Business Context and Reporting Period
Company: Gold Fields Limited (NYSE & JSE: GFI)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended 31 March 2012 (Q1 2012)
Announcement Date: 17 May 2012
Gold Fields is a global gold producer with operations in South Africa, West Africa (Ghana), South America (Peru), and Australasia (Australia). The quarter was characterized by seasonal production declines due to the Christmas break, safety-related stoppages in South Africa, and significant strategic investments in growth projects.
Key Financial Metrics
| Metric | Q1 2012 (USD) | Q4 2011 (USD) | Q1 2011 (USD) |
|---|---|---|---|
| Revenue | $1,442 million | $1,534 million | $1,285 million |
| Net Earnings | $268 million | $336 million | $158 million |
| Headline Earnings | $270 million | $333 million | $158 million |
| Operating Profit | $699 million | $877 million | $586 million |
| Operating Margin | 48% | 56% | 46% |
| Notional Cash Expenditure (NCE) Margin | 24% | 28% | 21% |
| Total Cash Cost | $870/oz | $767/oz | $751/oz |
| Gold Production (Attributable) | 827,000 oz | 883,000 oz | 830,000 oz |
| Net Debt | $1,452 million | $1,164 million | N/A |
| Cash Balance | $680 million | $744 million | $954 million |
Material Changes vs. Prior Periods
- Production: Attributable gold production decreased 6% quarter-on-quarter (QoQ) to 827,000 ounces, primarily due to the extended Christmas break and safety-related stoppages in South Africa. Production was flat year-on-year (YoY) compared to Q1 2011.
- Costs: Total cash cost increased 13% QoQ to $870/oz. This was driven by lower production volumes, higher operating costs, a reduced gold-in-process credit, and the strengthening of the South African Rand against the US Dollar.
- Earnings: Net earnings declined 20% QoQ to $268 million but increased 70% YoY to $268 million (from $158 million), benefiting from higher gold prices and improved cost control relative to the prior year.
- Regional Performance:
- South Africa: Production down 11% QoQ; operating margin fell to 37%.
- West Africa: Production up 5% QoQ (driven by Tarkwa); operating margin stable at 63%.
- Australasia: Production down 9% QoQ due to lower grades and volumes at Agnew.
Guidance, Outlook, and Risks
Guidance and Outlook
- 2012 Production: Attributable gold production for the full year 2012 is expected to be approximately 3.5 million equivalent ounces.
- Cost Guidance: Total cash cost is estimated at $860/oz and NCE at $1,300/oz for the full year 2012.
- Reserves: Total attributable Mineral Reserves increased 5% to 80.6 million ounces as of 31 December 2011.
Management Commentary and Strategic Moves
- Far Southeast Project: Gold Fields exercised an option to acquire a 40% interest in the Far Southeast project in the Philippines, paying $110 million. A pre-feasibility study has commenced.
- Chucapaca (Peru): Feasibility study remains on track for completion in H2 2012.
- Arctic Platinum (Finland): Resource drilling at Suhanko North is complete; pre-feasibility study expected by end of 2012.
- Damang Super-pit (Ghana): Pre-feasibility study scheduled for H2 2012, though recent tax changes in Ghana (rate increase to 35%) are being assessed for impact.
Risks and Contingencies
- Safety: Four fatal accidents occurred in South Africa during the quarter (two at KDC, two at Beatrix). The fatal injury frequency rate regressed to 0.11.
- Regulatory/Tax: New tax legislation in Ghana (effective March 2012) increased the mining tax rate from 25% to 35% and reduced capital allowances, negatively impacting the Damang Super-pit project economics. South Africa abolished the Secondary Tax on Companies (STC) effective April 2012.
- Operational: Agnew (Australia) faces ongoing poor ground conditions and high skilled labor turnover, leading to reduced production guidance for the mine. Damang (Ghana) faces safety concerns regarding the southern inter-phase mining.
- Political: A military coup in Mali in March 2012 led to the evacuation of expatriate employees and a temporary suspension of drilling at the Yanfolila project.
Investor Verification Checklist
- Safety Performance: Verify the implementation of safety initiatives following the four fatalities in South Africa and the impact on future production schedules.
- Ghana Tax Impact: Assess the final financial modeling of the Damang Super-pit project under the new 35% tax regime and reduced capital allowances.
- Agnew Recovery: Monitor the resolution of ground stability issues and labor turnover at the Agnew mine to confirm if production can return to historical levels in H2 2012.
- Cost Inflation: Track the trajectory of total cash costs, particularly in South Africa, to ensure they remain within the $860/oz full-year guidance despite Rand volatility and wage increases.
- Project Execution: Confirm the timeline and capital requirements for the Far Southeast (Philippines) and Chucapaca (Peru) projects to ensure they meet the 2015 growth target of 5 million ounces.