Gold producer Gold Fields Limited (GFI) reported second-quarter 2013 adjusted (barring one-time items) loss from continuing operations of 5 cents a share, in contrast to the prior-year quarter’s earnings of 15 cents.
On a reported basis, the company posted a net loss (attributable to Gold Fields stockholders) from continuing operations of $128.5 million or 18 cents per share in the quarter as compared with a net income of $105 million or 15 cents per share a year ago.
The sharp loss was a result of lower gold price, lower gold sold and the negative gold price adjustment of $13 million associated with prior and present concentrate shipments at Cerro Corona. Gold Fields also incurred losses resulting from non-recurring items of $143 million, out of which $127 million was related to impairment charges at Tarkwa and Damang. The impairment was due to the decision to curtail all heap leach activities at Tarkwa and a revaluation of the ore stockpiles at Damang.
Revenues decreased about 22.6% year over year to $637.1 million in the quarter from $823 million registered in the year-ago quarter. Average gold price declined 13.3% to $1,372 per ounce from $1,582 per ounce recorded in the second quarter of 2012.
Operational Results
Gold Fields’ attributable gold production was 451,000 ounces in the quarter, down 10.3% from 502,900 ounces of gold produced in the prior-year quarter. The decrease in the production was due to the illegal strike at Tarkwa and Damang, partially offset by an increase in production at South Deep. Gold sold declined 11.2% to 464,000 ounces from 522,000 ounces sold in the prior-year quarter.
Net operating costs rose 1.2% to $397 million in the second quarter. Total cash cost for Gold Fields amounted to $857 per ounce, up 12.7% from $760 per ounce in the previous-year quarter, resulting from lower production and higher net operating costs. All-in sustaining costs for the quarter stood at $1,416 per ounce.
Operating profit also declined 44.3% to $240 million due to increased costs and reduced production. Operating margin decreased to 38% in the quarter from 52% in the second quarter of 2012.
Financial Overview
Cash and deposits decreased 27% to $442.7 million as of Jun 2013, from $606.3 million as of Dec 2012. Net debt (long-term loans plus the current portion of long-term loans less cash and deposits) increased to $1,656.4 million as of Jun 2013, from $1,262.5 million as of Dec 2012.
As of Jun 2013, Gold Fields registered cash outflow from operating activities from continuing operations of $42 million, compared with a cash inflow of $229 million as of Jun 2012. Lower operating profit resulting from deflated gold price led to the cash outflow. Capital expenditure declined to $187 million as of Jun 2013, from $310 million as of Jun 2012.
Cash Dividend
Gold Fields' Board did not announce an interim dividend owing to the current lower gold price environment. The Board is concerned about the gold price volatility in the near term.
Acquisition
On Aug 22, Gold Fields entered into an agreement with Barrick Gold Corporation (ABX) to acquire three of the latter’s Australian mines for a total consideration of $300 million.
The Australian mines, collectively known as the Yilgarn South Assets, include the Granny Smith, Lawlers and Darlot gold mines. These mines produced 452,000 ounces of gold in 2012 at all-in sustaining costs of $1,137 per ounce and contained proven and probable reserves of 2.6 million ounces as of Dec 31, 2012. Gold Fields holds an option to deliver up to 50% of the consideration in its own shares to Barrick, in addition to an equivalent amount of cash consideration at the transaction’s closing, which is expected on Oct 1, 2013.
Outlook
Gold Fields, which is one of the major South African gold miners, along with Harmony Gold Mining Company Limited (HMY) and Sibanye Gold Limited (SBGL), expects its attributable gold production for the year ending Dec 2013 to be within 1.83 million equivalent ounces to 1.90 million equivalent ounces, excluding the discontinued operations – KDC and Beatrix.
Gold Fields revised its full-year 2013 guidance for total cash cost to $830 per ounce from $860 per ounce. Notional cash expenditure (NCE) is now expected at $1,240 per ounce, down from previous estimate of $1,360 per ounce.
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