One of the World’s Biggest Gold Deposits Is Finally Making Money

  • Gold Fields’ South Deep mine makes first quarterly profit
  • Troubled mine has endured a decade of delays, accidents

Gold Fields Ltd.’s troubled South Deep mine in South Africa generated positive cash flow for the first time since the company bought the operation for about $3 billion in 2006. The stock rose for the first time in five days.

Boosted by a higher gold price and efficiency gains, South Deep made 63 million rand ($5 million) of cash in the second quarter, compared to a loss of 330 million rand a year ago, the Johannesburg-based producer said in a presentation on its website. The mine is a kingpin asset for Gold Fields, comprising about 75 percent of reserves, according to the company’s website, even after a decade of delays, accidents and losing money.

“We’ve stopped the blood at this stage,” Chief Executive Officer Nick Holland said in a phone interview. “But I wouldn’t claim victory yet. It’s still multi years of work still to get South Deep where we want it to be.”

South Deep is South Africa’s only mechanized gold mine and comprises the world’s largest gold-ore body behind Grasberg in Indonesia. Gold Fields has invested about $1 billion in it over the last 10 years in an attempt to produce 700,000 ounces annually until at least 2075. Yet the complex ore body, mistakes, and changes to the mining method means it’s on course for 289,000 ounces of output this year.

Even so, that would be a 45 percent improvement from last year’s production and ahead of the company’s previous forecast of 257,000 ounces. Costs also fell about 40 percent to $1,250 an ounce at the half year from 12 months earlier. The company will provide long-term plans and production targets for the mine in February.

“It’s going to be worth spending the effort if you can build a world-class mine that can serve you for many decades,” Holland said.

Raising Forecast

The stock climbed 1 percent to 84.79 rand at 2:04 p.m. in Johannesburg, giving the company a market value of about $5.2 billion.

Like other gold mines in South Africa, South Deep has benefited from gold price that rose 13 percent in the year to June 30, and a local currency that fell 17 percent against the dollar. That boosted revenue and lowered costs respectively.

Improvements at South Deep meant Gold Fields raised its production target to 2.1 million to 2.15 million ounces this year, compared with a previous estimate of 2.05 million to 2.1 million, it said in a statement Thursday. All-in sustaining costs will likely be unchanged at $1,000 to $1,010 an ounce.

The company bought hedging contracts guaranteeing 16.85 rand to the dollar for $70 million of revenue at South Deep. “At the moment it’s worth quite a lot of money for us,” Paul Schmidt, chief financial officer, told reporters. The rand is currently at 13.32 to the dollar.

Gold Fields’ normalized earnings were $103 million in the first half of the year compared with $8 million in the same period in 2015, boosted by the price of the metal, it said. The company increased its first-half dividend to 0.5 rand a share. from 0.04 rand a year earlier.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE