Business Context and Reporting Period
Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended 30 June 2018
Announcement Date: 16 August 2018
Gold Fields reported a net loss attributable to owners of the parent from continuing operations of US$367 million (US$0.45 per share) for the six months ended 30 June 2018, a significant decline from a profit of US$54 million (US$0.07 per share) in the same period in 2017. The loss was primarily driven by a US$359 million after-tax impairment charge at the South Deep mine and restructuring costs. Normalised profit from continuing operations was US$43 million (US$0.05 per share), down from US$78 million in the prior year.
Key Financial Metrics
| Metric | Six Months Ended June 2018 | Six Months Ended June 2017 |
|---|---|---|
| Revenue | US$1,351 million | US$1,305 million |
| Net Loss (Continuing Ops) | (US$367 million) | US$54 million (Profit) |
| Normalised Profit | US$43 million | US$78 million |
| Headline Earnings | US$67 million | US$68 million |
| Gold Production (Attributable) | 994,000 ounces | 1,022,000 ounces |
| All-in Sustaining Costs (AISC) | US$965/oz | US$967/oz |
| Total All-in Costs (AIC) | US$1,169/oz | US$1,092/oz |
| Net Debt | US$1,393 million | US$1,365 million |
| Net Debt/EBITDA Ratio | 1.07x | 1.03x (Dec 2017) |
| Cash Flow from Operating Activities | US$263 million (Inflow) | US$276 million (Inflow) |
| Free Cash Flow (Net of Capex) | (US$79 million) Outflow | (US$102 million) Outflow |
Material Changes vs. Prior Period
- Profitability: The company swung from a profit to a significant loss due to non-recurring items totaling US$661 million, primarily the South Deep impairment (US$482 million pre-tax) and restructuring costs at Tarkwa (US$81 million) and Damang (US$15 million).
- Production: Attributable gold production decreased by 3% to 994,000 ounces. South Deep production fell 19% to 97,000 ounces due to operational challenges and restructuring. Conversely, Damang production increased 16% to 89,500 ounces.
- Costs: While AISC remained stable, Total All-in Costs increased 7% to US$1,169/oz due to higher project capital expenditure at Gruyere and Damang.
- Debt: Net debt increased by US$90 million to US$1,393 million, though the debt covenant level of 2.5x remains well above the current 1.07x ratio.
Guidance, Outlook, and Risks
Management Commentary and Guidance
Management maintains the 2018 full-year guidance for attributable equivalent gold production (2.08Moz – 2.10Moz), AISC (US$1,010 – US$1,030/oz), and AIC (US$1,190 – US$1,210/oz), inclusive of the new Asanko joint venture. Capital expenditure for 2018 is forecast at US$854 million, higher than previous guidance due to Damang and Gruyere projects.
South Deep Restructuring: A material restructuring was announced, including a Section 189 process potentially impacting 1,100 permanent employees and 460 contractors. Management stated that the previously guided build-up plan for the mine can no longer be relied upon due to high uncertainty. Production guidance for South Deep remains at 7,600kg for 2018, but with increased volatility.
Projects:
- Damang: Reinvestment project is on track; production increased significantly.
- Gruyere: First production expected in Q2 2019. Final Forecast Capital is now estimated at A$621 million (18% above approved budget), with Gold Fields funding up to 10% of overruns (approx. A$51 million).
- Asanko: Acquisition of a 45% stake in Asanko Gold Ghana operations concluded on 31 July 2018.
Risks and Contingencies
- South Deep Operational Risk: Persistent issues with mechanised mining transition, ground conditions, and equipment reliability have led to cash losses and impairment.
- Regulatory/Legal: Ongoing engagement with the Ghanaian government regarding a potential 30% pre-emption right on gold mined. A silicosis and tuberculosis class action settlement is pending court approval.
- Project Cost Overruns: Gruyere project costs have exceeded the original budget.
Investor Verification Checklist
- South Deep Viability: Verify the impact of the large-scale restructuring (Section 189) on 2019 production forecasts and the timeline for returning the mine to sustainable profitability.
- Gruyere Budget: Confirm the final capital cost implications and the extent of Gold Fields' liability for the A$89 million budget overrun.
- Asanko Integration: Assess the financial impact and production contribution of the new 45% Asanko joint venture starting from July 2018.
- Dividend Policy: Note the interim dividend of 20 SA cents per share (31% of normalised profit), which is lower than the 40 SA cents paid in the prior year.
- Regulatory Environment: Monitor the outcome of the Ghanaian government's pre-emption proposal and the final court approval of the silicosis settlement.