Nick Holland. Picture: FINANCIAL MAIL
Nick Holland. Picture: FINANCIAL MAIL

Gold Fields reported a deep annual loss after a second year of hefty spending on two big mines and a big production miss at its troubled South Deep mine in SA.

As part of its strategy to lift international gold production, Gold Fields has invested $502m over the past two years in the construction of the Gruyere gold mine in Australia and the redevelopment of its Damang mine in Ghana, offsetting its production exposure to the perennially underperforming South Deep project.

Gold Fields reported a net loss of $348m for the year to end-December compared with a $19m loss the year before.

A final dividend of 20  South African cents per share was declared, bringing the total return to shareholders for the year to 40c, down from 90c the year before.

“Gold Fields is now on track to ensure that our international operations will be producing over 2-million ounces a year for the next decade,” said CEO Nick Holland, adding this would be achieved for the first time for the company during 2019.

The 2-million ounces of international gold will be achieved as Gruyere reaches steady-state production by the end of the year, Damang ramps up production and gold flows from the Asanko joint venture Gold Fields entered by buying a 45% stake for $165m during 2018.

Gold Fields unbundled three deep-level gold mining assets in SA into Sibanye-Stillwater and has just South Deep remaining in SA.

SA remains important for Gold Fields, but increasingly less so as reserves are aggressively grown outside the country.

With a 4.6-million ounce reduction in South Deep’s reserves to just below 30-million ounces, against a doubling of reserves in South America, the international assets now comprise 41% of the company’s total reserves.

Net debt in Gold Fields grew to $1.6bn from $1.3bn.

“All operations, apart from South Deep, exceeded guidance for the year, once again highlighting the quality of the portfolio, with these operations being higher on production and lower on costs,” Holland said.

As the new assets ramp up production clearing the capital hump of 2018, capital expenditure will fall during 2019 “quite aggressively”, he said, adding that production and cash generation would pick up towards the second half of the year.

The company was expected to turn cash-flow positive in the second half of the year, Holland said during a results presentation.

South Deep has cost R32bn in the purchase price and development costs since 2006 with little to show for it.

In 2018, the mine completely missed the reduced target of 244,000oz set in the first quarter, down from 321,000oz.

South Deep reached just 157,000oz, 44% lower than the previous year, with all-in costs of R854,049/kg, well above revised guidance of R540,000/kg.

There was net cash outflow of R1.9bn at the mine which was disrupted by a six-week strike to protest against job cuts and restructuring that resulted in nearly 1,100 people leaving South Deep.

“While South Deep had a difficult year, the large-scale restructuring completed at the end of 2018, places the mine on an improved footing from which to gradually build up production, having removed over R800m out of our cost base and R400m of capital expenditure with a significantly reduced footprint,” Holland said.

Gold Fields produced 2.04-million ounces of gold during 2018 compared with 2.16-million ounces the year before.

It reported an all-in cost of $1,173/oz, up from $1,088/oz, a number that includes capital expenditure.

Looking ahead, Holland said output was expected to be between 2.13-million ounces and 2.18-million ounces for the year at an all-in cost of up to $1,095/oz.

South Deep is expected to contribute 193,000oz at an all-in cost of R610,000/kg.

Gold Fields has hedged or sold forward 100,000oz of South Deep’s gold at R617,000/kg up to the end of 2019.

seccombea@bdfm.co.za