Gold Fields’ gold production marginally higher, profit doubles

Gold Fields Limited has announced profit for the six months to 30 June 2020 of US$156m. This compared with profit of US$71m for the six months to 30 June 2019.

Attributable gold equivalent production for the six months ended 30 June 2020 increased marginally YoY to 1,087koz (H1 2019: 1,083koz), with the contribution from Gruyere and increased production days, largely offset by the impact of COVID-19 stoppages at South Deep and Cerro Corona, as well as the impact of the lower copper price at Cerro Corona, which resulted in lower gold equivalent ounces.

The increase in production days relates to a decision that was taken, during Q2 2020, to align the production month-end with the calendar month-end, which resulted in an extra 10 production days in H1 2020. These 10 extra production days also impacted Q2 2020.

This once-off adjustment has no impact on H2 2020.The impact of the extra production days is estimated at 45koz, while the lost production from COVID-19-related stoppages is approximately 42koz, comprising South Deep at 24koz and Cerro Corona at 18koz.

The impact of the lower copper price on Cerro Corona is estimated at 13koz for H1 2020. All-in sustaining costs (AISC) for the Group for H1 2020 of US$987/oz, compared to US$891/oz in H1 2019, an increase of 11% YoY, driven by an increase in net operating costs (mainly driven by a move of waste tonnes from capital to operating costs at Damang following intersection of the main orebody), sustaining capital expenditure and royalties (approximately US$15/oz) as well as lower by-product credits (due to the lower copper price).

COVID-19 related costs are estimated at approximately US$20/oz for H1 2020 and are embedded in the AISC. All-in cost (AIC) for H1 2020 were 4% lower YoY at US$1,065/oz (H1 2019: US$1,106/oz) as project capital was US$137m lower in H1 2020 compared to H1 2019, which more than offset the increases relating to AISC, discussed above.

STRONG CASH GENERATION

The benefits of the new projects as well as the higher gold price were clearly evident during the first six months of 2020. During H1 2020, Gold Fields, generated net cash flow of US$320m for the six month period (after taking into account all costs in the business including debt service costs and all project capex), which compares to the net cash flow of US$80m in H1 2019.

Looking at the core operations, the group generated net cash flow of US$405m in H1 2020, which compares to US$229m in H1 2019. As reported in 2019, Gold Fields adopted the new lease standard (IFRS 16) on 1 January 2019, which impacted the reporting of net debt and the net debt to EBITDA ratio.

There was a further decrease in the net debt balance during H1 2020, with the net debt balance at the end of June 2020 at US$1.24bn and a net debt to EBITDA ratio of 0.84x. This compares with a net debt balance of US$1.66bn and a net debt to EBITDA ratio of 1.29x at the end of December 2019. Excluding lease liabilities, the core net debt was US$876m at the end of H1 2020. In July 2020, US$870m of the US$1,200m bank facilities were extended by one year.

GUIDANCE AND OUTLOOK FOR THE REMAINDER OF 2020

While the markets have seen new records for the gold price in recent weeks, Gold Fields continues to run and plan its business at lower gold prices. For its next reserve declaration at year-end Gold Fields expects to use a gold price assumption of US$1,300/oz up from US$1,200/oz used in recent years.

In addition, the company maintains a strong focus on cost containment and aim to continue to deliver the higher gold price to the bottom line. Gold Fields expects to use the strong cash flows generated by the business to continue to deliver the balance sheet; pay dividends; and fund the construction of Salares Norte.

Gold Fields’ approach will continue to be reasonably cautious as the company does not know what challenges await it in the post-COVID-19 world. As reported with its Q1 2020 operating update, given the uncertainty surrounding the path that the COVID-19 virus might take going forward, together with the impact that this would have on production, Gold Fields has only adjusted the full year guidance to take into account the production losses estimated for South Deep and Cerro Corona.

Attributable equivalent gold production for 2020 for the Group is expected to be between 2.200Moz and 2.250Moz (original guidance: 2.275Moz – 2.315Moz). In light of the increase in costs in H1 2020, Gold Fields is increasing its cost guidance for the year.

AISC is expected to be between US$960/oz and US$980/oz (original guidance: US$920/oz – US$940/oz) and AIC is expected to be between US$1,070/oz and US$1,090/oz (original guidance: US$1,035/oz – US$1,055/oz).

The revised cost guidance is based on estimated rand exchange rates of R17.00/US$1.00 and US$0.70/A$1.00 for H2 2020. Increased royalties (due to the higher gold price) account for US$15/oz of the cost increase, while COVID-19-related costs account for US$10/oz.

Potential further COVID-19 related disruptions increases the risk to Group production and cost guidance.

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