[miningmx.com] – GOLD Fields has added a R688m tax dispute with the South African Revenue Service (SARS) to its growing list of legal battles some of which are rooted in the group’s history.
Nick Holland, CEO of Gold Fields, said in comments accompanying his firm’s September quarter figures that the SARS should not be allowed to disallow an additional capital allowance given to its South Deep mine the tax effect of which was R688m.
The allowance was given in 1999 by the Department of Mineral Resources and SARS which since declared in the September quarter had been a mistake as it didn’t think South Deep qualified in terms of tax law allowing for “post-1990” mines.
Capital allowances are provided as a means of incentivising projects, especially long-term, capital intensive ones such as gold mines. It allows companies to claim the cost of projects against future earnings.
South Deep has been ‘a project’ since the late Nineties with its scope, mining method and financial modelling passing through as many iterations as owners. It’s initial owner was JCI which the late Brett Kebble subsequently came to run.
Gold Fields is also fighting litigation by Randgold & Exploration on behalf of shareholders who allege that South Deep used funds totalling R521m gained illegally by Kebble. Holland said Gold Fields had “sustainable defences” against this claim.
This background noise is unfortunate given that Gold Fields turned in a solid operational and financial performance in the September quarter in which net earnings of $19m were flat quarter-on-quarter despite the weakening gold price.
Attributable gold equivalent production increased by 2% to 559,000 ounces at an all-in sustaining cost of $1,074/oz and an all-in cost of $1,096/oz. Holland said the group could breakeven at a gold price of $1,050/oz making it one of the lowest gold producers globally.
The sale for $81m of its 51% interest in Chucapaca contributed towards total net debt reduction during its financial year of $237m of which $137m was in the quarter under review. Total net debt was just below $1.5bn.
Efforts to reconfigure South Deep into a fully-fledged mechanised mine were continuing and seemed likely to result in further disruptions to its planned production and break-even targets, to be announced in the December quarter review. However, Gold Fields was pumping in all its other districts, especially Australia.
As a whole, Gold Fields was “on track” to produce 2.2 million oz of gold equivalent production for its full financial year. Costs, however, would be lower than guided.
In addition to crossing swords with SARS, and the long-standing legacy claim brought by Randgold & Exploration, Gold Fields is also contesting a decision in July by the Federal Court of Australia which ruled that the re-grant of mineral rights to St Ives had not been completed correctly. The claim was brought by Ngadju People in terms of Australia’s Native Title Act.
There’s also the investigation by the Securities Regulation Panel in the US relating to the award of shares in South Deep to empowerment entities in South Africa. Gold Fields said it had no update on the matter.
