Gold Fields knocked by drop in production
Shares lose almost 5 percent
GOLD FIELDS fell nearly 5 percent on the JSE yesterday following the reduction of its 2018 production guidance amid continuing operational problems at South Deep, its only remaining gold mine outside Johannesburg.
The group said it expected its attributable equivalent gold production for the year to fall between 2 million ounces and 2.05 million ounces from a previous target of 2.08 million ounces. Gold Fields said the South Deep mine would produce 244 000 gold ounces (7 600kg) from the predicted 321 000 ounces (10 000kg) earlier this year.
Group equivalent gold production for the quarter ended in March was 1 percent lower year-on-year and 10 percent lower year-on-year at 490 000 ounces. While South Deep had a troubled start to the year, as production plummeted by 41 percent to 48 000 ounces (1 360.77kg) quarter-on-quarter, although it was 4 percent higher year-on-year, the company said.
Gold Fields blamed slow production build-up following the Christmas holidays and the two restructurings last year as well as the change to the underground shift for the production quarter performance.
Last year, Gold Fields impaired R3.5 billion owing to South Deep’s below-forecast gold price assumptions, a slow ramp up to production.
Gold Fields chief executive Nick Holland attributed the revised guidance at South Deep to the ongoing impact of poor equipment reliability and lower productivity following the mine’s restructuring last year, among others. He said the company had taken steps to address the matter.
“The mining team is currently developing a recovery plan aimed at mobilising the workforce post the restructuring and bedding down the new underground shift cycles. Management is implementing programmes to improve and integrate the critical aspects of the mining value chain,” Holland said.
Peter Major, director of mining at Cadiz Corporate Solution, said South Deep was the “poster child’’ of how mining has gone wrong in South Africa. “Massive labour legislation and labour difficulties, among other ‘uncontrollable’ challenges, are plaguing the industry,” he said.
Sehelo Tsatsi, an investment analyst at Anchor Capital, said the lowering of production guidance was not anticipated, as the share price’s reaction suggests. “Given the high fixedcost nature of mining, this will weigh heavily on profitability at the operation”.
In April the mine was hit by a 22-day Department of Mineral Resources safety related stoppage to re-support back areas in two of the critical new mine access ramps, which account for half of the total production for the mine.
Just more than 300 South Deep employees, including 47 managers and 260 personnel at lower levels, were impacted by the restructuring in December.
South Deep also changed its hours from 9½ hours to 11½ hours in line with international peers.
Holland said the group – which operates in Ghana, Australia and South Africa – had entered into additional gold price hedges during the quarter. In South Africa, 64 000 ounces had been hedged for January to December 2018 using zero-cost collars with a floor price of R600 000/kg and a cap price of R665 621/kg.
Gold Fields closed 4.93 percent lower on the JSE yesterday at R46.62.