Gold Fields to Miss Output Target, Starts Strategic Review
Stock Chart for Gold Fields Ltd (GFI)
Gold Fields Ltd. (GFI), the fourth-biggest producer of the metal, said it will miss its output target of 3.5 million ounces this year and that it is reviewing assets to lift profit margins as opposed to output.
The Johannesburg-based company doesn’t expect to produce more than 3.4 million ounces in 2012 because a fire at Africa’s largest gold-mining operation and the suspension of work at its recovery plant in Ghana cut production, Gold Fields said in a statement today.
Gold Fields, which already trimmed its full-year output target in May, is studying opportunities in Finland, the Philippines, Peru and Mali as it looks to reduce the proportion it extracts in South Africa, which already has the world’s deepest mines. Labor and power costs in the nation have risen by more than inflation for each of the past three years.
Gold production for the year “could reduce further if no agreement is reached at South Deep,” the company said.
The blaze at the Kloof-Driefontein operation in South Africa, which killed five people and burned for 46 days, reduced output by 50,000 ounces, it said. Another 15,000 ounces were lost after the recovery plant at the Tarkwa mine in Ghana was suspended by state environmental officials, who said water was discharging from the site and needed more treatment.
At South Deep, about 15,000 ounces have been lost as miners cut back on work after the company issued a notice of possible dismissals. Safety stoppages at the Beatrix operation also resulted in the loss of 20,000 ounces, the company said.
Gold Fields will not grow output at any cost, Chief Executive Officer Nick Holland told reporters in Johannesburg. The company will to start acting on its portfolio review by the end of the year or early 2013, he said.
“What we’ve been doing as an industry for the last five to 10 years clearly hasn’t worked” because gold miners’ share- price performance hasn’t kept pace with the rise in the value of the metal they produce, Holland said. Barrick Gold Corp. (ABX), the biggest gold miner, cited a poor share price performance when it fired Chief Executive Officer Aaron Regent on June 6.
“Each and every asset will be looked at,” he said.
Gold Fields’ profit fell 16 percent in the second quarter through June, missing estimates, as costs rose and prices slid.
Earnings excluding one-time items declined to 1.82 billion rand ($220 million), or 2.50 rand a share, from 2.17 billion rand, or 3 rand a share, in the first quarter, it said. The median estimate of six analysts surveyed by Bloomberg was for profit of 2.65 rand.
Second-quarter equivalent gold production rose 4.3 percent to 26,817 kilograms (59,120 pounds) from the previous three months, while total cash costs climbed 1.4 percent to 220,546 rand a kilogram, the company said.
Gold Fields is “always looking” for buyout opportunities, Holland said in an interview. “To do big transactions is very, very difficult.” Smaller “deals are probably easier to do,” he said.
Gold retreated 4.5 percent to an average $1,612.73 an ounce during the quarter from the previous three months and rose 1.1 percent to $1,672.80 an ounce, the highest on a closing basis since April 12, by 5:04 p.m. in London.
The metal will probably either trade around current levels or increase, Holland said.
Gold Fields issued a notice of possible dismissals on Aug. 2 to the biggest labor union at its South Deep operation, 45 kilometers (28 miles) from Johannesburg. The company has been in talks with the National Union of Mineworkers since April over a restructuring it wants to undertake at what was its highest-cost mine last year. Mediated negotiations are under way, with Oct. 2 set as the deadline for an agreement.
The labor trouble Gold Fields is experiencing “is probably a flag for the rest of the industry,” Cape Town-based Trinity Asset Management Chief Executive Officer Quinton George said by mobile phone.
Gold Fields climbed 1.2 percent to 112.3 rand by the close in Johannesburg, the first increase in four days. Harmony Gold Mining Co. (HAR), which gained 1.5 percent to 80.66 rand today, is preferred over Gold Fields, said George.
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