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Gold Fields South Deep heads for Q1 break-even - Miningmx

Wednesday, 27 January 2016

Gold Fields South Deep project is being tipped to break-even sooner than expected given the improvement in the current rand gold price and a strong production quarter for the three months to December.

Gold Fields said in a trading statement today that gold production in the fourth quarter was likely to be unchanged at 566,000 ounces. However, the figures show a decline in Ghana output and an increase in South Deep's output to approximately 68,000 oz (Q3: 2015 54,900 oz).

For the 2015 financial year, Gold Fields was therefore expected to produce within 1% of its guided production, equal to 2.16 million oz at an all-in sustaining cost (AISC) of an estimated at $1,020/oz against guided ASIC of $1,035/oz. All-in Costs (AIC) would be about $1,035/oz against guided AIC of $1,055/oz.

But it was the performance of South Deep that drew the eye of at least two analysts who said it augured well for the ramp up plans of the mine, situated on South Africa's west Rand.

"South Deep's performance is positive, and as we have previously mentioned, the material increase in the ZAR gold price, coupled with encouraging signs at the mine, should allow it to break even earlier than previously expected," said Kane Slutzkin, an analyst for UBS in a note.

Barclays said that Gold Fields' production figures were below its expectations in certain key respects, but the showing from South Deep was promising.

"Despite the weak quarter, the performance of South Deep is a key positive takeaway, with production increasing 20% year-on-year ... Given the recent depreciation in the ZAR, this means that the asset is likely to be cash flow positive in 1Q 2016 given our forecast for break-even production of 224,000 oz a year (56,000 oz per quarter).

Gold Fields CEO, Nick Holland, stopped forecasting South Deep's long-term gold output figures after it repeatedly failed to get remotely near the 650,000 to 700,000 oz/year target set by the group - itself a reduction on the expectations of the mine.

Holland said in May, 2015: "There is a target by the end of next year for the project to be cash flow positive," he said. There was a decline in production from both Tarkwa and Damang, a performance that is bound to focus attention on Gold Fields' view of the sustainability of Damang.

Gold Fields said in November that 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.

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