Financial performance
Introduction
The core focus of Gold Fields' business strategy is to grow the margin and Free Cash-Flow (FCF) for every ounce of gold produced and to sustain this FCF in the long term. This ensures the Group remains lean and focused, with a globally diversified portfolio that provides investors with leverage to the gold price.
However, to ensure the sustainability of FCF generation, reinvesting in and upgrading the portfolio is essential. As such, Gold Fields embarked on a period of reinvestment at the beginning of 2017, with 2017 and 2018 being the years of peak capital expenditure. Despite incurring project capital of US$115m at Damang, A$184m (US$141m) at Gruyere (including working capital), and R225m (US$17m) at South Deep, and spending US$53m at Salares Norte (currently in feasibility study), the net cash outflow was limited to US$2m during 2017. This compares to a net cash inflow of US$294m in 2016.
Our key objective is to generate a FCF margin of at least 15% at a long-term planning gold price of US$1,300/oz, which translates to an All-in Costs (AIC) breakeven level of approximately US$1,050/oz. The Group's FCF margin, which is adjusted for share-based payments, Salares Norte exploration expenditure and Damang and Gruyere project capital, decreased slightly to 16% in 2017 from 17% in 2016, driven primarily by an increase in taxes paid. Encouragingly, this is ahead of our targeted 15% FCF margin at a US$1,300/oz gold price, despite a gold price received of US$1,255/oz. Details of the Group's production and cost guidance are contained in the Safe Operational Delivery section see here.
Gold Fields' financial performance in 2017 was stronger than anticipated at the beginning of the year. The out performance of the international operations, coupled with a US Dollar gold price received that was much higher than our business planning price, enabled Gold Fields to restrict the cash outflow, limit the increase in net debt and maintain the strength of its balance sheet during the year. Net debt increased to US$1,303m during 2017 from US$1,166m at the end of 2016, resulting in a net debt/adjusted EBITDA of 1.03x at 31 December 2017 (December 2016: 0.95x). The Group maintained its policy of rewarding shareholders with dividends, paying out 39% of normalised earnings, or R0.90/share (2016: R1.10/share).
For 2017, revenue increased by 2% to US$2,811m from US$2,750m in 2016, helped by the higher gold price received. Cost of sales (before amortisation and depreciation) increased slightly to US$1,404m, with the respective 9% and 3% strengthening in the Rand/US$ and A$/US$ exchange rates acting as headwinds. The bulk of Gold Fields' costs in Australia and South Africa are incurred in local currencies. As such, the strengthening in the Australian Dollar and South African Rand had a negative impact on costs in US Dollar terms - and ultimately profits - in these geographies during 2017. However, the oil and Australian Dollar gold price hedges countered the negative currency impact in Australia.
The Group AISC of US$955/oz and AIC of US$1,088/oz in 2017 compared with US$980/oz and US$1,006/oz in 2016. Encouragingly, costs came in below guidance (AISC: US$1,010/oz - US$1,030/oz; AIC: US$1,170/oz - US$1,190/oz) for the fifth consecutive year. The increase in AIC was primarily driven by the project capital incurred at Gruyere and Damang.
Other salient features during 2017 included:
- Royalty payments of US$62m in 2017 compared with US$78m in 2016
- An increase in capital expenditure to US$840m in 2017 from US$650m in 2016
- A decrease in the taxation charge to US$179m in 2017 (2016: US$190m)
- An impairment of US$293m in 2017 (2016: US$77m), comprising mainly a US$278m impairment of South Deep (largely due to a lower Rand gold price utilised)
- The provision of US$30m for the Silicosis and Tuberculosis class action in South Africa
- A US$92m impairment reversal for the Arctic Platinum project and Cerro Corona assets
Taking into account all of the above, the net loss attributable to Gold Fields shareholders amounted to US$19m in 2017, compared to earnings of US$158m in 2016.
