Business Context and Reporting Period
This Form 6-K filing by Gold Fields Limited covers the month of January 2007. The report focuses on a strategic decision regarding the company's hedging activities following its acquisition of Western Areas in December 2006.
Key Financial Metrics
- Hedge Termination Cost: US$528 million.
- Average Spot Gold Price at Termination: US$622.14 per ounce.
- Previous Marked-to-Market Value (Dec 29, 2006): US$383 million.
- Deferred Premiums (Dec 29, 2006): US$157 million.
- Total Previous Liability: US$540 million.
- Hedge Book Delta: 1,005,000 gold ounces.
- Hedge Maturity Profile: December 2006 to December 2014.
Material Changes
Gold Fields terminated the Western Areas hedge book, which it inherited upon taking control of Western Areas in December 2006. The termination cost of US$528 million represents a reduction of approximately US$12 million compared to the total liability of US$540 million recorded at the end of the previous quarter.
Management Commentary and Outlook
CEO Ian Cockerill stated that the hedge book was "significantly under water" and a "crippling liability" to the South Deep mine. The termination allows the asset to be accounted for transparently. Management believes gold prices are in a long-term upward trend, making hedging illogical. The move is intended to ensure full transparency to investors and simplify the balance sheet.
Investor Verification Checklist
- Verify the exact accounting treatment of the US$528 million termination cost in the upcoming quarterly financial statements.
- Confirm the impact of removing the hedge book on the South Deep mine's reported profitability.
- Monitor future gold price movements to assess the validity of management's "long-term upward trend" outlook.
- Review the balance sheet to ensure the removal of the deferred premiums and options liabilities.