Gold Fields warns expenses are set to climb
The producer has launched a programme to develop assets rather than compete for good-quality mines when they are for sale
Gold Fields warned investors on Thursday it might spend more money in 2017 than it generated as it launched a programme to develop its assets rather than compete in the “feeding frenzy” whenever good-quality mines came up for sale.
Less than five years ago, Gold Fields unbundled three cash-generative deep-level mines in SA into Sibanye Gold and disposed of a range of exploration tenements and investments in other companies to generate cash and repay debt.
Gold Fields would spend $850m in 2017, said CEO Nick Holland. Of this $391m would go to projects in SA, Ghana, Australia and Chile as well as exploration around its mines in Australia as it strives to keep its production above 2-million ounces a year. The balance of the year’s expenditure would be on stay-in-business capital.
Gold Fields reported operating mine cash flow of $424m in 2016. “However, for us to grow and sustain cash flow, investing is necessary. While we may spend more cash than we may generate in 2017, depending on, inter alia, [the] gold price and exchange rate, we are taking a longer-term view to growing our cash flow in the future,” the company said.
During the results presentation analysts questioned the wisdom of spending so much money all at once on this portfolio of projects, with net debt in the company at $1.17bn and uncertainty about the direction of the gold price.
Holland said the dearth of exploration spending by the major gold companies over the past two decades and the need by gold miners across the world to replace the 100-million ounces a year of gold they extract meant competition for decent gold assets was fierce.
There’s a feeding frenzy when reasonably good assets come onto the block that are in production. Maybe we need to take a step back … and continue to look for opportunities to add to our mines’ lives in AustraliaNick Holland
Gold Fields CEO
“There’s a feeding frenzy when reasonably good assets come onto the block that are in production. Maybe we need to take a step back … and continue to look for opportunities to add to our mines’ lives in Australia.
“Unless something spectacular came along, it’s less likely we’d do something [buy],” Holland said.
One of the long-anticipated announcements was the setting of production and cost targets at the South Deep mine, the last mine Gold Fields has in SA.
Gold Fields said it would spend R2.3bn at the mine to bring it to steady-state production of 495,000oz a year from 2022 at an all-in cost of $900 an ounce. Gold Fields has spent $4.2bn on South Deep since buying it in 2006 and its
100-million ounces resource, of which 37-million ounces were reserves, made it the world’s second-largest unmined deposit that would only grow in value as limited global exploration failed to turn up similarly large deposits, Holland said. He ruled out a sale of South Deep.
Gold Fields declared a final dividend per share of 60c on Thursday, bringing the total return to shareholders to 110c in 2016. It posted net profit for the year to end-December of $163m compared to a net loss of $242m the year before. It reported $191m of normalised earnings versus normalised losses of $45m before.