GFI

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 December 31, 2009 (Q2 Fiscal 2010)
Announcement Date: February 4, 2010

Gold Fields reported a significant increase in net earnings driven by higher gold prices, despite operational challenges including safety-related stoppages and seismic events at South African operations. The company operates major gold mines in South Africa, West Africa (Ghana), South America (Peru), and Australasia (Australia).

Key Financial Metrics

Material Changes vs. Prior Period

• Earnings Surge: Net earnings increased 40% quarter-on-quarter and 192% year-on-year, primarily due to a 14% increase in the average gold price (US$1,096/oz vs US$959/oz) and a 25% increase in operating profit.
• Production Mix: Total attributable gold production remained stable at 900,000 ounces. South Deep production rose 10% quarter-on-quarter, while Cerro Corona (Peru) equivalent production increased 11%.
• Cost Pressures: Total cash costs in US dollars rose 5% to US$613/oz due to the strengthening of the South African Rand (R7.49 vs R7.82). Notional Cash Expenditure (NCE) increased 4% to US$900/oz.
• Exceptional Items: The quarter included an exceptional gain of R432m (US$58m), largely from receiving additional shares in Eldorado Gold Corporation. This contrasts with the prior quarter's R667m gain from asset sales.
• Dividend: An interim dividend of 50 SA cents per share was declared, payable March 1, 2010.

Outlook, Risks, and Management Commentary

Management Commentary

CEO Nick Holland highlighted that the earnings increase was achieved against a backdrop of safety challenges. The company expressed deep regret over six fatal accidents at South African operations (Driefontein, Kloof, and South Deep). Management emphasized a commitment to safety, stating they will not mine if they cannot mine safely. Discussions regarding a six-day work week have commenced to improve efficiencies and avoid retrenchments.

Guidance and Outlook

• Q3 2010 Estimate: Attributable gold production is estimated at 850,000 ounces, with a decrease expected in South Africa due to post-Christmas start-up delays.
• Cost Outlook: Total cash cost is estimated at US$650/oz (R156,000/kg) and NCE at US$950/oz (R228,000/kg) for the March quarter.
• Operational Focus: Focus remains on safe production, development for flexibility, and the exploration portfolio. South Deep is on track for its 300,000-ounce fiscal year target.

Risks and Contingencies

• Safety Incidents: Six fatalities occurred in the quarter, leading to production stoppages at Driefontein (7 days) and Kloof.
• Operational Disruptions: Damang (Ghana) was affected by a 13-day SAG mill rebuild. Driefontein faced a major seismic event.
• Regulatory & Political: Risks include potential electricity price increases in South Africa (projected 146% over three years), labor disruptions, and community unrest (noted at Cerro Corona in Peru).
• Market Risks: Exposure to gold and copper price volatility and foreign exchange fluctuations.

Investor Verification Checklist

• Safety Performance: Verify the implementation of new safety protocols following the six fatalities and the impact on future production schedules.
• Electricity Costs: Monitor the outcome of representations made to the National Energy Regulator of South Africa (NERSA) regarding proposed tariff increases.
• South Deep Ramp-up: Confirm progress toward the 300,000-ounce fiscal year target and the associated capital expenditure requirements.
• Exceptional Gains: Assess the sustainability of earnings by excluding the R432m exceptional gain from Eldorado Gold shares.
• Cost Inflation: Track the impact of the strengthening Rand on US-dollar denominated cash costs and the effectiveness of cost-saving initiatives (Project 1M, 2M, 3M).