Gold Fields shares fall on South Deep news

Gold Fields renewed its commitment to the underperforming South Deep mine as problems persisted into the first quarter of 2018, forcing a downward revision of the operation’s output for the year and lowering the group’s expected production.

Gold Fields fell more than 7% on Wednesday before recovering to a 4.93% decline to close at R46.62.

The group lowered its forecast for the year to between 2million and 2.05-million ounces of gold from between 2.08-million and 2.1-million ounces due to the drop in gold expected to come from South Deep.

Gold Fields has a large and growing international portfolio of gold mines and projects, but the South Deep project, which is ramping up to 480,000oz of gold in 2022, is often a focal point because of the difficulties the company has in bringing to account the mine in which it has invested heavily.

“The failure at South Deep and the constant tinkering with team composition and structure, shift rosters and mobile equipment availabilities, coupled to problems with getting broken ore out and constantly having to go back and redo support, flies in the face of many management promises to get this mine working,” said Nedbank analysts Leon Esterhuizen and Arnold van Graan.

“We believe the market may discount any guidance (even this lower guidance) as not being credible.… This has not been a good quarter in more ways than one and we believe it will show in the share price action today,” they said in a note.

Gold Fields CEO Nick Holland was asked why the board persisted with the mine, given that the company had more attractive investments outside SA. He said the company was confident it could bring the mine to account and it was formulating a recovery plan after the latest setback.

South Deep — a large, mechanised mine which has already absorbed more than R29bn — reported that output of 48,000oz for the March quarter was 41% lower than the December quarter but 4% higher than the same time a year earlier.

Gold Fields lowered the mine’s production forecast for 2018 to 244,000oz, down from 321,000oz. The mine produced 290,000oz in 2016 and 281,000oz of gold in 2017, instead of the 315,000oz target.