Gold Fields Limited — FY2009 Form 20-F
Reporting period: Fiscal year ended June 30, 2009; filed December 3, 2009. Although the request metadata refers to 2009 Q4, this filing is an annual report and does not provide a complete standalone fourth-quarter income statement or cash-flow statement. Financial statements are presented in U.S. dollars under U.S. GAAP unless noted. Gold Fields is a South African-based gold producer with operations in South Africa, Ghana, Australia and Peru; Peru also produces copper.
Key financial and operating results
| Metric | FY2009 | FY2008 |
|---|---|---|
| Revenue | $3,228.3 million | $3,206.2 million |
| Income before tax | $551.2 million | $840.8 million |
| Net income | $160.9 million | $452.5 million |
| Basic and diluted EPS | $0.24 | $0.69 |
| Cash provided by operations | $634.9 million | $899.0 million |
| Capital expenditure | $760.3 million | $1,154.4 million |
| Cash and cash equivalents at year-end | $357.5 million | $253.7 million |
| Total debt and borrowings | $1,103.7 million | $1,337.1 million |
| Current assets / current liabilities | $1,018.3 million / $975.3 million | $768.0 million / $1,538.2 million |
| Dividend per share | R1.50 ($0.17) | R1.60 ($0.22) |
Year-end net debt was approximately $746 million, calculated as reported debt less cash. The filing does not present this as a named GAAP measure. The approximate net margin, calculated from reported revenue and net income, was 5.0%, versus 14.1% in FY2008.
- Production: 3.691 million managed gold-equivalent ounces, of which 3.414 million were attributable to Gold Fields, versus 3.915 million managed and 3.670 million attributable ounces in FY2008. Total production fell 5.7%.
- Prices and costs: Average realized gold price rose to $875/oz from $819/oz. Total cash cost per ounce increased to $538 from $505; total production cost per ounce rose to $659 from $610. Notional cash expenditure (NCE), a non-GAAP measure, declined to $763/oz from $822/oz.
- Cash generation: Operating cash flow declined by $264.1 million year over year. The filing attributes this mainly to working-capital investment, lower ounces sold and higher taxes, partly offset by higher realized gold prices. Investing cash outflow was $720.6 million.
- Balance sheet: Total assets were $8,335.1 million and shareholders’ equity was $5,224.5 million. Current liabilities declined to $975.3 million from $1,538.2 million, primarily alongside a decrease in the current portion of debt.
- Reserve base: Attributable proven and probable gold reserves were 78.9 million ounces, excluding copper, versus 80.5 million a year earlier; the decrease was primarily due to mining depletion. Total attributable reserves including copper-equivalent ounces were 81.1 million ounces.
Material changes and notable items
- Revenue was nearly flat despite a higher realized gold price, as lower production and ounces sold offset the price increase.
- Net income fell to $160.9 million from $452.5 million. FY2009 included an $87.4 million impairment of the Rusoro investment and a $16.0 million impairment of listed investments. FY2008 benefited from a $208.4 million gain on disposal of subsidiaries, including Essakane and Venezuelan assets, and had a lower Rusoro impairment charge.
- South African production declined 15.7%, primarily due to safety stoppages, secondary-support and infrastructure work, lower grades, and reduced or deferred pillar mining. International production rose 12.9%, mainly reflecting Cerro Corona’s first operating year.
- Production costs were essentially flat in reported dollars, but cash cost per ounce increased as output declined and input costs rose. The Rand weakened 23.9% against the U.S. dollar on an average-rate basis, affecting translated costs.
- Capital spending fell by $394.1 million, largely because Cerro Corona construction and the Tarkwa CIL expansion were completed. South Deep remained a major investment: FY2009 capital expenditure was $113.3 million, with about $193 million budgeted for FY2010.
- On March 17, 2009, the Mvelaphanda loan was repaid and exchanged into 50 million new Gold Fields shares. Shares outstanding at June 30 were 704.75 million.
- After year-end, Gold Fields sold its Eldorado shares received in the Sino Gold transaction for approximately $299.3 million and completed its acquisition of Glencar. It also paid A$308 million (reported as approximately $257.1 million) to terminate the St. Ives royalty. These were subsequent events, not FY2009 operating results.
Outlook, commentary and risks
- FY2010 guidance: Management targeted attributable production of 925,000–950,000 ounces per quarter, with the goal of reaching a one-million-ounce quarterly run rate in FY2011. The target was revised to reflect continuing safety interventions. In FY2009’s final quarter, attributable production reached 906,000 ounces, up from 798,000 in the first quarter; NCE was $825/oz using management’s R8/$ exchange-rate assumption.
- Longer-term plan: The strategic goal is approximately five million attributable gold ounces in development or production by the end of 2014. South Deep was expected to build toward 750,000–800,000 ounces annually by then. The plan depends on mine performance, development, exploration and project delivery.
- Management’s subsequent-quarter update: In FY2010 Q1, operating profit was lower than in FY2009 Q4 because of a lower gold price and higher production costs; net earnings were positive, aided by gains on the Sino Gold/Eldorado disposals. Management expected a slight production increase in Q2 FY2010 and said it remained on track with short-term priorities. This is post-year-end commentary, not FY2009 guidance.
- Price, currency and costs: Gold Fields generally sells gold at market prices and does not hedge future gold production. At June 30, 2009, forward sales and zero-cost collars covered about half of forecast FY2010 copper production. Rand and Australian-dollar strength, lower gold or copper prices, wage increases, power tariffs, fuel and other input costs could pressure margins.
- Operations and safety: South African mines face deep-level seismic, accident and power-supply risks. Twenty-one workers died at South African operations in FY2009; there were no fatalities at international operations. Power availability and substantial tariff increases, mine stoppages, labor action and technical or commissioning challenges could disrupt production.
- Regulatory, environmental and social exposures: The filing highlights South African water-licence compliance spending, changing mining-rights and empowerment requirements, a mineral royalty scheduled to start March 1, 2010, and possible higher Ghanaian royalties. Community opposition, environmental liabilities, climate regulation, and permitting or rehabilitation obligations also remain relevant.
- Contingency: Gold Fields Operations Limited faced a lawsuit alleging historic involvement in the unlawful disposal of shares. Claims were stated as approximately R519 million under one calculation and up to approximately R12 billion under another. The company said it intended to defend the claims; no liability amount is established by the filing.
- Reserve uncertainty: A substantial portion of South Deep’s deeper reserves still relies on pre-acquisition estimates. Gold Fields had not independently confirmed all historical South Deep, Western Areas and BGSA information and was undertaking drilling and modeling to improve confidence.
Important facts for investors to verify
- Check the audited statements and notes for the drivers of the earnings decline, including Rusoro and listed-investment impairments, tax, and non-recurring disposal gains in the comparison year.
- Verify cash-flow conversion, working-capital movements, debt maturities, facility availability and the funding impact of the post-year-end St. Ives royalty termination and other transactions.
- Track attributable production, unit costs, safety stoppages and FY2010 guidance against the stated quarterly targets, especially at South Deep and the South African mines.
- Assess the reliability and sensitivity of reserve estimates, particularly South Deep Phase 2, and the effect of gold prices, exchange rates and infrastructure constraints.
- Review the status and potential financial consequences of the Randgold and Exploration litigation, water and environmental compliance, mining-rights requirements, and possible royalty changes.
- Remember that cash cost and NCE figures are non-GAAP or company-defined measures and may not be comparable with similarly named measures at other miners.