Business Context and Reporting Period
Gold Fields Limited, a significant unhedged gold producer listed on the JSE, NYSE, and NASDAQ Dubai, reported its second-quarter 2013 results on August 22, 2013. The Company operates mines in Australia, Ghana, Peru, and South Africa. Following the unbundling of Sibanye Gold Limited earlier in 2013, the Company is pursuing a new strategic direction focused on portfolio rebalancing and cost management in a low gold price environment.
Key Financial Metrics
- Net Loss (Q2 2013): US$129 million (R1,169 million) from continuing operations.
- Dividend: No interim dividend declared due to gold price volatility.
- Production Capacity: Approximately 2.0 million gold equivalent ounces annualized.
- Reserves and Resources: 64 million ounces in Mineral Reserves and 155 million ounces in Mineral Resources.
- Acquisition Consideration: US$300 million (subject to downward working capital adjustments up to US$30 million) for Australian assets.
Material Changes vs. Prior Periods
The Company reported a significant deterioration in profitability compared to prior periods:
- Q2 2013 vs. Q1 2013: Shifted from earnings of US$27 million (R236 million) to a net loss of US$129 million (R1,169 million).
- Q2 2013 vs. Q2 2012: Shifted from earnings of US$105 million (R837 million) to a net loss of US$129 million (R1,169 million).
- Strategic Shift: The Board reduced the number of directors from twelve to nine to align with the new strategic focus.
Guidance, Outlook, and Material Events
Acquisition of Australian Assets
Gold Fields entered a binding agreement to acquire Barrick's interests in the Granny Smith, Lawlers, and Darlot gold mines in Western Australia. This acquisition is expected to:
- Add 452,000 ounces of annual production at an All-in Sustaining Cost (AISC) of US$1,137 per ounce.
- Add 2.6 million reserve ounces at an acquisition cost of approximately US$115 per ounce.
- Make Australia the Company's largest regional production center (42% of total production), reducing Ghana's share to 34%.
Board Restructuring
Three non-executive directors (Delfin Lazaro, Roberto Daňino, and Rupert Pennant-Rea) resigned with immediate effect. New committee chairs were appointed: Mr. Donald Ncube (Social and Ethics Committee) and Mr. Alan Hill (Remuneration Committee).
BEE Transaction Examination
The Board concluded its examination of the Black Economic Empowerment (BEE) transaction related to South Deep operations. While the Board maintains the transaction is of lasting benefit, it acknowledged implementation failures regarding internal standards and transparency. In response, CEO Nick Holland offered to waive his 2013 financial year bonus.
Risks and Contingencies
The Board expressed concern regarding short-term gold price volatility. The acquisition is subject to customary regulatory conditions and working capital adjustments.
Investor Verification Checklist
- Verify the final purchase price of the Australian assets after working capital adjustments.
- Confirm the timeline for regulatory approval and completion of the Barrick asset acquisition.
- Monitor the implementation of new internal policies and procedures regarding the South Deep BEE transaction.
- Assess the impact of the US$129 million quarterly loss on the Company's liquidity and debt covenants.
- Review the integration plan for the new Australian assets to ensure the projected AISC of US$1,137 per ounce is achievable.