Business Context and Reporting Period
Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended March 31, 2011 (Announced May 19, 2011)
Business Overview: Gold Fields is a global gold mining company with operations in South Africa, West Africa (Ghana), South America (Peru), and Australasia (Australia). The quarter was characterized by seasonal production declines in South Africa due to the Christmas break, offset by cost containment initiatives and strategic minority stake acquisitions.
Key Financial Metrics
| Metric | March 2011 (ZAR) | March 2011 (USD) | Dec 2010 (ZAR) | Dec 2010 (USD) |
|---|---|---|---|---|
| Revenue | R8,969 million | $1,285 million | R9,255 million | $1,334 million |
| Net Earnings (Attributable) | R1,100 million | $158 million | (R777 million) Loss | ($106 million) Loss |
| Operating Profit | R4,091 million | $586 million | R4,240 million | $610 million |
| Operating Margin | 46% | 46% | 46% | 46% |
| NCE Margin | 21% | 21% | 20% | 20% |
| Net Operating Costs | R4,878 million | $699 million | R5,015 million | $724 million |
| Total Cash Cost | R168,455/kg | $751/oz | R161,894/kg | $728/oz |
| Notional Cash Expenditure (NCE) | R245,326/kg | $1,093/oz | R243,506/kg | $1,094/oz |
| Net Debt | R5,269 million | $761 million | R3,974 million | $589 million |
| Cash Balance | R6,603 million | $954 million | R5,464 million | $810 million |
Material Changes vs. Prior Period
- Production: Group attributable gold production was 830,000 ounces, a 5% increase year-over-year but an 8% decrease quarter-over-quarter. The decline was primarily due to the traditional Christmas break in South Africa, which impacted KDC (-15%) and Beatrix (-25%). Conversely, West Africa (Tarkwa) and South America (Cerro Corona) saw production increases.
- Profitability: The company returned to profitability with net earnings of R1,100 million, compared to a loss of R777 million in the December 2010 quarter. This turnaround was driven by the absence of significant non-recurring costs (specifically BEE transaction costs) that impacted the prior quarter.
- Costs: Net operating costs decreased for the third consecutive quarter to R4,878 million. Total cash cost per ounce increased slightly by 4% to $751, despite lower production, due to the high fixed-cost nature of the business.
- Debt: Net debt increased by R1.3 billion (to R5,269 million) primarily due to borrowings used to fund the buy-out of minority shareholders in La Cima (Peru).
Guidance, Outlook, and Risks
Guidance and Outlook
- 2011 Guidance: Unchanged from February 18. Estimated gold production is 3.5 to 3.7 million attributable ounces. Total cash cost is estimated at $760/oz and NCE at $1,050/oz.
- Strategic Acquisitions:
- Peru: Completed a voluntary offer to acquire minority shares in La Cima (Cerro Corona), increasing economic interest to 98.5%.
- Ghana: Entered a binding agreement to acquire IAMGOLD's 18.9% stake in Tarkwa and Damang mines for $667 million, subject to shareholder approval by July 31, 2011.
- Long-term Goal: Target of 5 million ounces per annum (production or development) by 2015.
Risks and Contingencies
- Safety: Five fatalities were reported in the South Africa region during the quarter. The fatal injury frequency rate regressed to 0.13. Management emphasized a renewed focus on safety initiatives.
- Legal/Regulatory: A South African Constitutional Court ruling declared legislation limiting employee claims for silicosis unconstitutional, potentially exposing the company to common law damages. The impact is being assessed.
- Operational: Production at Agnew (Australia) was impacted by a paste fill cement consistency issue. Damang (Ghana) production was constrained by ramp construction safety requirements.
- Market: Risks include fluctuations in gold/copper prices, exchange rates (ZAR/USD), and political conditions in operating jurisdictions.
Investor Verification Checklist
- Acquisition Completion: Verify the status of the $667 million IAMGOLD acquisition in Ghana and the required shareholder approval timeline.
- Safety Metrics: Monitor the trend in fatality rates and the effectiveness of new safety initiatives following the five fatalities in Q1.
- South Deep Ramp-up: Track capital expenditure and production progress at the South Deep mine, which significantly impacts the South African region's NCE margin.
- Legal Exposure: Assess the potential financial impact of the Constitutional Court ruling regarding silicosis claims.
- Cost Inflation: Verify if the Business Process Re-engineering (BPR) program can sustain cost reductions against anticipated inflation in input costs (electricity, labor).