Business Context and Reporting Period
Company: Gold Fields Limited
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended September 30, 2003
Business Overview: Gold Fields is a global gold mining company with operations in South Africa, Ghana, and Australia. The quarter was characterized by stable production volumes but significant margin compression due to a strengthening South African Rand, above-inflation wage increases, and lower underground yields at specific operations.
Key Financial Metrics
| Metric | Sept 2003 (ZAR) | Sept 2003 (USD) | June 2003 (ZAR) | June 2003 (USD) |
|---|---|---|---|---|
| Revenue | R2,952 million | $397 million | R2,971 million | $383 million |
| Operating Profit | R570 million | $77 million | R717 million | $100 million |
| Net Earnings | R421 million | $57 million | R789 million | $98 million |
| Headline Earnings | R164 million | $22 million | R494 million | $64 million |
| Net Earnings Per Share | 89 cents | $0.12 | 167 cents | $0.21 |
| Operating Cash Flow | R32 million | $4 million | R577 million | $95 million |
| Capital Expenditure | R553 million | $74 million | R709 million | $87 million |
| Debt (Total) | R211 million | $29 million | R324 million | $42 million |
| Cash Balance | (R279 million) Deficit | ($39 million) Deficit | R1,041 million | $134 million |
Operational Metrics:
- Gold Production: 1.038 million ounces (attributable), flat vs. prior quarter.
- Total Cash Costs: R67,566/kg (up 6.6% QoQ) / $282/oz (up 10.6% QoQ).
- Operating Margin: 19% (down from 24% in June 2003).
Material Changes vs. Prior Period
- Earnings Decline: Net earnings dropped 47% quarter-over-quarter (from R789m to R421m). This was driven by a 21% decrease in operating profit and a significant reduction in gains from financial instruments and foreign debt.
- Cost Inflation: Operating costs rose 5% QoQ. South African operations saw a 7% cost increase primarily due to wage hikes effective July 1 and the full expensing of Kloof 4 shaft operations.
- Currency Impact: The South African Rand strengthened 4% against the US Dollar (from 7.74 to 7.44), reducing the Rand gold price received despite a higher US Dollar gold price ($360/oz vs $349/oz).
- Exceptional Items: Earnings were bolstered by a R240 million after-tax gain from the sale of mineral rights and assets at Driefontein to AngloGold. Without this, headline earnings would have been significantly lower.
- Liquidity Shift: The company moved from a cash surplus of R1,041 million to a deficit of R279 million, largely due to the payment of the final 2003 dividend (R472 million) and prior period tax payments (R303 million).
Guidance, Outlook, and Risks
Management Commentary: CEO Ian Cockerill noted that results were negatively impacted by wage increases, lower yields at Beatrix, and the strong Rand. The company is reviewing paylimits and reducing marginal tonnage to address unsustainable margins at South African operations. Capital expenditure in South Africa has been reduced and is under scrutiny.
Outlook:
- Production: Gold production is not expected to be materially different in the December 2003 quarter.
- Margins: Revenue and operating margins will remain under pressure if the Rand gold price stays at current levels.
- Financial Instruments: No significant gains on Australian dollar currency instruments are expected in the December quarter.
- Asset Sales: No significant asset sales are contemplated for the December quarter.
Risks and Contingencies:
- Operational: Safety performance slipped slightly (Lost Day Injury Frequency Rate increased to 15.9). Lower underground yields at Beatrix and Kloof 9 shaft (placed on care and maintenance) pose production risks.
- Legal: A class action lawsuit filed in New York by Zalumzi Singleton Mtwesi remains pending; the suit has not yet been served.
- Regulatory/Corporate: A Black Economic Empowerment (BEE) transaction involving the sale of a 15% interest in South African assets to Mvelaphanda Resources is ongoing, with exclusivity extended to February 2004.
Investor Verification Checklist
- Cash Position: Verify the sustainability of operations given the shift to a R279 million cash deficit and the reliance on external financing or asset sales to fund future capex and dividends.
- Cost Control: Monitor the effectiveness of the "reduction in marginal tonnage" and paylimit reviews in stabilizing South African operating margins.
- Exceptional Gains: Assess the core business performance by excluding the R240 million one-off gain from the Driefontein asset sale when evaluating profitability trends.
- Exchange Rate Sensitivity: Track the ZAR/USD exchange rate closely, as a stronger Rand continues to compress Rand-denominated revenue and margins.
- BEE Transaction: Confirm the finalization of the Mvelaphanda Resources deal and its impact on the company's capital structure and future cash flows.