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Impairment mars Gold Fields's figures

Friday, 9 February 2018

Annual results from Gold Fields will be heavily skewed by a chunky impairment against its sole South African mine, South Deep, an asset analysts labelled a "disappointment".

Shares in Gold Fields closed 4.3% lower, giving the mining company a capitalisation of R39bn and extending the year-to-date decline to 11.5%.

Gold Fields, headed by Nick Holland, said its basic loss per share, which reflects once-off events, was forecast between $0.02 and $0.05 per share for the 12 months to end-December, compared to earnings of $0.2 per share the year before.

Headline earnings, excluding once-off items, were forecast to be in a range of $0.23-$0.26 per share compared to $0.26 per share before.

Gold Fields said it would show a $278m, or R3.5bn, impairment against its South Deep mine, with which it has struggled for years, investing R29bn in the project.

The impairment was due to a difficult first year of a fresh five-year plan to tackle the deep-level, massive ore body, leading to a slower than expected ramp-up in the early years on the way to an unchanged output target of 500,000oz in 2022.

Gold Fields said in October the death of two people at South Deep early in 2017 would have a knock-on effect on output into 2018. The company is investing R2bn on top of the R29bn to bring the mine to the 500,000oz target. The carrying value of South Deep was now R24.7bn.

Another factor in the impairment was Gold Fields’s decision to lower the gold price assumption for its life-of-mine model at South Deep to R525,000/kg from R600,000/kg. "South Deep is a disappointment," Goldman Sachs said in a note on Thursday.

"Market expectations for a smooth ramp-up had increased after the new mine plan was released last year," it said.

"While the company has said that 2022 target remains the same (500Koz), the path to that will be lower production than previously guided.

"This is likely to be negative sentiment-wise and could lead to earnings downgrades," Goldman Sachs added.

Gold Fields has made a $30m provision towards settling an occupational lung disease class action case, thereby joining five of its gold-mining peers in setting aside a total of about R5bn.

Gold Fields will reverse two impairments. It will reverse a $53m impairment against its Cerro Corona mine in Peru and $39m against its Arctic Platinum Project, which it has just sold.

The life of Cerro Corona was extended by seven years to 2030 by adding extra tailings capacity at the mine where such storage facilities are a constraint on the mountain-top operation.

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