GOLD Fields quadrupled headline earnings to $729.3m (2019: $162.7m) in the year to December despite its results being negatively affected by realised losses from the group’s hedging policy through which it sold gold forward.
According to CEO, Nick Holland – who retires on March 31 to be replaced by former Anglo American Platinum CEO, Chris Griffith, – “… the group’s policy is to remain unhedged to the gold price”, but the latest financial statements show Gold Fields hedged one million ounces of expected gold production for 2021.
That production is all from its Australian mines and is equivalent to about 44% of the group’s total forecast production of between 2.3 million oz and 2.35 million oz for the 2021 financial year.
The reason for the continued hedging programme appears to be the group’s heavy capital expenditure programme which is expected to hit $1.2bn during 2021 with $508m earmarked for the Salares Norte mine in Chile. This would be in line with stated exceptions to the non-hedging policy which include “to protect cash flows at times of significant expenditure”.
“2021 is going to be a big capital expenditure year for Gold Fields given the peak spending at Salares Norte as well as the increase in sustainable capex for the group,” said Holland. “This increase in sustaining capex will enable us to spend on key projects that will allow us to sustain our production base of two million oz to 2.5 million oz for the next eight to 10 years,” he added.
The group has declared a final dividend of 320c a share bringing the total dividend for the year to 480c which is treble the 160c paid out in the 2019 financial year.
Amongst the string of other positive developments during 2020 were that net debt was reduced to $1.1bn at year-end ($1.7bn) and that all-in costs (AIC) were held to $1,079/oz (2019: $1,064/oz) which was within the revised guidance range of $1,070 to $1,090/oz.
In South Africa, the long-troubled South Deep mine generated net cash of $34m and increased gold production two percent to 7,056kg (6,907kg) despite the impact of the Covid-19 pandemic. But South Deep was hit hard by Gold Fields’ hedging activity which shows a net realised loss of $84.7m for 2020 for the mine.
According to Holland: “South Deep has shown continuous improvement through 2020. Had it not been for the Covid-19 disruptions, the mine would have exceeded its original production guidance.”
“For 2021 we expect a strong increase in production (plus 27%) to 290,000 oz. Looking ahead, we are reasonably confident that we can add another 20% to 30% over the coming three to four years,” he said.
As of end-December, Gold Fields reported a realised loss of $114.6m on gold hedges from its Ghana mines partially offset by an unrealised gain and “prior year mark-to-market reversals” of $36.4m.
In Australia, there was a realised loss “relating to all instruments” of $201,1m partially offset by an unrealised gain and prior year mark-to-market reversals of $71.8m.