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, 2007 (Q3 FY2007)
Key Events: Finalization of the South Deep acquisition (100% ownership of Western Areas), successful completion of a R10.3 billion (US$1.4 billion) equity raising, and the cost-effective retirement of the Western Areas gold hedge.
Key Financial Metrics
| Metric | March 2007 (ZAR) | March 2007 (USD) | Dec 2006 (ZAR) | Dec 2006 (USD) |
|---|---|---|---|---|
| Revenue | R4,994 million | US$693 million | R4,854 million | US$658 million |
| Operating Profit | R1,840 million | US$255 million | R1,969 million | US$267 million |
| Operating Margin | 37% | 37% | 41% | 41% |
| Net Earnings (Reported) | R370 million | US$52 million | R767 million | US$104 million |
| Headline Earnings | R228 million | US$32 million | R762 million | US$103 million |
| Adj. Net Earnings (Excl. FX/Exceptional) | R512 million | US$71 million | R564 million | US$76 million |
| Attributable Gold Production | 989,000 oz | 989,000 oz | 1,015,000 oz | 1,015,000 oz |
| Total Cash Costs | R92,490/kg | US$399/oz | R83,707/kg | US$353/oz |
| Cash Balance (End of Period) | R2,328 million | US$323 million | R1,413 million | US$202 million |
Material Changes vs. Prior Period
- Production: Attributable gold production decreased 3% quarter-on-quarter to 989,000 ounces. South African operations increased marginally (driven by full-quarter South Deep inclusion), while international operations decreased 8% due to lower grades and water shortages at Choco 10.
- Revenue: Increased 3% in Rand terms (R4,994m vs R4,854m) and 5% in USD terms, driven by a 7% increase in the average gold price (US$652/oz vs US$609/oz) which offset lower production volumes.
- Costs: Operating costs rose 6% (R3,165m vs R2,975m). Total cash costs per ounce increased 13% to US$399/oz, primarily due to lower production volumes and the inclusion of South Deep's higher initial costs.
- Profitability: Operating profit declined 7% to R1,840 million. Reported net earnings dropped significantly to R370 million (from R767 million) due to a R380 million foreign exchange loss and R35 million loss on financial instruments related to the South Deep acquisition and Western Areas hedge closure.
- Capital Structure: The company raised R10.3 billion in equity and used R8.8 billion to retire debt, significantly improving liquidity and reducing leverage.
Guidance, Outlook, and Risks
- Outlook: Management forecasts June quarter gold production at just over 1 million ounces with reduced cash costs. Operational excellence initiatives (safety, quality, cost control, productivity) are expected to improve performance in coming quarters.
- Operational Risks:
- Choco 10 (Venezuela): Production remains severely constrained by water shortages; permitting for river water extraction is ongoing but slow.
- South Africa: Operations faced lower grades, volume issues, and a slow post-Christmas start-up. Safety performance regressed with 6 fatal injuries in the quarter.
- Cost Pressures: Inflationary pressures on input costs (steel, fuel, labor) and rising oil prices are expected to continue.
- Financial Risks: Significant volatility in earnings due to foreign exchange movements on US dollar-denominated debt (specifically the South Deep acquisition loan) and the settlement of gold derivatives.
- Accounting Change: The company adopted a new policy capitalizing Ore Reserve Development (ORD) costs, aligning with industry peers. This change resulted in a net credit to earnings of R75 million for the quarter.
Investor Verification Checklist
- South Deep Integration: Verify the timeline for South Deep to reach full production capacity and the trajectory of its unit cost reduction.
- Choco 10 Water Supply: Monitor the status of the Yuruari River water extraction permit and the effectiveness of alternative water supply initiatives.
- FX Exposure: Assess the company's hedging strategy for the remaining US dollar-denominated debt to mitigate future earnings volatility from Rand fluctuations.
- Safety Metrics: Track the Lost Time Injury Frequency Rate (LTIFR) and fatal injury frequency following the regression in the March quarter.
- Capital Allocation: Confirm the deployment of the R10.3 billion equity proceeds and the status of the new US$750 million syndicated credit facility.