Gold Fields falls into loss, halves its interim dividend
Analysts grill CEO Holland at results presentation about failure to make South Deep mine profitable
Gold Fields has reported an interim net loss of $369m as it took a hefty impairment against its unprofitable sole remaining asset in SA and incurred restructuring costs in Ghana.
For the six months to end-June, Gold Fields reported that it had swung to a net loss of $369m from a profit of $57m in the same period a year before. However, using a non-International Financial Reporting Standards (IFRS) metric called normalised profit, which takes into account one-off items, Gold Fields reported a profit of $43m compared with a $75m profit the year before.
Applying its dividend policy to its normalised profit numbers, Gold Fields halved its interim dividend to $0.20 a share from $0.40 the year before.
Net debt increased to $1.393bn from $1.365bn a year ago, while the cash balance remained virtually unchanged at $498m.
Gold Fields has shed R9.05bn in value since Tuesday morning and its market capitalisation of R30.8bn is well below the R32bn it has poured into South Deep, west of Johannesburg, since buying it in 2006.
The interim period was marked by ongoing difficulties at the South Deep mine in SA, which has cost Gold Fields R32bn to buy and develop. The all-in cost at South Deep ballooned by 8% to R715,373/kg, while the company received about R514,000/kg.
Gold Fields, which has said it has started a process to lay off up to 1,560 people before the end of 2018, impaired the mine by R4.8bn to give it a carrying value of R20.7bn. Gold Fields withdrew its production targets for the mine. Gold output at the mine fell by 19% to 97,000 ounces in the first half of 2018 because of lower volumes and reduced grades.
In Ghana, Gold Fields incurred $81m in restructuring costs at its Tarkwa mine and $15m at its Damang operation. It incurred losses of $47m on the sale of equipment and inventory in Ghana.
Restructuring costs at South Deep cost $4m in the first half of the year. Gold Fields impaired its Far South East project in the Philippines by $20m. Group gold production fell to 994,000 ounces from 1.02-million ounces the year before, while all-in costs, which include growth capital, grew to $1,169/oz from $1,092/oz.
A higher gold price offset the fall in production, causing revenue to rise by 4% to $1.35bn.
"Gold Fields is in a strong financial position, with the integrity of the balance sheet remaining intact after funding cumulative project expenditure [Damang and Gruyere] of $330m over the past 18 months," CEO Nick Holland said, referring to the two growth projects in Ghana and Australia.
At the jointly owned Gruyere in Australia, the cost of the project has grown to A$621m from an original budget of A$532m. Gold Fields has to fund A$52m of the over-run. The partners have spent A$329m on the project. "Despite the increased capital for the project, we believe that the long-life, low-cost nature of Gruyere will subsequently improve the Gold Fields portfolio," Holland said.
Looking ahead, Gold Fields said it expected to produce between 2.08-million and 2.1-million ounces of gold for 2018 with the addition of the newly acquired 50% stake in West African miner Asanko offsetting declines from South Deep. Asanko is expected to add 43,000 ounces of gold to Gold Fields this year.
Holland was grilled about the deeply unprofitable South Deep mine during a results presentation on Thursday.
One analyst, Tshepo Molefe, accused the management of feeding the market “gibberish and garbage” in their responses to questions about what has gone wrong at the mine and what the possible solutions are.
Johann Steyn from Citi questioned whether there was a genuine problem with skilled labour or if it was simply a convenient excuse for the management to hide behind because the mine was technically too challenging.
Holland said the swift turnover in senior management is a key problem, as is the inability so far to operate the mine properly and efficiently.
Despite the problems being well understood, however, addressing them is proving tricky, he said.
CFO Paul Schmidt said the all-in sustaining costs at South Deep have to be reduced quickly to R525,000/kg, essentially breakeven. In the interim period costs were R669,306/kg.
The restructuring and “resetting” of the mine will take place over the next six months and new targets will be put in place that can be realistically reached, said Holland, repeating comments he has made before at previous downgrades of targets and deadlines.