Business Context and Reporting Period
Company: Gold Fields Limited (GFI)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended March 31, 2004 (Q3 FY2004)
Announcement Date: May 6, 2004
Gold Fields reported strong operational performance with a 20% increase in operating profit, driven by higher gold prices and cost reductions in South African operations. The quarter included the successful conclusion of the Mvelaphanda Black Economic Empowerment (BEE) transaction and the acquisition of a 20% stake by MMC Norilsk.
Key Financial Metrics
| Metric | Q3 2004 (Mar) | Q2 2004 (Dec) | Q3 2003 (Mar) |
|---|---|---|---|
| Revenue (R million) | 3,028 | 2,923 | 3,352 |
| Operating Profit (R million) | 656 | 545 | 1,126 |
| Operating Margin | 22% | 19% | 34% |
| Net Earnings (R million) | 255 | 277 | 805 |
| Net Earnings per Share (SA cents) | 51 | 57 | 171 |
| Headline Earnings per Share (SA cents) | 45 | 51 | 136 |
| Attributable Gold Production (000 oz) | 1,033 | 1,045 | 1,072 |
| Total Cash Costs (US$/oz) | 309 | 308 | 225 |
| Operating Cash Flow (R million) | 528 | 677 | 1,214 |
| Cash Balance (R million) | 4,701 | 1,104 | 1,821 |
Material Changes vs. Prior Period
- Operating Profit: Increased 20% quarter-on-quarter to R656 million (US$96 million). This was driven by a 4% increase in the average gold price (US$407/oz) and a 3% reduction in operating costs at South African operations.
- Net Earnings: Decreased 8% to R255 million (US$38 million) compared to the previous quarter. The decline was caused by a reduction in gains from financial instruments and an exchange loss on Euro-denominated funds, which offset the operating profit growth.
- Production: Attributable gold production was virtually unchanged at 1.033 million ounces, despite an extended Christmas break in South Africa. International production increased 10% year-on-year.
- Liquidity: Cash balance surged to R4.7 billion (US$721 million) from R1.1 billion in the prior quarter, primarily due to proceeds from the Mvelaphanda transaction (R3.8 billion net inflow).
- Debt: International operations are now debt-free following the repayment of US$14 million in foreign debt. The Mvela transaction introduced a new debt component of R1.65 billion.
Guidance, Outlook, and Risks
Outlook and Guidance
- Trading Statement: Management expects net earnings for the full financial year ending June 30, 2004, to be substantially lower (defined as >30% decrease) than the prior year. This is due to lower gold prices in Rand terms, increased operating costs (wage increases), and reduced gains on financial instruments.
- Production: Gold production is expected to be slightly higher in the June 2004 quarter due to increased output at both South African and international operations.
- Projects: Major growth projects in Ghana (Tarkwa mill), Australia (St Ives expansion), and the Arctic Platinum Project in Finland remain on track. The Cerro Corona acquisition in Peru is proceeding toward closure pending surface rights and permitting.
Risks and Contingencies
- Financial Instruments: Significant volatility in earnings due to gains/losses on currency hedges (Australian Dollar) and foreign debt (Euro). An unrealised exchange loss of R31 million on Euro funds impacted the quarter.
- Operational: Risks include underground fires (Driefontein), mill shutdowns (St Ives), and lower grades at South African operations.
- Legal: An ongoing class-action lawsuit filed in New York by Zalumzi Singleton Mtwesi remains unresolved; the suit has not yet been served.
- Regulatory: The implementation of the Mineral and Petroleum Resources and Development Act (Act No. 28 of 2002) resulted in a R25 million write-off of mineral rights.
Investor Verification Checklist
- Mvela Transaction Accounting: Verify the split between the debt component (R1.65 billion) and equity component (R2.45 billion) of the Mvela loan and its impact on future interest expenses and deferred tax assets.
- Financial Instrument Volatility: Assess the sustainability of earnings given the heavy reliance on gains from Australian Dollar currency hedges and the impact of exchange rate fluctuations on Euro-denominated cash.
- Cost Inflation: Monitor the trajectory of operating costs in South Africa, specifically wage increases and the impact of the stronger Rand on margins.
- Project Execution: Confirm timelines and budget adherence for the Tarkwa mill (Ghana) and St Ives expansion (Australia), noting potential currency exposure risks.
- Legal Exposure: Track the status of the New York class-action lawsuit and potential service of process.