Gold Fields Limited — FY2011 Form 20-F
Reporting period: Fiscal year ended December 31, 2011; filed April 23, 2012. This is an annual report, not a standalone fourth-quarter filing. Gold Fields changed its year-end from June 30 to December 31. FY2011 and FY2010 are each 12 months, but end at different times of year; the filing cautions that comparisons may not be directly comparable. Financial statements are presented in U.S. dollars and prepared under U.S. GAAP.
Business context and financial performance
Gold Fields mines and explores for gold across South Africa, Ghana, Australia and Peru, and produces copper at Cerro Corona in Peru. It reported 3.697 million attributable and non-attributable gold-equivalent ounces produced, including 3.485 million attributable ounces. At year-end, attributable reserves were approximately 80.6 million gold-equivalent ounces, including copper; gold reserves excluding copper were 77.6 million ounces.
| Metric | FY2011 | Prior comparable period |
|---|---|---|
| Revenue | $5.800 billion | $4.164 billion in FY2010 |
| Net income | $953.0 million | $470.3 million in FY2010 |
| Net income attributable to Gold Fields shareholders | $881.5 million | $391.0 million in FY2010 |
| Basic / diluted EPS | $1.22 / $1.21 | $0.55 / $0.55 in FY2010 |
| Net cash provided by operations | $1.908 billion | $1.163 billion in FY2010 |
| Capital expenditure additions to property, plant and equipment | $1.153 billion | $913.1 million in FY2010 |
| Cash and cash equivalents at year-end | $744.0 million | $809.5 million at December 31, 2010 |
| Total loans at year-end | $1.908 billion | $1.398 billion at December 31, 2010 |
| Current assets / current liabilities | $1.713 billion / $1.493 billion | $1.589 billion / $1.093 billion at December 31, 2010 |
Revenue rose 39.3%, principally because the average realized gold price increased 44.6% to $1,569 per ounce and the realized copper price rose 30.1% to $8,160 per ton. Total equivalent ounces sold fell about 3.6% to 3.697 million. Production costs were $2.949 billion, up from $2.544 billion; depreciation and amortization increased to $745.3 million from $631.1 million. Income and mining tax expense was $552.0 million, and the effective tax rate was 36.6%, compared with 42.1% in FY2010.
Management’s non-GAAP cost measures were total cash costs of $835 per ounce, total production costs of $1,039 per ounce and notional cash expenditure (NCE) of $1,153 per equivalent ounce. The NCE margin was 25%, versus 15% in FY2010. These measures are company-defined or industry-based, are not U.S. GAAP measures and may not be comparable with similarly titled measures at other miners.
Material changes and notable items
- Gold Fields’ higher prices more than offset lower overall production and higher costs. South African production fell 11%, affected by wage-related industrial action, safety stoppages and declining grades; international production increased 3.6%.
- Operating cash flow increased by $744.6 million to $1.908 billion. Investing activities used $1.223 billion, including $1.153 billion of capital additions; financing activities used $724.6 million. Cash declined $65.5 million during FY2011.
- Cash costs per ounce increased 24.6% to $835. Management cited lower South African output, Rand appreciation, wage and general inflation, higher electricity tariffs and increased fuel costs. The Rand strengthened 4.7% against the U.S. dollar on an average-rate basis.
- Gold Fields spent $1.056 billion to acquire minority interests in La Cima, Tarkwa and Damang, and Western Areas Prospecting. Its interests in La Cima rose to 98.5% and in the Ghanaian mines to 90%.
- Other significant charges and movements included $95.2 million of feasibility and evaluation costs, $9.5 million of asset impairment and $6.8 million impairment of the Rusoro equity investment. A $970.2 million foreign-currency translation loss contributed to a $1.009 billion adverse other-comprehensive-income movement; total comprehensive loss was $55.9 million despite positive net income.
Outlook, management commentary and risks
For FY2012, management forecast 3.5–3.7 million attributable equivalent ounces. The filing gives full-year cost estimates of $860 per ounce for total cost and $1,300 per ounce for operational NCE, based on stated exchange-rate assumptions. It separately gives first-quarter estimates of $875 per ounce total cash cost and $1,285 per ounce operational NCE. These are estimates, not audited results, and the different cost labels and figures should be checked against the underlying outlook disclosure. Management also targeted NCE margins of at least 20% at mines other than South Deep in FY2012 and sought to maintain strong operating cash flow and assess longer-term funding options.
- Growth and capital: The stated long-term target was approximately five million attributable equivalent ounces in production or development by 2015. South Deep’s target was a 700,000-ounce annual run rate by 2015; its FY2012 capital budget was R2.544 billion. Management planned FY2012 growth-project spending of about $324 million and exploration spending of about $68 million near mines and $110 million on greenfields projects, excluding FSE-related exploration.
- Commodity and currency exposure: Gold Fields generally sold production at market prices and had no outstanding gold hedges at year-end. Gold and copper price declines could reduce revenue, cash flow and economically recoverable reserves; Rand or Australian dollar appreciation can raise reported U.S.-dollar costs.
- Operating and safety risks: Mining hazards, ageing infrastructure, power interruptions and tariff increases, inflation, input shortages, labor disputes and production stoppages could impair output and margins. South African operations recorded 19 employee fatalities in FY2011, and management reported four further South African fatalities after year-end.
- Tax, regulatory and community risks: Ghana’s March 2012 tax changes raised the mining corporate tax rate from 25% to 35% and changed capital allowances; a proposed 10% windfall tax had not been finalized. South African mining-right and empowerment requirements, water licensing and possible acid mine drainage costs remain relevant. Peru’s consultation rules, local protests and social-license requirements could delay projects.
- Environmental, health and legal contingencies: Potential silicosis and other occupational-disease claims could be material. Gold Fields also described a dormant Randgold and Exploration-related lawsuit against a subsidiary: plaintiffs’ highest stated claims were R11–12 billion, with an alternative calculation of about R519 million. The company said it had defenses and the action remained in abeyance. Potential AMD costs were not reliably estimable.
Important facts for investors to verify
- Reconcile FY2012 outlook cost figures and definitions, particularly the separately stated first-quarter and full-year estimates.
- Assess whether South Deep’s production build-up and capital program meet milestones, and how they affect cash generation and funding needs.
- Quantify the effects of Ghana’s enacted tax changes, possible additional taxes, and electricity and labor costs on mine economics.
- Track production, grades and unit costs by region, including the South African output decline and the effect of currency movements.
- Review debt maturities and liquidity: year-end loans were $1.908 billion, including $547.0 million current, while $1.2205 billion of committed facilities was reported available.
- Test reserve sensitivity to commodity prices, costs and exchange rates; reserve estimates used a $1,300-per-ounce gold price and are subject to assumptions and mine-plan changes.
- Monitor the status and potential cost of water, AMD, occupational-disease and other legal matters, including the dormant Randgold and Exploration claim.
- Remember that FY2011 is an annual period; the filing does not provide a standalone Q4 financial result in the supplied text.