During 2017, our priorities for the cash we generated were:
- Rewarding our shareholders with dividends
Our policy is to pay out between 25% and 35% of normalised earnings - Funding growth projects which will improve the quality of the Gold Fields portfolio
The bulk of the project capital is being spent on Damang in Ghana and Gruyere in Western Australia. Once these two mines reach full production, which is anticipated by 2020, they will significantly improve Group AIC and hence cash-generating ability - Maintaining the strength of the balance sheet and limiting the increase in debt through the peak capex years. Gold Fields ended 2017 on a net debt/adjusted EBITDA of 1.03x
Once we have incurred all project capital expenditure on Damang and Gruyere, our target is to once again reduce our net debt/EBITDA to 1.0x and further after that
Headline earnings were US$210m in 2017 compared to US$204m in 2016, while normalised earnings were US$154m in 2017 compared to US$186m in 2016.
A detailed analysis of our financial performance is provided in the Management Discussion and Analysis of the Financial Statements contained in the 2017 Annual Financial Report.
Hedging
Given the volatility in commodity prices and exchange rates and, more pertinently, the high levels of project capital expenditure incurred during the year, management found it prudent to undertake short-term, tactical hedging to protect cash-flows.
In June 2017, Gold Fields hedged 78 million litres of oil at an equivalent Brent Crude swap price of US$49.92/bbl in the Australian region and 126 million litres at an equivalent Brent Crude swap price of US$49.80/bbl in the Ghanaian region. Net realised gains from these hedges, for the June - December 2017 period, were US$570,000 in Australia and US$850,000 in Ghana. Both hedges run until December 2019 and represent 50% of the annualised fuel consumption for the two regions.
In addition, the Group hedged 295,000oz of the Australian region's H2 2017 gold production by undertaking two Australian Dollar gold price hedges for the period July 2017 to December 2017:
- 165,000oz with a floor price of A$1,696/oz and a cap of A$1,754/oz (averaged)
- 130,000oz at an average forward price of A$1,720/oz
The Group made a realised gain of A$20m (US$15m) on these hedges.
Finally, Gold Fields hedged 8,250t of copper production from its Cerro Corona mine for the period August - December 2017 (about 70% of production for the period), with an average floor level of US$5,867/t and an average cap level of US$6,300/t. The Group made a realised loss of US$3m on this hedge.
In late 2017/early 2018 Gold Fields has selectively hedged the gold price for our South African, Ghanaian and Australian operations and the copper price for the Peruvian region.
Gold hedges include:
- Ghana: 409koz (60% of 2018 gold production guidance) hedged for the period January to December 2018 using zero-cost collars with an average floor price of US$1,300/oz and an average cap price of US$1,409/oz
- South Africa: 64koz (20% of 2018 gold production guidance) hedged for the period January to December 2018 using zero-cost collars with an average floor price of R600,000/kg and an average cap price of R665,621/kg
- Australia: 321koz (37% of 2018 gold production guidance) hedged for the period February - December 2018. Of this, 221koz were hedged at an average forward price of A$1,714/oz and 100koz at a floor price of A$1,700/oz and an average cap price of A$1,750/oz
Copper hedge:
- Peru: 29.4Mt of copper production (98% of 2018 guidance) was hedged for the period January to December 2018 using zero-cost collars with an average floor price of US$6,600/t and an average cap price of US$7,431/t
The Consolidated Income Statement, Statement of Financial Position and Cash-Flow Statement – extracted from the 2017 Annual Financial Report – are provided below.
