Business Context and Reporting Period
Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter ended June 30, 2014 (Announced August 21, 2014)
Overview: Gold Fields reported improved operational performance, cash generation, and debt reduction for the quarter. The Group achieved a free cash flow margin of 18%, exceeding its target of 15%. However, the South Deep mine in South Africa faced significant production disruptions due to two fatal accidents and a subsequent safety remediation program.
Key Financial Metrics
| Metric | Q2 2014 | Q1 2014 | Q2 2013 |
|---|---|---|---|
| Revenue | US$747 million | US$715 million | US$637 million |
| Net Earnings (Continuing Ops) | US$19 million | US$0 million | (US$129 million) Loss |
| Normalised Earnings | US$25 million | US$21 million | (US$36 million) Loss |
| Operating Profit | US$311 million | US$292 million | US$240 million |
| Free Cash Flow Margin | 18% | 13% | N/A |
| Cash Flow from Ops (Adj.) | US$65 million | US$54 million | (US$230 million) Outflow |
| Net Debt | US$1,635 million | US$1,686 million | N/A |
| Net Debt Reduction (YTD) | US$101 million | US$49 million | N/A |
| Net Debt to EBITDA | 1.47x | 1.53x | N/A |
| Gold Production (Attributable) | 548,000 oz | 557,000 oz | 451,000 oz |
| All-In Sustaining Cost (AISC) | US$1,050/oz | US$1,066/oz | US$1,416/oz |
| Total All-In Cost (AIC) | US$1,093/oz | US$1,114/oz | US$1,572/oz |
Material Changes vs. Prior Periods
- Production: Attributable gold production decreased 2% quarter-over-quarter (QoQ) to 548,000 ounces but increased 22% year-over-year (YoY) to 548,000 ounces. The QoQ decline was driven by a 14% drop at South Deep due to safety stoppages.
- Costs: AISC improved 26% YoY to US$1,050/oz and 2% QoQ. AIC improved 30% YoY to US$1,093/oz and 2% QoQ.
- Profitability: Net earnings turned positive at US$19 million compared to a US$129 million loss in Q2 2013. Operating profit increased 7% QoQ and 29% YoY.
- Cash Flow: Adjusted cash flow from operating activities swung from a US$230 million outflow in Q2 2013 to a US$65 million inflow in Q2 2014.
- Balance Sheet: Net debt decreased by US$52 million in the quarter. The maturity of US$715 million in syndicated bank facilities was extended by two years to November 2017.
Guidance, Outlook, and Risks
Guidance and Outlook
- Full-Year 2014 Production: Reaffirmed guidance of approximately 2.2 million gold equivalent ounces.
- Full-Year 2014 Costs: Reaffirmed AISC guidance of US$1,125/oz and AIC guidance of US$1,150/oz.
- Capital Expenditure: Forecast at US$640 million for the year.
- Dividend: Declared an interim dividend of 20 South African cents per share, payable September 15, 2014.
Management Commentary
Management highlighted that despite safety interventions at South Deep masking underlying performance, the Group achieved its free cash flow margin target. The Australian portfolio, particularly the newly acquired Yilgarn South assets (Granny Smith, Agnew/Lawlers), performed strongly. The Group is disposing of non-core assets (Yanfolila in Mali, Chucapaca in Peru) to focus on cash-generating in-production ounces.
Risks and Contingencies
- South Deep Safety: Two fatal accidents in May 2014 led to a Department of Minerals Resources moratorium on workshop activities and a ground support remediation program. This halted production in areas sourcing 70% of current output. Production is expected to remain lower in H2 2014, with normal operations resuming in Q4 2014.
- Legal Proceedings:
- SEC Investigation: Ongoing regulatory investigation regarding the Black Economic Empowerment (BEE) transaction for the South Deep license.
- Native Title Claim: A Federal Court of Australia ruling found certain St Ives tenements invalid due to non-compliance with the Native Title Act. Gold Fields intends to appeal; operations continue unaffected pending resolution.
- Historic Litigation: Claims against Gold Fields Operations Limited (50% stake in South Deep) regarding alleged unlawful share disposals from the Brett Kebble era. Management asserts sustainable defenses.
- Operational Risks: Hazards associated with underground mining, labor disruptions, and fluctuations in gold/copper prices and exchange rates.
Investor Verification Checklist
- South Deep Recovery Timeline: Verify the progress of the ground support remediation program and the actual resumption of production in Q4 2014.
- Cost Guidance Adherence: Monitor if the Group can maintain the US$1,125/oz AISC guidance given the lower production volume at South Deep.
- Legal Outcomes: Track the status of the SEC investigation and the Native Title appeal process in Australia.
- Asset Disposal Proceeds: Confirm the closing and receipt of proceeds from the sale of the Chucapaca project (US$81 million) and the value realization of the Yanfolila stake.
- Debt Maturity Profile: Review the impact of the extended debt facilities on future liquidity and interest costs.