GFI

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 September 30, 2011 (Announced November 10, 2011)
Overview: Gold Fields reported record quarterly net earnings driven by a 14% increase in the US dollar gold price and improved operational margins. The company achieved 50% of its production from international operations, enhancing geographical diversification. Despite a five-day wage-related strike in South Africa, attributable equivalent gold production increased by 3% quarter-on-quarter.

Key Financial Metrics

Material Changes vs. Prior Period

• Earnings Surge: Net earnings increased 62% quarter-on-quarter (QoQ) and 193% year-on-year (YoY), primarily due to higher gold prices (US$1,702/oz vs US$1,496/oz) and improved margins.
• Production Mix: Group attributable production rose 3% QoQ to 900,000 oz. West African production increased 26% due to the buy-out of non-controlling interests (holding increased to 90%). South African production decreased 4% due to industrial action.
• Cost Inflation: Total cash costs rose 4% in dollar terms (US$816 to US$851/oz) driven by higher royalties, wage increases in South Africa, and winter electricity tariffs. However, operating costs were well-controlled relative to revenue growth.
• Balance Sheet: Net debt increased significantly from R3,974m (Dec 2010) to R11,096m (Sep 2011) due to funding the buy-out of non-controlling interests in Peru and Ghana (approx. R7.1bn), capital expenditure, and dividends. This was partially offset by strong operating cash flow.
• Debt Repayment: Despite higher net debt, the company repaid US$195m in loans funded from operating activities during the quarter.

Guidance, Outlook, and Risks

Guidance and Outlook

• 2011 Production: Guidance remains unchanged at 3.5 million attributable ounces for the full year, despite South African disruptions.
• 2011 Costs: Total cash cost estimated at US$810/oz; NCE estimated at US$1,200/oz.
• Long-term Target: Strategy to achieve 5 million quality gold equivalent ounces in production or development by end of 2015.
• Project Pipeline:
  • Far Southeast (Philippines): Second down payment of US$66m made; positive drilling results confirmed scale and grade.
  • Chucapaca (Peru): Resource updated to 7.6m oz (35% increase); feasibility study drilling complete.
  • South Deep (South Africa): Infrastructure projects (ventilation shaft, plant expansion) on track for completion by end of 2012.

Risks and Contingencies

• Safety: Fatal injury frequency rate improved 25% QoQ, but six fatalities occurred in South Africa. Safety remains the primary operational challenge.
• Industrial Action: Five-day wage-related strike in South Africa impacted production; ongoing risk of labor disruptions.
• Operational Disruptions: Excessive rainfall in West Africa and power interruptions at Damang (Ghana) affected operations.
• Market Risks: Exposure to gold/copper price volatility, exchange rate fluctuations (Rand weakened 4% QoQ), and regulatory changes.
• Security: Exploration camp attack reported in Kyrgyzstan; criminal investigation underway.

Investor Verification Checklist

• Debt Leverage: Verify the impact of the R11bn net debt increase on the Net Debt to EBITDA ratio and future interest coverage.
• South African Stability: Assess the sustainability of production targets given the history of wage-related strikes and safety stoppages in the South African region.
• Project Execution: Monitor the timeline and cost adherence for the South Deep build-up and the Far Southeast acquisition finalization (final payment due H1 2012).
• Cost Control: Confirm if the NCE margin can sustain the 29% level or if inflation (wages, energy) will erode margins in subsequent quarters.
• Safety Metrics: Track the Lost Day Injury Frequency Rate (LDIFR), which regressed slightly from 4.86 to 4.95, despite improvements in fatality rates.