Materially higher earnings and cash flow in H1 2016

Gold Fields had an operationally strong H1 2016, with attributable gold equivalent production for the Group of 1,044koz (H1 2015: 1,036koz), at all-in sustaining costs (AISC) of US$992/oz (H1 2015: US$1,083/oz) and all-in costs (AIC) of US$1,024/oz (H1 2015: US$1,108/oz).

In-line with the trading statement, published on 19 July, headline earnings for H1 2016 was US$124m or US$0.16/share, compared with US$5m or US$0.01/share reported for H1 2015. Normalised earnings for the period was US$103m or US$0.13/share compared with US$8m or US$0.01/share reported for H1 2015.

The increase in earnings was primarily driven by an increase in the US$ gold price (3% YoY) and good cost control which resulted in lower net operating costs in local currencies as well as the impact of converting these costs at weaker exchange rates. In H1 2016, the A$ was 5% weaker YoY and the rand was 29% weaker YoY, against the US$.

The Group generated net cash flow of US$60m for H1 2016, compared with US$1m in H1 2015, mainly due to the higher profit reported for the period and took into account US$22m spent on further drilling at Salares Norte.

We have declared an interim dividend of R0.50/share which is 12.5 times higher than the 2015 interim dividend of R0.04/share.

South Deep outperforming guidance

Production at South Deep increased by 87% to 4,356kg (140koz) from 2,332kg (75koz) in H1 2015 driven by increased volumes and grade. AIC in H1 2016 decreased 19% YoY to R622,453/kg (US$1,257/oz). Good progress was made on a number of important activities:

•	Safety continues to be a priority at South Deep, with no fatalities reported in H1 2016 and the TRIFR improving 5% YoY to 2.89 in H1 2016 from 3.03 in H1 2015.
•	Helped by the higher rand gold price and favourable working capital movements, the net cash outflow for the period was R50m compared with an outflow of R728m in H1 2015. Within this half year number, it is worth noting that the mine was cash positive in the June 2016 quarter.
•	Development increased by 74% to 3,078 metres in H1 2016 from 1,773 metres in H1 2015.
•	Destress mining increased by 46% to 19,845 square metres for the six months ended 30 June 2016 from 13,619 square metres for the six months ended 30 June 2015.
•	The conversion from low profile to high profile destress mining yielded positive results. High profile destress mining contributed 53% to total destress mining for the period. Low profile destress mining was completed subsequent to quarter-end.
•	Longhole stoping volumes increased by 120% to 301kt in H1 2016 from 137kt in H1 2015.
•	Secondary support increased by 34% YoY in H1 2016 to 3,891 metres.
•	Backfill placed was 47% higher YoY for the six months to June 2016 at 198m3.
•	As part of the fleet renewal strategy, 17 category 1 units were commissioned during H1 2016, with an additional 11 units to be commissioned during the remainder of 2016. In the past 18 months, we have commissioned 51 new category 1 units out of a total of 114 category 1 units.
•	Most of the critical skill position identified at the start of 2015 have now been filled, with a limited number of specialist skill positions outstanding.

Australia

Gold production in the Australia region for H1 2016 was 2% lower YoY at 466koz due to lower production at all operations except Darlot, however all mines exceeded guidance. AIC for the region was only marginally higher in A$ terms at A$1,265/oz, but 6% lower YoY in US$ terms at US$928/oz due to the weakening of the A$ against the US$. AIC includes exploration expenditure (see below). Net cash flow from the region for H1 2016 was US$121m.

During H1 2016, A$52m of the exploration budget was spent, with 347,456 metres drilled during the period. There have been encouraging results at all operations including: extensions at Wallaby laterally and at depth; prospective results from drilling at Northern Fleet on Lake Carey at Granny Smith and Waroonga North at Agnew as well as extensions at Invincible and Invincible South and Retribution on the Eastern Causeway at St Ives. Darlot continues to find resources to incrementally extend its life, while exploration to find the 'game changer' continues. We anticipate replacing ounces mined into reserves at year-end.

West Africa

Attributable gold production from the West Africa region was 7% lower YoY in H1 2016 at 311koz, due to lower production at both Tarkwa and Damang. However, AIC for the region decreased 9% YoY to US$1,052/oz mainly as a result of lower net operating costs and lower capital expenditure, partially offset by lower gold sold. The region generated net cash flow of US$26m for the six months to June 2016.

As previously reported, the conclusion of a development agreement with the Government of Ghana was a key milestone during H1 2016 and provides the platform for targeting many years of sustainable production by Gold Fields in Ghana. The lower royalties will become effective in 2017.

We continue to evaluate a range of options for Damang, with additional work required following the conclusion of the Development Agreement. We expect to make a decision and provide an update to the market before year-end.

South America

Attributable equivalent gold production at Cerro Corona decreased by 15% YoY to 128koz, mainly due to lower gold head grades, as a result of planned sequencing at the mine, and the lower copper price. Consequently, AIC increased by 9% YoY to US$728 per equivalent ounce. Despite the lower production, the mine generated net cash flow of US$19m.

Approaching 1x net debt to EBITDA target

Net debt decreased to US$1,155m during H1 2016, from US$1,380m at end December 2015 following the bond buyback and subsequent equity raising undertaken in the period. The net debt to EBITDA ratio reduced to 1.05x at 30 June 2016, from 1.38x at end-December 2015 and positions the company well to meet its net debt to EBITDA target of 1.0x by year-end.

As previously reported in June, we have successfully refinanced our US$1,440m credit facilities due in November 2017. The new facilities amount to US$1,290m, with the interest rates being very similar to the previous facilities. The refinancing extends the maturity of our debt, with the first maturity now only in June 2019 (previously November 2017).

Improved FY16 production guidance

As a result of the better than expected performance at South Deep, we have increased the FY16 production guidance for the mine to 9,000kg (289koz) from 8,000kg (257koz). However, we have also increased the AIC guidance for the year to R595,000/kg (US$1,310/oz) from R575,000/kg (US$1,265/oz). The higher AIC relates to increased capital expenditure of R211m (US$15m) to R1,210m (US$86m) due to a change in strategy on housing (decision to build instead of rent) and the acquisition of additional new fleet. The remainder of the increase is due to higher working costs, which comprise higher bonuses due to higher gold production achieved relative to plan as well as the investment in additional resources in line with the strategy to sustainably improve all aspects of the operation.

For Tarkwa, we have increased the FY16 AIC guidance to US$980/oz from US$940/oz, mainly due to a US$38m increase in capital expenditure to US$166m. The mine took advantage of the higher gold price and the benefits from the Development Agreement to increase capital stripping in order to increase flexibility for 2017 and beyond.

Based on the outperformance of the Australian operations relative to plan in H1 2016, we have increased the FY16 production guidance for the region to 925koz from 905koz.

Consequently, FY16 production guidance for the Group has been increased to 2.10 – 2.15koz, from 2.05 – 2.10koz. AISC and AIC guidance for the year remains unchanged at US$1,000 – 1,010/oz and US$1,035 – 1,045/oz. Group capital expenditure has increased to US$655m, from U$602m. The cost guidance is based on unchanged exchange rate assumptions: US$0.73 = A$1.00 and R14.14 = US$1.00.