Business Context and Reporting Period
Company: Gold Fields Limited (NYSE & JSE: GFI)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter (Q4) ended December 31, 2015, and Full Year 2015.
Date of Filing: February 18, 2016
Gold Fields reported Q4 2015 results characterized by cash-positive operations despite a challenging gold price environment. The average gold price for the quarter was US$1,092/oz, down from US$1,103/oz in Q3 2015. The company maintained its dividend policy and improved its balance sheet through debt reduction.
Key Financial Metrics
| Metric | Q4 2015 | Q3 2015 | Full Year 2015 | Full Year 2014 |
|---|---|---|---|---|
| Revenue | US$640 million | US$635 million | US$2,545 million | US$2,869 million |
| Net Loss (Attributable) | (US$258 million) | US$18 million | (US$242 million) | US$13 million |
| Normalised Earnings | US$15 million | US$22 million | US$45 million | US$85 million |
| Headline Earnings | (US$54 million) | US$21 million | (US$28 million) | US$27 million |
| Operating Profit | US$298 million | US$269 million | US$1,089 million | US$1,191 million |
| Net Debt | US$1,380 million | US$1,427 million | US$1,380 million | US$1,453 million |
| Net Debt/EBITDA | 1.38x | 1.41x | 1.38x | 1.30x |
| Cash Flow from Operations | US$209 million | US$221 million | US$771 million | US$849 million |
| Free Cash Flow Margin | 14% | 11% | N/A | N/A |
Operational Highlights
- Production: Q4 attributable equivalent gold production was 566,000 ounces (up 2% QoQ). Full year 2015 production was 2.16 million ounces (down 3% YoY).
- Costs: Q4 All-In Sustaining Costs (AISC) were US$929/oz (down 2% QoQ). Full year AISC was US$1,007/oz (down from US$1,053/oz in 2014).
- Dividends: Final dividend of 21 SA cents per share declared, totaling 25 SA cents for the full year 2015.
Material Changes vs. Prior Period
Profitability: The company reported a net loss of US$258 million in Q4 2015 compared to a net profit of US$18 million in Q3 2015. This swing was primarily driven by significant non-recurring impairments totaling US$300 million in Q4, including US$101 million for the Far South East (FSE) investment, US$39 million for the Arctic Platinum project, and US$105 million in derecognised deferred tax assets.
Production Variance: While total group production increased slightly QoQ, specific regions saw declines. Cerro Corona (Peru) equivalent production dropped 16% due to lower copper prices and grades. Conversely, South Deep (South Africa) production rose 24% QoQ to 68,000 ounces, and Australian production increased 6% QoQ.
Balance Sheet: Net debt decreased by US$47 million in Q4 to US$1,380 million, improving the net debt-to-EBITDA ratio to 1.38x. Total debt reduction for 2015 was US$73 million.
Guidance, Outlook, and Risks
2016 Guidance
- Production: Expected attributable equivalent gold production of 2.05 million to 2.10 million ounces.
- Costs: AISC expected between US$1,000/oz and US$1,010/oz; AIC between US$1,035/oz and US$1,045/oz.
- Capital Expenditure: Forecast at US$602 million.
- Regional Outlook: Production growth expected at South Deep (+30%) to offset declines in Australia (lower grades), Cerro Corona (lower copper price impact), and Damang (under review).
Management Commentary
CEO Nick Holland noted that while 2015 was challenging due to falling gold prices, weakening commodity currencies provided an offset. The company successfully met dividend commitments and improved the balance sheet. South Deep showed encouraging progress with improved safety and production metrics.
Risks and Contingencies
- Impairments: Significant write-downs occurred in Q4 related to FSE, Arctic Platinum, Darlot, and Damang assets.
- Safety: A fatality occurred at Tarkwa (Ghana) in December 2015. The Group's Total Recordable Injury Frequency Rate (TRIFR) regressed to 3.53 in Q4 from 3.13 in Q3.
- Legal: Ongoing disputes include a tax dispute with SARS regarding South Deep and a consolidated silicosis class action application pending judgment.
- Operational: Damang is under review with potential pit closures; Cerro Corona faces lower copper price headwinds.
Investor Verification Checklist
- Impairment Details: Verify the recoverable amount calculations for the US$300 million in Q4 impairments, specifically the FSE and Arctic Platinum projects.
- South Deep Trajectory: Monitor the execution of the "back to basics" strategy and the transition to high-profile destress mining to ensure the projected 30% production increase in 2016 is achievable.
- Damang Review: Track the outcome of the ongoing evaluation of the Damang mine, which could result in further write-downs or operational changes.
- Currency Exposure: Assess the impact of the South African Rand and Australian Dollar exchange rates on reported costs and cash flows, given the company's hedging policy.
- Legal Proceedings: Monitor the status of the silicosis class action and the South Deep tax dispute for potential financial liabilities.