Gold Fields Ltd., the mining company that spun off South African assets this year to reduce expenses, plans further cost savings to reverse a drop in earnings.
The company will cut spending on “near-mine” exploration, or the search for extensions to existing sites, to $28 million this year from $65 million, it said today in a statement. Investment in international growth projects is under review and is likely to be “significantly” lower than in 2012.
Gold Fields is seeking to bolster its balance sheet after mine shutdowns curtailed first-quarter output. The Johannesburg-based company and its peers are also contending with a decline in gold prices, which have slumped 13 percent this year as equities rallied amid weakening demand for haven assets.
Adjusted net income dropped to $68 million, or 9 cents a share, in the quarter, from $127 million, or 18 cents, in the previous three months, Gold Fields said in the statement. Output slipped 11 percent to 477,000 ounces. Gold analysts in South Africa compare companies’ quarterly results sequentially.
The company completed an operations review late last year, which led it to scrap some projects in the first quarter. It’s among gold producers to suffer tighter financing after the global financial crisis reduced available credit and gold equities tumbled.
“Financing has been very constrained, both from an equity and a debt perspective and we have to make sure we can survive this downturn in the gold market,” Chief Executive Officer Nick Holland said by phone. “We’re looking wherever we can, but we don’t want to cut back investment into productive capacity.”
Production fell at the Tarkwa mine in Ghana in the quarter, at the St. Ives and Agnew mines in Australia and at Cerro Corona in Peru, while output at the South Deep operation in South Africa held at 63,000 ounces, the statement shows. Total output this year is forecast at 1.8 million to 1.9 million ounces.
Gold Fields in February spun off South African assets including the Kloof-Driefontein Complex, Africa’s largest gold operation, and the Beatrix mine. The new company, Sibanye Gold Ltd., is now South Africa’s biggest producer of the metal after AngloGold Ashanti Ltd.
Gold Fields slumped 4.1 percent, the most this month, to 60.10 rand by the close in Johannesburg, extending the decline this year to 34 percent.
The company and its South African competitors are bracing for pay talks due to start in a month’s time. The Chamber of Mines, which represents mining companies, expects to receive wage demands from unions at the end of May.
The industry will need to switch to productivity-linked incentives from pay increases, according to Holland.
“Wage negotiations are always tough,” he said. “We are sitting against a backdrop, however, of many, many years of above-inflation wage increases and declining productivity. That trend is not sustainable.”