[miningmx.com] – GOLD Fields kicked off its 2015 financial year in disappointing fashion posting a $14m net loss for the March quarter which featured a hefty 25% decline in output from its mechanised South African mine, South Deep.
The market took particular umbrage with shares in the company falling just over 8% in the first hour of trade on the Johannesburg Stock Exchange to about R46.73/share. Other gold shares were also under pressure: Harmony Gold was 4.4% weaker while shares in AngloGold Ashanti and Sibanye Gold were 2.5% and 2% weaker respectively.
This was despite a near 1% weakening in the rand against the dollar to about 12.08 from 11.92 the day earlier. The dollar gold price was slightly weaker at $1,183/oz from $1,196/oz at about 4pm (CAT) yesterday.
Overall production was 10% lower for the quarter although CEO, Nick Holland, said in commentary to the figures that the lower performance had been anticipated and that a full year gold production target of 2.2 million ounces was still expected.
Gold Fields produced 501,000 oz in the first quarter with lower production also reported at its West African, Australian and Peruvian gold assets.
The impact of the lower production rippled throughout the organisation with all-in sustaining costs (AISC) increasing by 12% quarter-on-quarter to $1,143/oz while all-in costs (AIC) were 11% higher at $1,164/oz.
Holland said AIC for the year were forecast at $1,055/oz which gives an indication of the improvement Gold Fields expects over the remaining three quarter of the financial year. Total all-in cost for the year had been forecast at $1,075/oz.
The free cash flow margin sank to 3% from 9% in the December quarter due to lower gold sold and higher seasonal taxation paid in Ghana and Australia.
Inevitably, the lower cash flow figure – $150m from $225m in the previous quarter – meant that net debt increased $46m to $1.5bn as of March 31.
“We maintain our target of reducing the net debt/EBITDA ratio to 1.0x by the end of 2016,” said Holland. Net debt/EBITDA at the end of the March 2015 quarter was 1.41x, compared to 1.30x at the end of December 2014.
The outcome for shareholders was a 2 cents per share loss for the quarter.
Shareholders may also be wondering when South Deep’s long-promised ramp-up to production – now set at between 650,000 and 700,000 oz/year – will kick in after it was sent on a new back-to-basics safety and planning strategy.
“The work to “get the basics right’, which we reported on previously, is ongoing and good progress is being made on recruiting additional skills at the mine,” said Holland in his quarterly analysis.
“These interventions are expected to gain traction progressively through the remainder of the year and, together with the ground-breaking three- year wage deal signed post the end of the quarter, is expected to contribute to a stronger performance during the second half of the year,” he said.
In April, Gold Fields signed a three-year wage agreement with unions at its South Deep mine in which it will lift salaries an average 10% per year.
The wage deal looked like a breaking ranks with South Africa’s other gold producers – Harmony Gold, AngloGold Ashanti and Sibanye Gold – although the firm was at pains to point out at that South Deep’s low employment numbers (3,500 employees) and the skilled, mechanised manner of the work called for a different wage deal.
Said Holland of the wage deal: “This ground-breaking deal will contribute to a more stable operating environment for South Deep over the next three years and position the mine more competitively to attract and retain the scarce mechanised mining skills required for it to achieve its full potential”.
Speaking in a conference call to analysts in February, Nico Muller, vice-president of Gold Fields’ South African operations (South Deep), praised the asset’s safety and sustainability record, but he was withering of its engineering and management track-record calling the latter ‘dysfunctional’.
“Unfortunately as far as the management is concerned there was a big issue,” said Muller on February 12.
“I’m not sure how to say this softly. I think the team was largely dysfunctional for many reasons,” he said. Muller, who was previously chief operating officer at Royal Bafokeng Platinum, was appointed to South Deep on October 1, 2014.
