[miningmx.com] – GOLD Fields ran into early headwinds in its first quarter as a smaller, but more focused gold company announcing exploration cut-backs of some $90m and suffering a net cash outflow.
On the positive side, however, it said it had detected early promising trends in mining activities at its South Deep mine which recently adopted a new operating model. The mine is expected to produce 700,000 ounces a year of gold by 2016.
Group gold production came in at 477,000 oz for the March quarter, roughly 60,000 oz less than in the December period. It’s not unusual for South African gold miners to produce poorer figures in the three months to March as that period incorporates Christmas holidays.
These seasonal holidays were honoured at South Deep which from this year will adopt a different operating regime which should lessen the effect of the March quarter holidays. For the quarter, production was flat at the mine at some 63,000 oz.
However, overall lower group gold production and lower revenue resulted in an increase in total cash costs of $819/oz in the March quarter compared to $798/oz in the December quarter.
The outcome was a heavy slide in profitability. Operating margins sank by 17% to 50% while the NCE margin (notional capital expenditure) was 27% from 41% in the previous quarter. NCE is the capitalised cost of development that Gold Fields prefers to use in its accounts as it believes this is the true cost of mining.
In dollar terms, headline earnings were $28m compared to $91m in the December quarter and R608m compared to just over R1bn in the previous quarter. Share earnings halved in dollar terms to 9 cents per share.
Commenting on its outlook, Gold Fields said in its March quarter statement that it expected attributable gold production to come in at between 1.83 million oz and 1.9m oz with cash costs conservatively judged at $860/oz. The March quarter is the first of Gold Fields’ financial year.
Anticipating a difficult gold market, which has seen the price of gold fall to $1,465/oz today from $1,580/oz at the beginning of April, Gold Fields said it was cutting back on its exploration expenditure.
Greenfields exploration had been cut from $130m spent in the 2012 financial year to a forecast $80m in the current year. This was in terms of a portfolio review unveiled in February. Near-term exploration expenditure would be $28m compared to some $65m spent in the 2012 financial year.
“Capital expenditure, feasibility and evaluation costs for the international growth projects are under review and are expected to be significantly lower than that spent in 2012 with our available funding refocused on the best of these and other potential projects,” said Nick Holland, CEO of Gold Fields in published comments this morning.
Commenting on the feasibility of Gold Fields’ growth prospects, Holland said there was uncertainty about Chucapaca, a project in Peru currently being rescoped after it provided disappointing feasibility data in 2012. “It is too early to comment on the likelihood of success,” said Holland on the rescoping exercise.
A decision is also pending on the feasibility of Arctic Platinum, a prospect in the northern reaches of Finland which has been on and off Gold Fields’ investment radar in the past.
More promising was Yanfolila, a 1.4m oz resource in Mali. As the project was deemed to have “fairly low” technical risk, it would be fast-tracked with a decision on development due by financial year-end, Holland said in his comments.
In the quarter under review, nearly all of Gold Fields’ operations disappointed. Output of gold fell at Tarkwa, Cerro Corona, Agnew and St Ives, although the latter’s decline was in line with guidance following a decision to close its heap leach operation.
After accounting for cash distributed with the unbundling of Sibanye Gold, comprising the mature South African assets Gold Fields owned, and a positive adjustment in respect of offshore cash balances, Gold Fields suffered a cash outflow of $87m (R342m). The group’s cash balance subsequently fell to $569m (R5.3bn) from $656m (R5.6bn) in the previous quarter.
Absent from Holland’s commentary was any guidance on wage negotiations between gold companies and unions due to kick off at the end of this month.
He also didn’t provide his own perspective on an internal audit being undertaken by US attorney Paul Weiss which is examining the probity of certain empowerment transactions relating to the South Deep asset.
Interestingly, however, the group said it had appointed Kgabo Moabelo as managing executive of Gold Fields’ South African assets – essentially South Deep, the success of which is critical to Gold Fields’ future success.
“South Deep is a crucial pillar …” said Gold Fields firmly placing Moabelo – a former employee of Cisco Systems – in one of the hottest seats of South African gold mining.
