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Brexit boost for Gold Fields - IOL

Wednesday, 20 July 2016

Johannesburg - Mining group Gold Fields' earnings received a boost from the uncertainty that had been triggered by the British vote to leave the EU, analysts said yesterday.

Gold Fields, which has a primary listing in Johannesburg and secondary listings on the New York and Swiss Stock Exchange, said yesterday that the rising gold price increases and weaker local currencies were set to boost its earnings by as much as 1 500 percent in the six months to June.

The company said its basic earnings per share for the six months would be 14 US cents (R2), up from zero in the comparable period last year, while headline earnings per share were expected to increase by 1 500 percent to 16 US cents from the previous 1 US cents.

Lower costs

It said the increases were mainly driven by a 3 percent increase in the US dollar gold price and lower net operating costs in local currencies, as well as the impact of converting these costs at weaker exchange rates. In the previous comparable period, the Australian dollar was 5 percent weaker year on year and the South Africa rand was 29 percent weaker, compared with the US dollar.

In its 2015 annual report, Gold Fields said, for the 2015 financial year, it had used an average exchange rate of R12.68 to the dollar, while valuing A$1 at $0.72. “Gold has always been a safe haven asset, so its price rises in times of uncertainty. The current steep move up was triggered by the British vote to leave the EU, and now the price seems to have settled at the higher level: $1 350 is the new $1 200,” NKC African Economics head of research Francois Conradie said.

After a rise, the gold price usually fell when investors saw better opportunities in safer, developed markets, Conradie said. But at the moment growth prospects looked very soft in the UK and EU, and only slightly better in the US, he said. “The price will probably come off gradually for a while, but any fresh developed world shock - perhaps a concerning outcome in the US presidential election - will almost certainly push it back up,” he said.

Momentum SP Reid analyst Sibonginkosi Nyanga said yesterday that the company had benefited from the softer Australian dollar and South African rand exchange rates. The depreciation of the two currencies worked in favour of Gold Fields because the company’s local currency denominated costs became lower when converted to the US dollar, Nyanga said. “Secondly, because of the British referendum to leave the EU, funds are running away from what they consider to be risky assets. Gold is considered a safe haven,” he said.

Mines in Australia, the company’s biggest region, contributed 44 percent to the company’s production for the 2015 financial year. Its only operating asset in South Africa, the South Deep Mine south-west of Johannesburg, contributed 9 percent to last year’s production. Gold Fields also has assets in Ghana, Chile and Peru.

Gold Fields rise in gold prices was a boost to the mining group, which has adjusted itself to a relatively low gold price environment. In his comments in the company’s 2015 annual report, chief executive Nick Holland said between 2011 and last year, the gold price fell by 45 percent. “Despite the 45 percent decline in the price of gold between 2011 and 2015, Gold Fields is today in much better shape generating substantially more cash than when the gold price was at its peak,” Holland said.

Gold Fields shares on the JSE yesterday closed 2.46 percent higher at R86.70 a share.The gold price per ounce yesterday evening was $1 333.

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