Gold Fields to ag­gres­sively pay down debt as it ad­justs to lower gold price

Gold Fields chief ex­pects write-downs

The Star Early Edition - - BUSINESS REPORT - Kevin Crow­ley

GOLD pro­duc­ers’ costs are mostly higher than cur­rent spot prices, in­creas­ing the like­li­hood of write-downs next year, ac­cord­ing to Nick Hol­land, the chief ex­ec­u­tive of Gold Fields.

Across the in­dus­try, costs are about $1 300 (R14 352) an ounce, in­clud­ing debt re­pay­ments, Hol­land said yes­ter­day, cit­ing an­a­lysts’ re­search. Yes­ter­day af­ter­noon gold fixed $6 lower at $1 190 an ounce.

“The in­dus­try by and large is un­der wa­ter,” Hol­land said. “I would ex­pect fur­ther write­downs. Pro­duc­tion I think will be cur­tailed, but it will take some time to fil­ter through the sys­tem.”

Gold pro­duc­ers are strug­gling to adapt to a lower bul­lion price after a decade of debt­fu­elled ex­pan­sion, ac­qui­si­tions and cost in­fla­tion dur­ing the boom years that saw bul­lion peak at $1 921.17 an ounce in Septem­ber 2011.

The spot price has tum­bled in the past 18 months as in­vestors spec­u­late the Fed­eral Re­serve will raise in­ter­est rates due to an im­prov­ing US econ­omy, low­er­ing de­mand for the safe-haven metal.

Gold Fields was able to “ride this through” as it had a breakeven price of about $1 050 an ounce, or $1 090 an ounce in­clud­ing debt re­pay­ments, Hol­land said. While the company cal­cu­lates its re­serves at $1 300 an ounce, that num­ber in­cludes a 15 per­cent profit mar­gin.

“Ev­ery­thing is fine for now, ob­vi­ously the mar­gin won’t be 15 per­cent at the cur­rent price; it will be less than that,” Hol­land said. “That said, the business con­tin­ues to be run the same as be­fore.”

Gold Fields dropped 4.8 per­cent yes­ter­day morn­ing in Jo­han­nes­burg after the pre­cious metal fell 1.2 per­cent on Wed­nes­day, largely after South African trad­ing hours. The shares closed 2.25 per­cent lower at R48.25. The gold min­ing in­dex fell 3.47 per­cent.

Head­line earn­ings for the pro­ducer with mines from Peru to Aus­tralia were $14 mil­lion in the three months to Septem­ber, com­pared with $18m the pre­vi­ous quar­ter, it said in a state­ment yes­ter­day.

The company, which spun off three of its cash-gen­er­a­tive but old lo­cal mines to cre­ate Sibanye Gold last year, was seek­ing to “ag­gres­sively” pay down debt over the next three years as it ad­justed to the lower gold price, Hol­land said. The company is also on the look­out for cheap, in-pro­duc­tion ac­qui­si­tions that more trou­bled pro­duc­ers are of­fload­ing.

Gold Fields re­duced net debt in the quar­ter by $137m to $1.5bn. All-in sus­tain­ing costs for the year are ex­pected to be 3 per­cent lower than pre­vi­ous fore­cast at $1 090 an ounce, it said. – Bloomberg

PHOTO: SIM­PHIWE MBOKAZI

Gold Fields South deep mine in Car­letonville. Gold pro­duc­ers are strug­gling to adapt to a lower bul­lion price.

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