Cash to flow in to add to Gold Fields coffers from July
mineweb.com
Gold Fields says the company is expecting improved cash flow from Q1 2009 as it has made substantial inward investment in new mines and expansions. It will also “claw back” some losses in SA.
Author: Tessa Kruger
Posted: Friday , 09 May 2008
JOHANNESBURG -
Major gold producer Gold Fields is expecting cash to flow stronger at the start of its financial year 2009 (which starts July 2008) when substantial capital investment in new mine Cerro Corona in South America and expansions in Ghana and Australia diminish - and these projects start pumping gold.
Gold Fields new chief executive officer Nick Holland said at the company's third quarter 2008 results presentation today the company has also adjusted its "rule of five" regarding the acquisition of new gold assets to boost its cash flow. This means that Gold Fields will now also consider quality assets of down to 2m gold ounces that could deliver high margins around the world.
Meanwhile, Gold Fields has launched an intensified safety review of pillar mining areas in South Africa, accounting for 20% of gold production in the country, to establish whether mining here should continue. This comes in the wake of the fatal shaft accident at the developing South Deep mine last week, which claimed the lives of nine mine workers.
The review mainly focuses on pillar areas at Driefontein and Kloof mines and the new CEO emphasised again that Gold Fields would only mine if it could do so safely.
Focusing on the improved cash flow, Holland said the company's inward investment, peaking in the current fourth quarter of financial 2008, would result in a "rosier" second half of the calendar year if gold prices were maintained.
Capital expenditure on the Cerro Corona mine in Peru and Tarkwa CIL plant expansion in Ghana will respectively end at the end of the June and September quarters and these investments will then bring in cash. The company invested $77m in Cerro Corona in the third quarter and will invest $78m in the fourth quarter, while it will increase investment of $61m in Ghana in the third to $80m in the fourth.
Cerro Corona, a source of excitement for Gold Fields as the company nears the end of its commissioning in June 2008 and production in the first quarter of financial 2009 (July this year), will add 350,000 ounces to annual gold production, bringing the group's costs down and increasing cash flow. Gold Fields currently produces about 4m ounces of gold annually.
The plan is that the commissioning of the Tarkwa CIL plant starts at the same time to increase delivery of 80 000 ounces per quarter to 100 000 ounces.
South Deep, described as a development project by Gold Fields, was gaining momentum despite the recent accident that necessitated repair work below the 95 level over the next three months. Chief operating officer Terence Goodlace said the company would use all its resources to complete infrastructure below this level after the interruption, but the company would not push the repair work as it was developing a 50-year mine here.
Gold Fields is maintaining its South Deep production guidance of 1,200kg for fourth quarter 2008, but Vishnu Pillay, new head of South African operations, said he believed production could total 1,500kg in this quarter.
On the South African front, Gold Fields also expects to "claw back" some of the production losses the company suffered due to the power crisis from the next quarter. The company has received increased power supply to Driefontein and Kloof mines from the middle of March.
St Ives in Australia is also set to contribute to cash flow from the first quarter of financial 2009 when new underground mines at Cave Rocks and Belleisle start ramping up. The underground mines are supposed to return production here to 110-120 000 ounces per quarter.
Holland said the company had made a step change in that it was now measuring itself in terms of cash returns after all costs. Gold Fields first priority going forward was to control total unit costs per production ounce and not to focus on cash costs so loved by the industry.
"It is the free cash flow that is driving the margins," the former chief financial officer of the company said.
FINANCIALS
Gold Fields today announced headline earnings for the March 2008 quarter of US$176m compared to US$67m in the previous quarter, a 14% decrease in production to 827,000 ounces on the back of power disruptions in South Africa, a 21% increase in cash costs to $513/ounce and R1 billion ($129m) cash flow from operations.
The company did declare an interim dividend of R0.65 (8 US cents) per share after it passed over dividends due to the power crisis in the previous quarter. Holland said the dividend was slightly lower than it should be as the company was still making a substantial investment in Tarkwa and Cerro Corona. |
