It's the second straight day it's taken a hit. Think I found a reason.
Gold Fields profit falls 13% as firmer rand hits home
Andrew Davidson and Bloomberg
November 08 2002 at 08:16AM
Johannesburg - First-quarter profit at Gold Fields, the country's second-largest gold producer, took a 13 percent tumble as the company felt the brunt of increased taxation, a higher wage bill and the stronger rand.
The group also warned yesterday that production would fall in the current quarter following the sale of the St Helena mine to the ARMgold-Harmony joint venture.
Net earnings, excluding the effect of preset Australian currency contracts, slid to R735 million in the September quarter from R845 million in the previous three-month period.
While chief executive Ian Cockerill considered this a "robust performance with all operations delivering to expectations and keeping a tight lid on costs", there was little doubt that currency fluctuations Down Under provided a kangaroo-sized punch to Gold Fields' solar plexus.
The company last year agreed to convert half the US dollar sales revenue from two Australian mines into local currency
at preset exchange rates until 2007. A weakening of the Australian dollar caused an unrealised loss of R258 million on the currency contracts.
This meant net income fell to R541.7 million in the quarter from R1.18 billion in the June quarter.
But Cockerill later remarked that Gold Fields had "flagged" this possibility and an upward adjustment of only two Australian cents to the US dollar would benefit Gold Fields to the tune of about R120 million.
Gold Fields' working costs rose 5.7 percent after it raised wages for its 50 000 mining employees locally by 9 percent. The rand also strengthened, raising production costs for gold, which is sold for dollars.
Analysts said lower production and a 7 percent climb in the rand so far this quarter might cut profit in the second quarter.
"I am more concerned that they can't see any improvement quarter-on-quarter," said Leon Esterhuizen, an analyst at Investec Securities.
Profit was also trimmed after a tax break at its Beatrix mine expired and it started paying tax on the earnings.
Gold output for the quarter under review fell 2.6 percent to 1.13 million ounces, but operating profit of R1.6 billion was achieved.
"On the operating level it's not too bad," said Daniel Sacks, a fund manager at Investec Asset Management.
Cockerill said the "star" of the quarter had been Kloof, which lifted production by 6 percent to 289 000 ounces, while its cash costs were up slightly at $179 an ounce from $175.
"Kloof is a 9-ton [of gold] a quarter mine and while the bonanza grades are now a thing of the past we are still getting underground yields of more than 11g a ton - and that's far from shabby."
Gold Fields deferred a decision on whether to establish Europe's first palladium and platinum mine in Finland as it assessed how to process the ore. Gold Fields said it was concerned about the market for palladium.
Gold Fields shares closed unchanged at R119 yesterday. |