Preparing for gold pour at Tarkwa
Consolidated income statement
for the year ended 31 December
| United States Dollar | ||||||||
| Figures in millions unless otherwise stated | 2017 | 2016
Restated1 |
2015 Restated1 |
|||||
|---|---|---|---|---|---|---|---|---|
| CONTINUING OPERATIONS | ||||||||
| Revenue | 2,761.8 | 2,666.4 | 2,454.1 | |||||
| Cost of sales | (2,105.1) | (2,001.2) | (1,988.5) | |||||
| Investment income | 5.6 | 8.3 | 6.3 | |||||
| Finance expense | (81.3) | (78.1) | (82.9) | |||||
| Gain/(loss) on financial instruments | 34.4 | 14.4 | (4.5) | |||||
| Foreign exchange (loss)/gain | (3.5) | (6.4) | 9.5 | |||||
| Other costs, net | (19.0) | (16.8) | (21.7) | |||||
| Share-based payments | (26.8) | (14.0) | (10.7) | |||||
| Long-term incentive plan | (5.0) | (10.5) | (5.1) | |||||
| Exploration expense | (109.8) | (86.1) | (51.8) | |||||
| Share of results of equity-accounted investees, net of taxation | (1.3) | (2.3) | (5.7) | |||||
| Restructuring costs | (9.2) | (11.7) | (9.3) | |||||
| Silicosis settlement costs | (30.2) | - | - | |||||
| Impairment, net of reversal of impairment of investments and assets | (200.2) | (76.5) | (206.9) | |||||
| Profit on disposal of investments | - | 2.3 | 0.1 | |||||
| Profit/(loss) on disposal of assets | 4.0 | 48.0 | (0.1) | |||||
| Profit before royalties and taxation | 214.4 | 435.8 | 82.8 | |||||
| Royalties | (62.0) | (78.4) | (73.9) | |||||
| Profit before taxation | 152.4 | 357.4 | 8.9 | |||||
| Mining and income taxation | (173.2) | (189.5) | (248.5) | |||||
| (Loss)/profit from continuing operations | (20.8) | 167.9 | (239.6) | |||||
DISCONTINUED OPERATIONS |
||||||||
| Profit/(loss) from discontinued operations, net of taxation | 13.1 | 1.2 | (8.2) | |||||
| (Loss)/profit for the year | (7.7) | 169.1 | (247.8) | |||||
| (Loss)/profit attributable to: | ||||||||
| Owners of the parent | (18.7) | 158.2 | (247.3) | |||||
| - Continuing operations | (31.8) | 157.0 | (239.1) | |||||
| - Discontinued operations | 13.1 | 1.2 | (8.2) | |||||
| Non-controlling interests | 11.0 | 10.9 | (0.5) | |||||
| - Continuing operations | 11.0 | 10.9 | (0.5) | |||||
| (7.7) | 169.1 | (247.8) | ||||||
| (Loss)/earnings per share attributable to owners of the parent: | ||||||||
| Basic (loss)/earnings per share from continuing operations - cents | (4) | 19 | (31) | |||||
| Basic earnings/(loss) per share from discontinued operations - cents | 2 | - | (1) | |||||
| Diluted basic (loss)/earnings per share from continuing operations - cents | (4) | 19 | (31) | |||||
| Diluted basic earnings/(loss) per share from discontinued operations - cents | 2 | - | (1) | |||||
1 Refer note 40 in the consolidated financial statements as part of the Annual Financial Report (AFS) for further details
Statement of financial position
as at 31 December
| United States Dollar | |||||
| Figures in millions unless otherwise stated | 2017 | 2016 Restated1 |
|||
|---|---|---|---|---|---|
ASSETS |
|||||
| Non-current assets | 5,505.7 | 5,258.8 | |||
| Property, plant and equipment | 4,892.9 | 4,524.6 | |||
| Goodwill | 76.6 | 317.8 | |||
| Inventories | 132.8 | 132.8 | |||
| Equity-accounted investees | 171.3 | 170.7 | |||
| Investments | 104.6 | 19.7 | |||
| Environmental trust funds | 55.5 | 44.5 | |||
| Deferred taxation | 72.0 | 48.7 | |||
| Current assets | 1,114.4 | 1,052.7 | |||
| Inventories | 393.5 | 329.4 | |||
| Trade and other receivables | 201.9 | 170.2 | |||
| Cash and cash equivalents | 479.0 | 526.7 | |||
| Assets held for sale | 40.0 | 26.4 | |||
| Total assets | 6,620.1 | 6,311.5 | |||
