Gold Fields profit jumps to US$311m

Gold Fields has reported a 7% increase in operating profit to US$311million for the three months ended June 30.

The company’s revenue increased 4% quarter-on-quarter, from US$715million in the quarter ended March 31, to US$747million, as a result of higher gold sales, which was partially offset by the lower gold price.

Net operating costs increased 3%, from US$423million in the March quarter, to US$436million in the quarter under review.

Normalised earnings from continuing operations for the three months amounted to US$25million, up from US$21million during the March quarter, and losses of US$36million for the June 2013 quarter.

“During the June 2014 quarter, the group continued to focus on improving the execution and delivery at all the mines in the portfolio, to improve margins and generate free cash flow.

“This effort has achieved appreciable success in the Australia, West Africa and South America regions, while in the South Africa region there is on-going rebasing of South Deep to set it up for medium-term success,” Nick Holland CEO Gold Fields said.

During the quarter under review, South Deep’s production declined 14% quarter-on-quarter from 59, 200 oz in the three months ended March 31, to 51,100 oz -- owing to safety stoppages and an extensive ground support remediation programme.

Holland indicated that Gold Fields will, during the third quarter, focus on completing the support programme at South Deep and get the mine back to normal production levels during the fourth quarter. South Deep is still expected to reach cash break-even during the first half of 2015.

Meanwhile, Holland stated that all group activities at its operations are singularly focused on the objective of generating a sustainable free cash flow margin of at least 15% at a US$1,300/oz gold price, without compromising the long-term sustainability of the ore-bodies through a lack of investment in ore reserve development and stripping, or through high grading.

During the quarter under review, Gold Fields exceeded this target for the first time by achieving a free cash flow margin of 18%, compared with 13% in the March quarter.

To achieve this, the group recorded an all-in sustaining cost (AISC) of US$1,050/oz and an all-in cost of US$1,093/oz from attributable gold equivalent production of 586,000oz -- up 5% on the 557,100oz produced during the prior quarter.

Holland noted that by generating a free cash flow margin of 15%, the company was effectively setting its break-even gold price at US$1,050/oz. “If [the gold price] hit that level, we would like to retain the integrity of our development.

“By that, I mean that we wouldn’t want to cut development; we wouldn’t want to cut waste stripping, we wouldn’t want to [focus only on high-grade areas]; we would want to keep our current mine plan intact. But it would probably mean that we would be treading water for a while,” he said.

He added that should prices go up to beyond US$1,300/oz in future, the gold miner will keep its discipline and not be lured by the low-grade extra ounces that could be used. Gold Fields declared an interim dividend of 20cents a share payable on September 15.

Operations in Tarkwa and Damang mines

Tarkwa Mine achieved year to date production of 285,900 ounces at an all-in cost of US$1,021. “A great performance from Tarkwa, and we believe that there is a lot more to come,” Holland said.

During the quarter Damang Mine delivered another strong performance despite a nine-day mill shutdown -- as a result of which gold production decreased by 13% from 46,700 ounces to 40,500 ounces and all-in costs increased by 15% up to US$1,282 per ounce.

However, “We believe that during the current quarter -- and given the fact that we shouldn’t expect further mill shutdowns -- Damang should return to levels achieved in the March quarter,” he said.

For the year to date Damang has achieved production of 87,000 ounces at an all-in cost of US$1,192. Despite the unplanned nine-day mill shutdown, Damang has now consolidated its return to profitability from a loss-making position a year ago.

“We think this is going to continue well into the foreseeable future. Now, the strategy of revisiting historically mined open pits along the 27 kilometre strike between Damang in the north and Tarkwa in the south, which were last drilled when the gold price was between US$300 per ounce and US$400 per ounce, is starting to bear fruit, and is expected to contribute to an addition to Reserves and Resources by the time of the next declaration early next year.”

Success in this programme will redefine the future of Damang in the Gold Fields portfolio, and has the potential to extend the life of this mine substantially.

Holland explained that normalising production at Tarawa has taken place, and the transition from a mixed heap leach and carbon in leach operation to a CIL-only operation has progressed well; and the heap leach operations have been closed.

“We continue to rinse the heap leaches and we continue to get gold out of that, but there is no new stacking taking place as of the beginning of the year.

“The realised yield from our CIL plant increased from 1.19 grammes per tonne to 1.29 grammes per tonne,” Holland said.

During the June quarter the low-grade stockpile to the north-east was significantly less utilised than in the March quarter. And that resulted in an increase in the grade.