Gold Fields Limited — Transition Report Summary
Business context and reporting period
Gold Fields is a South African gold producer with operations in South Africa, Ghana, Australia and Peru; Peru also produces copper. This Form 20-F is a transition report for July 1–December 31, 2010, following the change of fiscal year-end to December 31. It is not a standalone 2010 fourth-quarter report: the principal financial comparisons are for the six-month period against the six months ended December 31, 2009. Financial statements are presented in U.S. dollars under U.S. GAAP.
Key financial and operating metrics
| Metric | Six months ended Dec. 31, 2010 | Comparable 2009 period |
|---|---|---|
| Product sales | $2,564.2 million | $2,023.9 million |
| Income before tax | $194.8 million | $514.5 million |
| Net income | $65.9 million | $332.1 million |
| Net income attributable to Gold Fields shareholders | $12.6 million per financial statements | $295.1 million |
| Basic/diluted EPS | $0.02 / $0.02 | $0.42 / $0.41 |
| Net cash provided by operations | $808.3 million | $388.5 million |
| Capital expenditure | $593.6 million | $439.0 million |
| Managed gold and gold-equivalent production | 1.983 million oz | 1.970 million oz |
| Weighted-average cash cost per oz | $753 | $624 |
| Notional cash expenditure per oz | $1,060 | $867 |
At December 31, cash and cash equivalents were $809.5 million, total current assets $1,588.5 million and current liabilities $1,092.5 million. Loans totaled $1,398.3 million, comprising $261.7 million current and $1,136.6 million long-term; the filing reports $1,394 million of committed undrawn banking facilities. The company reported total liabilities of $3,627.7 million and shareholders’ equity of $7,082.3 million. The current ratio was approximately 1.45x, based on reported current assets and liabilities.
Changes versus the prior comparable period
- Product sales rose 26.7%, mainly as realized gold price increased 25.9% to $1,292/oz and realized copper price rose 27.5% to $7,182/ton.
- Production increased modestly overall, but South African production fell 6.4%, primarily due to lower underground grades and lower mining volumes. International production increased 8.7%.
- Cash costs per ounce rose 20.7%; total production costs rose 17.8% to $1,435.7 million. Management cited stronger Rand and Australian dollar exchange rates, wage increases, higher electricity tariffs and increased production at some mines.
- Operating cash flow more than doubled, supported by higher metal prices and a favorable working-capital movement. Investing cash use rose to $666.7 million, principally reflecting higher capital spending. Cash increased from $500.7 million at June 30 to $809.5 million at December 31.
- Net income fell sharply. A major unusual item was $297.6 million of South African Black Economic Empowerment (BEE) transaction costs, recorded as share-based compensation. The comparison period included substantial gains on listed-investment disposals, including Eldorado-related gains.
Outlook, management commentary, risks and unusual items
- Management forecast 2011 production of 3.5–3.7 million attributable equivalent ounces, total cost of about $760/oz and NCE of about $1,050/oz. These estimates use specified exchange-rate assumptions, are subject to change and were not reviewed by the auditors.
- Gold Fields targets NCE margins of 20% in the short term and 25% in the long term. It expects approximately $1.173 billion of capital expenditure in 2011, funded from internal resources and, if required, credit facilities.
- South Deep reserves increased 18%, largely due to inclusion of Uncle Harry’s and updated geological modeling. The surface drilling program was 69% complete; completion of the final hole was expected by June 2012. South Deep’s development remains capital intensive.
- Gold Fields paid $54 million for options relating to a proposed 60% interest in the Far Southeast gold-copper project in the Philippines. Further non-refundable payments of $66 million and $220 million would be due if it proceeds; total agreed consideration is $340 million.
- Key exposures include gold and copper prices, exchange rates, mining hazards, labor disruption, rising labor and power costs, regulation, political and social instability, liquidity and capital needs, and reserve and impairment-estimation uncertainty. The company generally did not hedge gold production and had no outstanding copper commodity contracts at period-end.
- Gold Fields reported a $1.8 billion maximum claim (about R12 billion) in the Randgold and Exploration litigation, with an alternative claim based on alleged proceeds of about $76.9 million. The claim is against a subsidiary, and the filing says the matter remained in abeyance; the company said it had defenses. Following a March 2011 South African Constitutional Court decision concerning occupational disease claims, potential claims related to silicosis may arise; the company was assessing the exposure and said it could not yet quantify it.
- The filing states that there were no off-balance-sheet items and no defaults under credit facilities. Management and the auditor concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2010.
Important facts for investors to verify
- The narrative says net loss attributable to Gold Fields shareholders was $12.6 million, but the audited statements show net income attributable to shareholders of $12.6 million and EPS of $0.02. Resolve this apparent inconsistency against the filed financial statements.
- Confirm debt maturities, facility availability and subsequent drawdowns or repayments; the filing reports $1,394 million of committed undrawn facilities at December 31 and subsequent facility activity through March 2011.
- Assess whether 2011 production, cost and capital-spending forecasts remain achievable, particularly given cost inflation, currency movements and South Deep’s development requirements.
- Track the BEE-related expense and share issuance effects, and the potential cash commitments and feasibility outcomes for Far Southeast and the La Cima minority-share offer.
- Monitor the Randgold and Exploration litigation and the still-unquantified occupational-disease exposure, along with reserve assumptions and South Deep impairment sensitivities.
- Treat cash-cost and NCE measures as non-GAAP/management-defined metrics; the filing cautions that their calculation may not be comparable across mining companies.