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 30 June 2010 (Q4 Financial Year 2010)
Announcement Date: 5 August 2010
Gold Fields reported a significant recovery in operational performance for the June 2010 quarter, driven by increased production volumes across its South African and West African operations. The quarter marked a return to normal production levels following safety-related stoppages and holiday breaks in the prior quarter. The company also announced a change in leadership, with Dr. Mamphela Ramphele appointed as Deputy Chair and incoming Chair.
Key Financial Metrics
| Metric | June 2010 (ZAR) | June 2010 (USD) | March 2010 (ZAR) | March 2010 (USD) |
|---|---|---|---|---|
| Revenue | R8,803 million | US$1,169 million | R7,280 million | US$971 million |
| Net Earnings | R900 million | US$120 million | R316 million | US$44 million |
| Headline Earnings | R1,039 million | US$138 million | R292 million | US$40 million |
| Operating Profit | R3,738 million | US$496 million | R2,570 million | US$344 million |
| Operating Margin | 42% | 42% | 35% | 35% |
| Net Debt | R4.7 billion | US$620 million | R6.1 billion | US$829 million |
| Cash Flow from Operations | R3,650 million | US$482 million | R2,584 million | US$345 million |
| Free Cash Flow (before financing) | R1.8 billion | US$242 million | N/A | N/A |
Operational Highlights
- Production: Attributable gold production reached 898,000 ounces, a 13% increase quarter-on-quarter.
- Total Cash Cost: Decreased 2% to R166,215/kg (US$688/oz).
- Notional Cash Expenditure (NCE): Decreased 3% to R235,223/kg (US$974/oz).
- NCE Margin: Doubled from 9% to 18%.
- Dividend: Final dividend of 70 SA cents per share declared, totaling 120 SA cents for the financial year.
Material Changes vs. Prior Period
Revenue and Profit Growth: Revenue increased by 21% (ZAR) and 20% (USD) compared to the March 2010 quarter. Net earnings surged from R316 million to R900 million, reversing the loss recorded in the June 2009 quarter.
Production Drivers:
- South Africa: Production increased 23% to 488,000 ounces. South Deep achieved record production levels (up 52% year-on-year), while Driefontein, Kloof, and Beatrix returned to normal levels after safety stoppages.
- West Africa: Tarkwa set a new quarterly record with over 200,000 ounces (up 16%). Damang production increased 6%.
- Australia: St Ives production increased 10%, while Agnew decreased 22% due to stope availability issues.
- South America: Cerro Corona equivalent production decreased 12% due to lower plant availability and copper prices.
Cost Dynamics: Despite a 25% electricity tariff increase and winter tariffs in South Africa, total cash costs decreased due to higher production volumes. Operating costs increased 7% in ZAR terms, primarily due to inflation and energy costs.
Balance Sheet: Net debt was reduced by R1.4 billion (US$209 million) to R4.7 billion, driven by strong free cash flow generation.
Guidance, Outlook, and Risks
Financial Year 2011 Guidance:
- Production: Estimated between 3.5 million and 3.8 million ounces.
- Total Cash Cost: Estimated between US$650 and US$690 per ounce.
- NCE: Estimated between US$925 and US$975 per ounce.
Management Commentary: CEO Nick Holland emphasized that safe production remains the top priority. While the fatality rate and serious injury frequency rate improved year-on-year, three fatal accidents occurred at South African operations (all at Kloof) during the quarter. The company is focusing on behavioral change and engineering out risks.
Strategic Developments:
- South Deep: Approved conversion to a new order mining right, including the "Uncle Harry's" ground. Targeting 750,000–800,000 ounces annual production by end of 2014.
- Exploration: Significant resource increases at Hamlet (St Ives) and Canahuire (Peru). Athena underground mine on track for first production by December 2010.
- Leadership: Alan Wright to retire as Chair in November 2010; Dr. Mamphela Ramphele appointed Deputy Chair and incoming Chair.
Risks and Contingencies:
- Safety: Ongoing risk of fatal accidents in underground mining; focus on reducing fatality rates.
- Regulatory: Changes in government regulations, particularly environmental and mining rights legislation.
- Market: Volatility in gold and copper prices; currency exchange rate fluctuations (ZAR/USD).
- Operational: Hazards associated with mining, labor disruptions, and unplanned maintenance.
Investor Verification Checklist
- Safety Metrics: Verify the specific details of the three fatal accidents at Kloof and the effectiveness of the new behavioral safety initiatives.
- Electricity Costs: Confirm the long-term impact of the 25% electricity tariff increase on South African margins and the progress of energy-saving projects (Project 3M).
- South Deep Progress: Monitor the ramp-up of South Deep towards its 2014 production target and the integration of the "Uncle Harry's" ground.
- Debt Reduction: Track the sustainability of the debt reduction trend and the utilization of the new US$450 million revolving credit facility.
- Exploration Results: Review upcoming feasibility studies for the Canahuire (Peru) and Athena (Australia) projects to assess future growth potential.
- Year-End Change: Note the shift in financial year-end from June to December, which will result in a six-month reporting period ending 31 December 2010.