Gold Fields on track for interim dividend as makes “good money” despite COVID-19 lockdowns

Nick Holland, CEO, Gold Fields. Pic: Martin Rhodes

GOLD Fields said full-year production would only be marginally affected by the COVID-19 pandemic with the biggest impacts occurring at South Deep in South Africa and its Peruvian mine, Cerro Corona.

In fact, the firm’s 2020 financial year looked set to be a good one as “buoyant gold prices are expected to enhance the earnings potential of the group,” said CEO Nick Holland in a first quarter update today.

There were no plans to halt the interim dividend payment. “Currently, the indications are that it will be a good year,” said Paul Schmidt, Gold Fields CFO in response to questions during a conference call. “We have got good cash flow this year owing to the higher gold price so at the moment we will pay an interim dividend.

“We continue to make money”.

The company dropped net debt in the period a significant $404m – about 24% – to $1.26bn compared to the December 31 position, reflecting strong cash flow amid robust gold pricing in dollar terms and in terms of the group’s local currencies. From January to end-March the rand gold price increased about 33% in value.

The group also raised about $270m in a share issue to help it pay for the $860m development of the Salares Norte project.

Net debt to EBITDA was reduced to 0.94x, compared to 1.29x at end December 2019. At the end of the quarter, Gold Fields had approximately $800m in cash on hand and in excess of US$1.5bn of committed, un-utilised debt facilities.

LOCKDOWN, HEDGING

Attributable equivalent gold production for the year would be 2.2 to 2.25 million ounces, a smidgeon below previous guidance of between 2.28 to 2.3 million oz. Cost guidance was unchanged at $920 to $940/oz in all-in sustaining costs (AISC). Further COVID-19 related disruptions increased the risk to group guidance, it said.

“If we start getting infections on the mines it’s a different ball game,” said Holland on the conference call.

First quarter production totalled 537,000 oz which was flat year-on-year, but 9% lower quarter-on-quarter, adding though production is not evenly weighted between quarters. South Deep produced 61,000 oz at an AISC of R592,925/kg, ahead of expectations and “… generating meaningful cashflow”, said Holland.

This was despite having locked in 75% of its production at R702,000 per kilogram (against a spot price currently of just over R1m/kg). The mine generated net cash of R221m and produced 222,100 ounces of gold against a target of about 180,000 oz last year.

Commenting the group’s hedge book, Schmidt said there were no plans to continue with additional hedging and would look to run the current book down. The group had installed 300,000 oz of puts at between A$2,100 to A$2,200 in order to help fund Salares Norte.

SOUTH DEEP

Gold Fields paid base salaries to employees during the full three-week lockdown at a cost of R96m, and would continue to do so for employees affected by amended regulations for operation during the remainder of the lockdown period – at a cost of R60m – which allows mines to increase to 50% of productive capacity.

Holland said, however, that a lengthy lockdown extension of “many months” would require the group to “… look at whether we can continue paying people”.

Assuming the mine built up production from South Africa’s five week lockdown as planned, production lost to COVID-19 interruptions would be about 32,000 oz. Some 25,000 oz would be lost in production from Cerro Corona which has been subject to extended curfews until April 26. Gold Fields expected to be operating the mine fully by end-June.

Various states of lockdown and restrictions were also prevalent at the firm’s Australian and Ghanaian operations but production hits were unlikely so far. The development of the firm’s Salares Norte project in Chile had been affected by curfews, but the group did not comment on project timeline affects.

Holland said the group’s executives and employees made voluntary donations to South Africa’s Solidarity Fund, established by President Cyril Ramaphosa to help combat the virus and support those affected by it. Holland, Schmidt, and Gold Fields chairwoman, Cheryl Carolus, had donated a third of their monthly salaries for three months.

South Deep mine also made a R15m contribution to the Solidarity Fund, with the mine executives and employees donating over R1m in their personal capacity to date.

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