EQUITY AND LIABILITIES |
|||||
| Equity attributable to owners of the parent | 3,275.8 | 3,050.7 | |||
| Share capital | 59.6 | 59.6 | |||
| Share premium | 3,562.9 | 3,562.9 | |||
| Other reserves | (1,817.8) | (2,124.4) | |||
| Retained earnings | 1,471.1 | 1,552.6 | |||
| Non-controlling interests | 127.2 | 122.6 | |||
| Total equity | 3,403.0 | 3,173.3 | |||
| Non-current liabilities | 2,363.1 | 2,278.8 | |||
| Deferred taxation | 453.9 | 458.6 | |||
| Borrowings | 1,587.9 | 1,504.9 | |||
| Provisions | 321.3 | 291.7 | |||
| Long-term incentive plan | - | 23.6 | |||
| Current liabilities | 854.0 | 859.4 | |||
| Trade and other payables | 548.5 | 543.3 | |||
| Royalties payable | 16.3 | 20.2 | |||
| Taxation payable | 77.5 | 107.9 | |||
| Current portion of borrowings | 193.6 | 188.0 | |||
| Current portion of long-term incentive plan | 18.1 | - | |||
| Total equity and liabilities | 6,620.1 | 6,311.5 | |||
1 Refer note 40 in the consolidated financial statements as part of the AFS
Cash-flow statement
for the year ended 31 December
| United States Dollar | ||||||||
| Figures in millions unless otherwise stated | 2017 | 2016 Restated1 |
2015 Restated1 |
|||||
|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities | 762.4 | 917.5 | 743.9 | |||||
| Cash generated by operations | 1,286.5 | 1,245.4 | 982.6 | |||||
| Interest received | 5.1 | 7.3 | 5.9 | |||||
| Change in working capital | (69.4) | (2.3) | 43.3 | |||||
| Cash generated by operating activities | 1,222.2 | 1,250.4 | 1,031.8 | |||||
| Interest paid | (90.4) | (81.7) | (86.8) | |||||
| Royalties paid | (66.0) | (76.4) | (75.0) | |||||
| Taxation paid | (239.5) | (155.6) | (117.2) | |||||
| Net cash from operations | 826.3 | 936.7 | 752.8 | |||||
| Dividends paid/advanced | (70.7) | (40.7) | (28.9) | |||||
| - Owners of the parent | (62.8) | (39.2) | (15.1) | |||||
| - Non-controlling interest holders | (6.4) | (0.2) | (12.1) | |||||
| - South Deep BEE dividend | (1.5) | (1.3) | (1.7) | |||||
| Cash generated by continuing operations | 755.6 | 896.0 | 723.9 | |||||
| Cash generated by discontinued operations | 6.8 | 21.5 | 20.0 | |||||
| Cash flows from investing activities | (908.6) | (867.9) | (651.5) | |||||
| Additions to property, plant and equipment | (833.6) | (628.5) | (614.1) | |||||
| Proceeds on disposal of property, plant and equipment | 23.2 | 2.3 | 3.1 | |||||
| Purchase of Gruyere Gold Project assets | - | (197.1) | - | |||||
| Purchase of investments | (80.1) | (12.7) | (3.0) | |||||
| Proceeds on disposal of investments | - | 4.4 | - | |||||
| Proceeds on disposal of Darlot | 5.4 | - | - | |||||
| Environmental trust funds and rehabilitation payments | (16.7) | (14.8) | (17.5) | |||||
| Cash utilised in continuing operations | (901.8) | (846.4) | (631.5) | |||||
| Cash utilised in discontinued operations | (6.8) | (21.5) | (20.0) | |||||
| Cash flows from financing activities | 84.2 | 37.0 | (88.3) | |||||
| Shares issued | - | 151.5 | - | |||||
| Loans raised | 779.7 | 1,298.7 | 506.0 | |||||
| Loans repaid | (695.5) | (1,413.2) | (594.3) | |||||
| Cash generated by/(utilised in) continuing operations | 84.2 | 37.0 | (88.3) | |||||
| Cash generated by discontinued operations | - | - | - | |||||
| Net cash (utilised)/generated | (62.0) | 86.6 | 4.1 | |||||
| Effect of exchange rate fluctuation on cash held | 14.3 | 0.1 | (22.1) | |||||
| Cash and cash equivalents at beginning of the year | 526.7 | 440.0 | 458.0 | |||||
| Cash and cash equivalents at end of the year | 479.0 | 526.7 | 440.0 | |||||
1 The restatement is as a result of the discontinued operations