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Gold Fields: Another solid South African gold miner - Seeking Alpha

Tuesday, 29 June 2021

Summary

Investment Thesis

On May 6, 2021, Johannesburg-based Gold Fields Ltd. (NYSE: GFI) released its quarterly operational update for the quarter ended 31 March 2021.

The South African gold miner had an exceptional year in 2020. Gold production for the last quarter of 2020 reached a record of 593K Au Oz at an impressive AISC of $971 per ounce.

We are close to the end of H1 2021, and it is important to get a good look at what is going on. The gold price has been weakening, and the stock price dropped significantly from its recent highs. It is perhaps time to assess the situation and adopt a viable strategy for the rest of 2021.

The investment thesis remains simple. Gold Fields is a great long-term investment that I recommend in the gold sector. The company is globally diversified and presents a good growth potential. Furthermore, it is paying a 3.42% dividend yield. A potential merger with Sibany Stillwater could bring some plus value.

However, Gold Fields is highly correlated to the gold price even if the company is also producing copper, representing roughly 4% of the total gold equivalent production this quarter. Thus, it is crucial to trade short-term volatility, and I recommend using about 40% of your position to take advantage of the ups and downs.

On a one-year basis, GFI has had a modest run-up compared to Sibanye Stillwater (NYSE: SBSW) due to the nature of the metals produced.

Gold Fields - Balance sheet and production history for 2020 (with interim Q1 2021): The raw numbers (ADR ratio 1:1)

Note: As most South African gold and PGM miners, results are posted every six months. However, GFI posted some information regarding the first quarter of 2021 while waiting for H1 2021.

Gold Field Balance sheet in H1 2019 H2 2019 H1 2020 H2 2020 Q1'21
Total Revenues in $ Million (6 months) 1,378.5 1,588.6 1,754.3 2,137.8
Net Income in $ Million (6 months) 70.5 91.1 155.5 567.5
EBITDA $ Million (6 months) 463.0 599.5 610.5 1,355.4
EPS diluted in $/share (6 months) 0.08 0.11 0.18 0.63
Cash from operating activities in $ Million (6 months) 456.4 388.6 548.6 562.8
Capital Expenditure in $ Million (6 months) 356.3 256.2 238.7 352.1
Free Cash Flow in $ Million (6 months) 100.1 132.4 309.9 210.7
Total Cash $ Million (6 months) 534.8 515.0 940.8 886.8
LT Debt (incl. current) in $ Million (6 months) 2,033.0 1,762.3 1,816.4 1,443.4 Net debt (excluding lease liabilities) $640 Net debt (excluding lease liabilities) $788*
Share outstanding diluted in million 881.25 828.69 873.85 905.83 -
Dividend $/ share (source: nasdaq.com) 0.032 0.048 0.077 0.171 -

Source: Company filings, Fun trading files

* Net debt to EBITDA ratio is 0.59x compared to 0.56x at the end of 2020.

Gold Fields: Gold equivalent production for the First quarter of 2021 (interim results) and net debt.

1 - Gold Fields' debt situation

Total cash was $886.8 million, and LT Debt (incl. current and excluding lease) was $1,443 million at the end of December 2020. The outstanding net debt to EBITDA ratio was 0.56x.

Net debt jumped from $640 million at the end of 2020 to $788 million on March 31, 2021, with a net debt to EBITDA ratio of 0.59x.

2 - First quarter gold equivalent production details

The attributable gold equivalent produced in the first quarter of 2021 was 541.3K ounces compared to 536.9K ounces in the first quarter of 2020.

Total CapEx was $142 million this quarter, down from $152.5 million the preceding quarter. The gold price was $1,778 per ounce compared to $1,561 per ounce in 1Q'20.

3 - Salares Norte project

The project continued its positive momentum and remained to track ahead of schedule during Q1 2021. $86.9 million was spent on the project during the quarter, comprising $58.6 million in capex, $7.6 million in exploration, a $27.6 million investment in working capital, and $9.7 million from the realized portion FX hedge.

The construction advanced 7.7% during the quarter, bringing the overall construction progress at the end of March to 23.3%, ahead of the planned 18.8%. Camp construction was completed three months ahead of schedule.

4 - Approval of the 40 MW solar plant at South Deep and the development of the Huni Pit at its Ghanaian Damang mine.

The Gold Fields board this week gave the green light for the construction of a 40MW solar plant at the South Deep mine in South Africa. This follows the granting of a license by the National Energy Regulator of South Africa on 25 February 2021. The 40MW solar plant will generate over 20% of the average electricity consumption of the mine. (press release).

5 - 2021 Outlook and Revised Guidance

Revised guidance post-quarter-end the development of the Huni Pit at Damang was approved, which adds incremental production to the project and provides flexibility on the mining front.

The total cost is US$43m, with approximately US$15m to be incurred in 2021. As a result, the original guidance for Damang is revised as follows:

Gold produced – 8,700kg (280,000oz), original guidance 9,000kg (289,300oz);

• Sustaining capital expenditure – R1,219m (US$82m) including the solar plant, original guidance R889m (US$57m);

• All-in sustaining costs – R672 000/kg (US$1,410/oz), original guidance R620,000/kg (US$1,240/oz); and

• Total all-in cost – R712 000/kg (US$1,495/oz), original guidance R660,000/kg (US$1,320/oz).

Technical Analysis

Gold Fields is another great gold producer that fits a long-term portfolio. I think you can agree after analyzing the data above. The stock price is weakening in correlation with the gold price after the FED turned hawkish, with inflation going higher.

I believe it is a great opportunity to accumulate such a solid gold miner.

Technical Analysis

GFI forms a descending triangle pattern with resistance at $10.50 and support range between $9.10 and $8.95. The stock is now trading at support with RSI below 30, which is a buy signal.

The trading strategy is to accumulate at or below $9.10 and take profits (~35%) at $10.15 - $10.75. However, the gold mining sector is quite weak right now, with the gold price holding fragile support at $1,780.

If the gold price continues to weaken and cross its support, GFI will likely retest its lower support at $8. Conversely, if the gold price holds support and turns bullish, I think the upper target could be $12.25, but it is quite unlikely.

Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support.

This writing is for informational purposes only. All opinions expressed herein are not investment recommendations and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity and is not a registered investment advisor. Thanks!

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