Business Context and Reporting Period
Company: Gold Fields Limited (JSE/NYSE: GFI)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended December 31, 2008 (Q2 Financial Year 2009)
Announcement Date: January 29, 2009
Gold Fields reported headline earnings of R484 million (US$55 million) for the quarter. The period was characterized by the completion of major expansion projects at Cerro Corona (Peru) and Tarkwa (Ghana), which achieved full production. The company navigated a challenging global economic environment, a weaker South African rand, and ongoing safety rehabilitation initiatives at its South African operations.
Key Financial Metrics
| Metric | Dec 2008 (R) | Dec 2008 (US$) | Sep 2008 (R) | Sep 2008 (US$) |
|---|---|---|---|---|
| Revenue | R7,074 million | US$718 million | R5,724 million | US$740 million |
| Headline Earnings | R484 million | US$55 million | R39 million | US$5 million |
| Net Profit (Attributable) | R483 million | US$54 million | R39 million | US$5 million |
| Operating Profit | R2,566 million | US$268 million | R1,574 million | US$203 million |
| Operating Margin | 36% | 37% | 27% | 27% |
| Attributable Gold Production | 839,000 oz | 839,000 oz | 798,000 oz | 798,000 oz |
| Total Cash Cost | R153,893/kg | US$487/oz | R153,461/kg | US$617/oz |
| Notional Cash Expenditure (NCE) | R244,210/kg | US$774/oz | R226,120/kg | US$909/oz |
| Capital Expenditure | R2,345 million | US$239 million | R1,813 million | US$234 million |
| Net Debt | R9,354 million | US$970 million | R7,756 million | US$978 million |
| Cash Balance (End of Period) | R1,054 million | US$109 million | R1,818 million | US$229 million |
Material Changes vs. Prior Period
- Production: Attributable gold production increased 5% quarter-on-quarter to 839,000 ounces, driven by a 10% increase in international operations (338,000 oz) and a 2% increase in South Africa (501,000 oz). South Deep production rose 73% due to restructuring and increased tonnage.
- Costs: Total cash costs were flat in Rand terms but decreased 21% in US dollar terms (from US$617 to US$487/oz) primarily due to the weaker Rand and Australian Dollar. NCE decreased 15% in US dollar terms (from US$909 to US$774/oz).
- Revenue: Revenue increased 24% in Rand terms due to higher production and a 15% increase in the Rand gold price. In US dollar terms, revenue decreased 3% due to the weakening Rand offsetting the higher Rand gold price.
- Profitability: Operating profit surged 63% in Rand terms and 32% in US dollar terms. Headline earnings improved significantly from R39 million to R484 million.
- Balance Sheet: Net debt increased in Rand terms (R7.76bn to R9.35bn) largely due to the translation of dollar-denominated debt at a weaker exchange rate and borrowings to fund capital projects. Cash balance decreased due to capital expenditure and working capital outflows.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Production Guidance: Attributable production for Q3 (March 2009) is forecast at approximately 960,000 ounces, with a run rate of 975,000 ounces by quarter-end. This is below the previous 1 million ounce target due to lower copper prices reducing the gold-equivalent conversion at Cerro Corona.
- Cost Outlook: NCE is forecast to decrease to US$630/oz in the March quarter, and Total Cash Cost to US$440/oz, driven by higher production and reduced capital expenditure following project completions.
- Capital Expenditure: Capex is expected to decline significantly in the remainder of FY2009 and through FY2010 as major growth projects in Ghana and Peru are completed.
- Safety: Fatal injuries for the six months to December stood at eight, a significant improvement from 47 in FY2008. The objective remains to eliminate all fatal injuries.
Risks and Contingencies
- Commodity Prices: Decline in copper prices negatively impacts the gold-equivalent ounce calculation at Cerro Corona.
- Operational Risks: Seismic events at Driefontein caused production stoppages and fatalities. Power rationing in South Africa has stabilized but remains a risk.
- Financial Risks: Currency volatility (Rand/AUD weakness) impacts reported US dollar costs and revenue. The global credit crisis is monitored, though the balance sheet is described as robust.
- Regulatory: New Mineral and Petroleum Resources Royalty Act in South Africa effective May 2009.
Investor Verification Checklist
- Copper Price Sensitivity: Verify the impact of current copper prices on Cerro Corona's gold-equivalent production and revenue contribution.
- South African Safety Metrics: Monitor the Du Pont assessment action plan and subsequent safety performance, specifically regarding seismic events and fatal injury rates.
- Project Completion Status: Confirm the operational stability and cost performance of the newly commissioned CIL plant at Tarkwa and full production at Cerro Corona.
- Exchange Rate Exposure: Assess the ongoing impact of Rand and Australian Dollar volatility on US dollar-denominated cash costs and earnings.
- Capital Expenditure Trajectory: Verify the reduction in project capital expenditure as forecasted, ensuring it aligns with the transition to sustaining capital.