fatal injury frequency rate improved to 0.17 per million man hours, but lost time injury frequency regressed.
- Operational Disruptions: Tarkwa production was impacted by excessive rainfall; Choco 10 faced road blockages by local miners.
- Regulatory: Asset sales are subject to South African Reserve Bank and stock exchange approvals.
Investor Verification Checklist
- Asset Sale Closing: Verify the closing dates and final consideration for the Essakane and Venezuela asset sales, noting the conditions precedent (e.g., funding by buyers, regulatory approvals).
- Cost Trajectory: Monitor the impact of the 9% South African wage increase and global commodity inflation on future cash costs, specifically at Tarkwa and St Ives.
- Debt Reduction: Confirm the allocation of proceeds from asset sales toward debt reduction versus capital expenditure.
- Safety Performance: Review subsequent safety reports given the seven fatalities and the government's new industry-wide safety audit initiative.
- Cerro Corona Timeline: Track the construction progress of the Cerro Corona mine to ensure the March 2008 concentrate shipment target is met.