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Gold Fields in Damang recap poser -

Thursday, 19 November 2015

GOLD Fields produced a solid third quarter performance, even raising the prospect of lower than guided costs for the year, but the re-engineering of South Deep, the $1.7bn group's massive west Johannesburg gold resource, still remains the elephant in the room.

Gold Fields said production from South Deep would be 50% more in the second half of its financial year, but at a maximum output of 193,000 ounces, the mine is only a shadow of its rich potential.
Re-engineering of South Deep, which involves a fresh approach to de-stressing the orebody, will continue well into 2017 while Gold Fields also continues to appoint staff with 13% of the critical skill positions of 164 personnel still to be filled.

The group also said it would decide during 2016 whether it would pump $100m into its Ghana mine, Damang, in order to mine its higher grade reserves up front or whether it made more sense to mothball the mine in order to wait out the gold price slump.

Gold Fields' other Ghana mine Tarkwa produced a good quarter, but it was Australian assets that formed the backbone of group's quarterly performance and makes CEO, Nick Holland's 2012, $300m swoop for Barrick's Yilgarn South assets look an increasingly handy piece of business.

The outcome was net profit of $18.7m for the third (September) quarter (Q2: $14.4m; 2014 Q3: $19.9m) and headline earnings of $21m (Q2: 19.4m; 2014 Q3: 14.4m). Headline share earnings were 3 US cents per share for the third quarter (Q2: 3c/s).

Gold production increased 4% to 557,000 oz and all-in sustaining costs (AISC) decreased by 8% to $948/oz. Total all-in cost (AIC) decreased by 9% to $961/oz.

Some $75m was generated in net cash flow from $30m in the previous quarter enabling the group to reduce net debt by $50m to $1,44bn end-September.

The dollar gold price was 6% weaker in the quarter but Gold Fields results were significantly assisted by Australian dollar and rand weakness against the US dollar with average gold price revenues in each district rising 2% each to A$1,553/oz and R471,094/kg respectively.

Goldman Sachs said in a morning note that Gold Fields had registered a strong result with its costs assisted by currency exchange improvements. It was doubtful that South Deep could meet its 193,000 oz guidance, however.

"South Deep continued to improve - gold production came in at 54,900 oz versus our estimates of 49,000 oz. This takes the year-to-date production to 130,000 oz.

"To reach the guidance of about 200,000 oz, the mine will have to do about 70,000 oz - an improvement of 27% quarter-on-quarter - challenging given the holiday season in December in South Africa," it said.


Concerns about the further weakening in the dollar gold price, however, meant Gold Fields was considering "various options" which included recapitalisation of the mine "... to expose the higher grade ore", or whether to preserve its inherent value until the dollar gold price had recovered.

It had been reported during October in Ghana that Gold Fields was considering investing $100m in Damang or it could mothball the operation

Said Gold Fields today: "As the gold price continues to languish, we constantly review our portfolio. While the weaker currencies offer some respite in most regions, Ghana is fully exposed to further declines in the US$ gold price".

It said it "should be in a position" to announce a decision in early 2016.

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