Business Context and Reporting Period
Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended 31 December 2007 (Q2 Fiscal 2008)
Announcement Date: 31 January 2008
Gold Fields reported a significant recovery in international operations offset by safety-related stoppages and production declines at South African mines. The quarter included the successful disposal of the Essakane project (Burkina Faso) and Venezuelan assets (Choco 10), which were classified as discontinued operations.
Key Financial Metrics
| Metric | Dec 2007 (Q2) | Sep 2007 (Q1) | Dec 2006 (YoY) |
|---|---|---|---|
| Revenue (R million) | 5,430 | 5,018 | 4,753 |
| Operating Profit (R million) | 2,037 | 1,716 | 1,946 |
| Operating Margin | 38% | 34% | 41% |
| Net Earnings (R million) | 1,938 | 429 (Restated) | 767 |
| Headline Earnings (R million) | 456 | 411 | 762 |
| Gold Production (000 oz) | 960 | 986 | 993 |
| Total Cash Costs (US$/oz) | 467 | 431 | 351 |
| Gold Price Received (US$/oz) | 784 | 680 | 609 |
| Cash Flow from Operations (R million) | 1,148 | 985 | 1,381 |
| Capital Expenditure (R million) | 2,476 | 1,928 | 1,338 |
| Cash Balance (R million) | 1,321 | 1,470 | 1,413 |
Material Changes vs. Prior Period
- Production Decline: Attributable gold production fell 3% quarter-on-quarter to 960,000 ounces. South African production dropped 5% (657,000 oz) due to strikes and safety stoppages, while international production rose 2% (303,000 oz).
- Profit Surge: Net earnings increased 350% to R1.9 billion, driven primarily by a 15% increase in the gold price and exceptional gains from asset sales. Headline earnings (excluding one-offs) rose 11% to R456 million.
- Cost Inflation: Total cash costs rose 3% to US$467/oz, impacted by inflation, higher input costs (fuel, steel), and lower production volumes spreading fixed costs.
- Asset Disposals: The company sold its 60% stake in Essakane for R1.375 billion (cash and shares) and Venezuelan assets for R2.799 billion (cash and shares), generating significant exceptional gains.
Outlook, Risks, and Management Commentary
- Power Shortages: CEO Ian Cockerill warned that ongoing power shortages in South Africa will impact production in the March quarter and potentially lead to shaft closures. Production is forecast to be 20-25% lower in the next quarter due to load shedding.
- Safety Incidents: The quarter saw 17 fatalities across the group, leading to regulatory stoppages (Section 54) at Driefontein and Kloof mines. The fatal injury frequency rate increased to 0.32 per million hours worked.
- Royalty Bill: A draft South African royalty bill was published that could significantly increase royalty rates to approximately 4% (up from 1.5%) based on current gold prices.
- Project Updates:
- Cerro Corona (Peru): Construction is on track for a May 2008 start-up, though capital costs were revised to US$421 million.
- South Deep: A strategic review concluded that the current mining scope requires change to optimize production build-up due to infrastructure delays and geological faults.
- Dividend: No interim dividend was declared due to uncertainty regarding electricity supply and its impact on future production.
Investor Verification Checklist
- Power Supply Impact: Verify the extent of production losses in the March quarter due to Eskom load shedding and the potential for further shaft closures.
- Safety Compliance: Monitor the status of Section 54 stoppages at Driefontein and Kloof and the effectiveness of new safety interventions.
- Royalty Legislation: Track the progress of the South African Mineral and Petroleum Resources Royalty Bill and its potential impact on margins.
- South Deep Strategy: Review the outcomes of the strategic review regarding the mining scope and infrastructure development at South Deep.
- Cash Flow vs. Capex: Assess the sustainability of the high capital expenditure (R2.476 billion) against operating cash flows, particularly with the Cerro Corona project nearing completion.