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Gold Fields Expects Positive 1st-Half Earnings

Friday, 5 August 2016

Higher first-half earnings will be driven by:

  • A 0.8% increase in first-half attributable gold equivalent production (from 1.036 million ounces to 1.044 million ounces);
  • Lower operating costs thanks to a weaker rand: AISC decreased 8.40% from $1,083 per ounce in first half 2015 to $992 per ounce in the first half of this year, and AIC decreased 7.6% from $1,108 per ounce in first half 2015 to $1,024 per ounce in the first half of this year;
  • The rise in the U.S. gold price: 3% year over year.

Gold Fields' earnings increase will be mainly generated by lower operating costs that have been influenced by weaker local currencies against the dollar: AISC of $992 per ounce in the first half versus AISC between $1,000 per ounce and $1,010 per ounce as expected by the company at the end of the first quarter.

The company also attributed the higher earnings to a 3% year-over-year recovery in the gold price, even though on the London Bullion Market the gold price increased on average only 1.1% from $1,206.149 in first half 2015 to $1,219.702 in the first half of this year.

The attributable gold production of the first half is in line with guidance: between 2.05 million ounces and 2.10 million ounces of attributable gold was expected to be produced by the company in 2016.

Recently Gold Fields refinanced its existing credit facilities due in November 2017 to $1.290 billion and extended the maturity of its debt, of which the first maturity will be in June 2019.

In March the miner strengthened the balance sheet applying the proceeds from the private placement to institutional investors ($150 million) to the existing revolving credit facility that was partially utilized to buy back $148 million of its $1 billion 4.875% guaranteed notes due October 2020.

“Moody's Investors Service and Standard & Poor's revised the outlook on the long-term credit rating of Gold Fields (Moody’s: Ba1; S&P: BB+) to stable from negative in March and April.”

After Gold Fields was upgraded by Goldman Sachs from a “neutral” to a “buy” rating, citing higher investor interest in the stock given its potential for further increases in the high free cash flow and dividend yield as gold price trades higher, the stock increased 14%:

Being a consistently strong free cash flow generator, this miner is set by Goldman to increase its dividend with gold prices trading close to $1,350 per ounce.

The postponement of interest hikes by the Fed is putting more pressure on the price of gold and Gold Fields' share price will increase as gold trades higher.

Disclosure: I have no positions in Gold Fields Limited.

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