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 June 30, 2006 (Q4 F2006) and Financial Year ended June 30, 2006.
Announcement Date: August 3, 2006
Gold Fields reported a significant turnaround in profitability for the quarter and the full financial year, driven primarily by a substantial increase in the average gold price and improved operational performance at its South African mines, particularly Kloof. The company declared a final dividend of 110 SA cents per share.
Key Financial Metrics
| Metric | Q4 2006 (Jun) | Q3 2006 (Mar) | Q4 2005 (Jun) | Full Year 2006 | Full Year 2005 |
|---|---|---|---|---|---|
| Revenue (R million) | 4,369 | 3,734 | 3,156 | 14,605 | 11,756 |
| Revenue (US$ million) | 683 | 602 | 492 | 2,282 | 1,893 |
| Operating Profit (R million) | 1,660 | 1,187 | 656 | 4,360 | 2,286 |
| Operating Profit (US$ million) | 260 | 190 | 103 | 681 | 368 |
| Net Earnings (R million) | 604 | 483 | (27) | 1,389 | 128 |
| Net Earnings (US$ million) | 95 | 76 | (5) | 217 | 21 |
| Operating Margin | 38% | 32% | 21% | 30% | 19% |
| Gold Production (000 oz) | 1,018 | 1,023 | 1,078 | 4,074 | 4,219 |
| Avg Gold Price (US$/oz) | 628 | 555 | 429 | 524 | 422 |
| Total Cash Costs (US$/oz) | 376 | 372 | 330 | 358 | 331 |
| Operating Cash Flow (R million) | 1,529 | 1,116 | 708 | 3,505 | 1,792 |
| Cash Balance (R million) | 1,618 | 1,502 | 3,375 | 1,618 | 3,375 |
Material Changes vs. Prior Period
- Profitability Surge: Net earnings for the quarter increased to R604 million (US$95 million) from R483 million in the prior quarter and a loss of R27 million in the same quarter last year. Full-year earnings increased eleven-fold to R1,389 million.
- Price Impact: The average gold price rose 13% quarter-on-quarter to US$628/oz and 18% in Rand terms. This price increase significantly offset a slight decline in production volumes.
- Production Mix: Attributable gold production was flat quarter-on-quarter at 1.018 million ounces. South African production increased 4% (driven by Kloof), while international production decreased 7%.
- Cost Inflation: Total cash costs increased 12% year-on-year to US$358/oz due to higher input costs (fuel, steel, cyanide), wage increases, and a weaker Rand. However, operating margins expanded from 32% to 38% due to the higher gold price.
- Acquisitions: Gold Fields increased its stake in Western Areas Limited to 18.9% and completed the acquisition of Cerro Corona and Bolivar.
Outlook, Risks, and Management Commentary
Management Commentary
CEO Ian Cockerill highlighted that results were broadly in line with guidance. The company successfully passed through a significant portion of the higher gold price to the bottom line through effective cost control. South African operations, led by a "resurgent" Kloof mine, delivered anticipated improvements, while international operations declined from an unsustainably high base in the previous quarter.
Guidance and Outlook
- September Quarter: Gold production is expected to be marginally higher than the June quarter. Total cash costs are expected to increase due to wage increases at South African operations.
- Focus: Management will focus on mining quality volumes and tight cost control to mitigate inflationary pressures.
Risks and Contingencies
- Safety Incidents: The company reported 15 fatal injuries in the quarter, all at South African operations (9 due to falls of ground/seismicity). The fatal injury frequency rate increased to 0.44 per million man hours. Kloof and Beatrix rates were deemed "unacceptably high."
- Operational Challenges:
- Tarkwa (Ghana): Production decreased due to a shortage of competent ore for the mill.
- St Ives (Australia): Production fell due to a 5-day mill shutdown and lower grades.
- Choco 10 (Venezuela): Production was interrupted by water shortages due to late seasonal rains.
- Regulatory/Political: Proposed changes to mining laws in Venezuela are evolving, though current drafts suggest compliant concessions will be unaffected.
Investor Verification Checklist
- Safety Performance: Verify the implementation and effectiveness of the renewed behavioral safety initiatives at Kloof and Beatrix following the 15 fatalities.
- Cost Trajectory: Monitor the impact of inflation on input costs (fuel, steel) and wage increases on the September quarter cash costs, as management forecasts an increase.
- Production Recovery: Track the recovery of production at international sites (Tarkwa, St Ives, Choco 10) which faced specific operational headwinds in Q4.
- Capital Expenditure: Review the execution of the Cerro Corona construction project, which saw significant spend (R124 million) in the quarter.
- Dividend Policy: Confirm the payout of the declared final dividend of 110 SA cents per share and adherence to the 50% earnings payout policy.