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Gold Fields: On Track To Meet Guidance - Seeking Alpha

Thursday, 9 December 2021


Investment Thesis

On November 11, 2021, Johannesburg-based Gold Fields Ltd. (NYSE: GFI) released its operational update for the quarter ending September 30, 2021.

The South African gold miner had a better-than-expected production quarter, including 6% copper production.

Consolidated production for 3Q21 was 606K Au Eq. Oz at an AISC of $1,016 per ounce compared to 557K Au Eq. Oz at an AISC of $964 per ounce in 3Q20.

1 - The investment thesis continues to be the same

Gold Fields is an excellent long-term investment that I recommend in the gold sector. The company is globally diversified (Africa, Australia, and South America) and presents a good growth potential with its Salares Norte project that will be completed at 62% by the end of 2021.

However, the company warned that delays are expected:

Given the COVID-19 and weather impacts it is unlikely that the project will achieve the previously guided 65% completion milestone by the end of 2021 and should see completion of around 62% by year end. Importantly, all the critical path items are tracking plan. In addition, more than 95% of imported components have arrived in Chile, so the project is not expected to be delayed by shipping constraints currently being experienced globally. The project remains on track to deliver first gold by the end of Q1 2023.

Gold Fields is highly correlated to the gold price even if the company also produces a little bit of copper, representing roughly 6% of the total gold equivalent production in 3Q21.

It is difficult to be bullish on gold because of the growing risk of inflation that could push the Fed to act later this year or early in 2022, hurting the gold price in the process.

Thus, it is even more imperative to trade short-term volatility, and I recommend using about 40-50% of your position to take advantage of the short-term ups and downs. I recommend trading LIFO while keeping a core long-term position for a much higher level and enjoying a significant dividend yield of 3.46% while waiting.

2 - Stock performance

GFI is doing quite well on a one-year basis compared to its peers and the VanEck Vectors Gold Miners ETF (GDX) with a 13% increase.

Gold Fields - Production history: The raw numbers (ADR ratio 1:1)

Note: As most South African gold and PGM miners, results are posted every six months. The 3Q21 is only an update on production. Details below:

Gold Eq. Production (consolidated) 3Q20 4Q20 1Q21 2Q21 3Q21
Gold Eq. Production in K Oz (attributable) 557 593 541 563 606
Gold Price realized in $/oz 1,921 1,866 1,778 1,820 1770
AISC $/oz 964 971 1,078 1,107 1016


Mines Production for 3Q21 Region K Oz K Oz
South deep South Africa 85 85
Tarkwa West Africa 195 122
Damang     51
Asanko (45%)     22
Cerro Corona Peru 69 69
St Ives Australia 256 94
Agnew     54
Granny Smith     79
Gruyere (50%)     30
Total Production managed   606 606


Gold Fields: Balance sheet details

1 - Balance quarterly update

The company indicated that the balance sheet remains in a strong financial position. During Q3 2021, there was a further decrease in the net debt balance (including leases) to $1,037 million on 30 September 2021 from $1,097 million on 30 June 2021.

It translates in a net debt to EBITDA of 0.44x, compared to 0.49x on 30 June 2021.

The net debt balance (excluding leases) decreased to $620 million from $663 million at the end of June 2021.

2 - Third quarter gold equivalent production details

The attributable gold equivalent produced in the third quarter of 2021 was 605.7K ounces compared to 557.0K ounces in 2020.

Below are the details of Quarterly Production consolidated per mine. Total gold equivalent production for the 3Q21 was 605.7K Au Eq. ounces, an improvement of 8.7% from 3Q20. The company sold 624.9K Au Eq. ounces on a managed basis.

Gold Fields operates nine mines and one project in five countries across the globe.

  1. West Africa generated 32.2% of the group's earnings (consolidated basis)
  2. Australia 42.3%
  3. South Africa 14.1%
  4. And the Americas region, Cerro Corona in Peru of 11.4%.

Total CapEx was $194.3 million in 3Q21, up from $189.5 million the preceding quarter. The gold price was $1,770 per ounce compared to $1,921 per ounce in 3Q20. AISC for Q3 is $1,016 per ounce.

3 - Salares Norte project: Progress will reach 62% at the end of 2021 (from 65% expected), slightly behind schedule

However, the project's critical path remains on track, despite a 3Q21 impacted by severe winter weather earlier in the quarter and the ongoing COVID-19 constraints. The company indicated that due to those issues, the project would reach around 62% completion at the end of 2021.

Importantly, all the critical path items are tracking plans. In addition, more than 95% of imported components have arrived in Chile, so the project is not expected to be delayed by shipping constraints currently being experienced globally.

Note: The project remains on track to deliver the first gold by the end of 1Q23.

4 - On track to meet 2021 guidance

Gold production for 2021 is expected to be between 2.3 Moz and 2.35 Moz.

On track to meet 2021 guidance FY 2021 production and cost guidance, as provided in February 2021, remains intact. Attributable gold equivalent production is expected to be between 2.30Moz and 2.35Moz.

As previously guided, AISC is expected to be between US$1,020/oz and US$1,060/oz, with AIC expected to be between US$1,310/oz to US$1,350/oz.

If we exclude the very significant project capex at Salares Norte, AIC is expected to be US$1,090/oz to US$1,130/oz.

The exchange rates used for our 2021 guidance are: US$/R15.50 and US$/A$0.75.

Technical Analysis and Commentary

Note: The chart has been adjusted for dividends.

GFI forms an ascending channel pattern with resistance at $11.5 and support at $10.2.

The trading strategy that I recommend is to take profits LIFO between $11.5 and $11.8 (about 25%) and start to buy back if possible below $10.2.

However, depending on the gold price strength and the cautiousness of the Fed, GFI could cross the resistance and retest $12.75. Conversely, if the Fed turns hawkish the next few months, GFI could drop quickly below $9.50.

Watch Gold like a Hawk.

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