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South Deep lifts Gold Fields, but CEO Nick Holland scolds analysts' ""tunnel vision"" -

Thursday, 18 August 2016

GOLD Fields’ shares surged on the JSE this morning – at one stage trading at R87.95 nearly 5% up on Wednesday’s closing price – after the release of interim results showing a better-than-expected performance from the group’s only South African mine, South Deep.

Gold production at South Deep jumped 87% to 140,000 oz for the six months to end-June (2015: 75,000 oz) “… driven by increased volumes and grade”, according to Gold Fields CEO, Nick Holland.

As a result Gold Fields has pushed up production guidance at South Deep for the full year to end-December 2016 to 289,000 oz from 257,000 oz previously.

Based on this and also the “out-performance of the Australian operations relative to plan”, the group has also raised total production guidance to between 2.1 million and 2.15 million oz from the previous estimate of up to 2.1 million oz.

Gold Fields has declared a 50c per share interim dividend for the six months to June.

Despite the good news, Holland was grilled by analysts on developments at South Deep; in particular, on revisions to costs and capital expenditure.

The apparent “tunnel vision: focus on South Deep appeared to irk Holland who commented during his presentation that: “… there is a company beyond South Deep, believe it or not”.

The reason for the analysts’ pre-occupation with South Deep is that Gold Fields has poured some R28bn into buying and developing the operation which has, so far, failed to dramatically live up to expectations.

South Deep also contains some 75% of Gold Fields total ore reserve base world-wide so achieving a successful turnaround at the mine would have a significant beneficial impact on the group.

Asked to elaborate on his comments after the presentation, Holland told Miningmx: “… sometimes we only get questions on South Deep and nothing else even though 85% of our production and all of our cash is generated outside. South Deep should not be the only barometer to use to look at Gold Fields.

“You need to look at where we have come from on the international operations as well. They have improved significantly over the last number of years. I think there needs to be more balance.”

Gold Fields CFO, Paul Schmidt, added: “$400m a year comes from the other seven mines and it does not come easily. Give them some credit.

“Yes, the potential from South Deep is huge but we still need the $400m from the offshore operations to keep the group going. You need to pay attention to that.”

Holland said South Deep’s apparent dominant reserve position could be “misleading” given the successes achieved in extending the economic lives of the group’s Australian mines. “We don’t think we have only four years of life left (in Australia) – which is what the reserves are saying – and history has proved that.”

Holland confirmed that a full update on South Deep and its future would be released in February next year. “We will try to answer all your questions at that time,” he said.

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