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Gold Fields Limited: South Deep Is Cash Flow Positive With Fed's Rates Unchanged - Yahoo! Finance

Thursday, 22 September 2016

- By Alberto Abaterusso During the Denver Gold Forum, Nick Holland, chief executive officer of Gold Fields Limited ADR (GFI), released a statement about the company's operations in South Africa Region, the South Deep mine.

The CEO said that "South Deep mine will be smaller than initially planned for at least the next three years as the company focuses on keeping it profitable."

  • GFI 15-Year Financial Data
  • The intrinsic value of GFI
  • Peter Lynch Chart of GFI

The miner experienced technical problems for several years at South Deep mine and because of this, the company had to drop the target to produce 650,000 to 700,000 ounces by 2017.

Holland does not see the miner being able to reach this production target in the first three to five years. Therefore, he extended the temporal horizons for South Deep to 2021. However, Gold Fields Limited will publish a five-year plan for South Deep mine in February.

South Deep is the only asset that Gold Fields holds in its home country, South Africa, and is situated in the magisterial districts of Westonaria and Vanderbijlpark (Gauteng province), approximately 27.9 miles southwest of Johannesburg.

During the first half, production at South Deep increased 87% year over year, and AIC decreased 19% year-over-year. The progress at South Deep in terms of improved operations was possible thanks to an improved safety ratio, a higher rand gold price and favorable working capital movements, an increased development of the mine (from 1.1 miles in first half 2015 to 1.9 miles in first half 2016) and an increased destress mine (from 0.005 square miles in first half 2015 to 0.007 square miles in first half 2016).

Helped by the above mentioned improvement in the operations, the net cash outflow at South Deep for the period was 50 million rands compared to an outflow of 728 million rand ($52.3 million) in first half 2015. Within this half year number, the mine was cash positive in the second quarter 2016 for the first time since the company bought the operation for about $3 billion in 2006, Gold Fields said in August.

As a result of improved performance at South Deep, GoldFields increased the fiscal year 2016 production guidance for the mine from 282,191.7 ounces to 317,465.7 ounces.

The miner also increased the AIC guidance for the year from 575,000 rand per kilogram ($1,265/oz) to 595,000 rand per kilogram (US$1,310/oz) due to increased capital expenditure (from 211 million rand to 1,210 million rand) and higher working costs.

Gold production at South Deep in South Africa increased with 87% from 2,332 kilograms (75,000 ounces) to 4,356 kilograms (140,000 ounces) due to increased volumes and grades.

When we have a look at first half 2016 results, Gold Fields reported headline earnings of $124 million, or 16 cents per share, compared to $5 million, or 1 cent per share, for the first half of 2015.

Normalized earnings for the period were $103 million, or 13 cents per share, compared to $8 million, or 1 cent per share, reported for the first half of 2015.

Higher 2016 first half earnings were driven by lower operating costs that have been influenced by weaker local currencies against the U.S. Dollar, an increased attributable gold equivalent production 0.8% year-over-year and to a 3% year-over-year recovery in the gold price.

On the ride of increasing gold prices, shares of GFI increased by 77% on the NYSE over the first half of 2016. Now that the FED decided to keep interest rates unchanged, we can expect a further increase in the price of this gold mining stock as gold trades higher.

With raising gold prices it should not be difficult for GFI to keep South Deep, the world's largest gold deposit after Grasberg in Indonesia, profitable and cash flow positive. South Deep makes up about three quarters of the company's reserves.

On Sept. 21, Gold Fields Limited (ADR) closed at $5.18 per share, up 9.05% from the previous close. The stock gained 87% year to date.

The Enterprise Value/EBITDA is 5.76, and the price-book (P/B) ratio is 1.45.

Disclosure: I have no positions in Gold Fields Limited.

Gold Fields Limited: South Deep Is Cash Flow Positive With Fed's Rates Unchanged - Yahoo! Finance

Thursday, 22 September 2016

- By Alberto Abaterusso During the Denver Gold Forum, Nick Holland, chief executive officer of Gold Fields Limited ADR (GFI), released a statement about the company's operations in South Africa Region, the South Deep mine.

The CEO said that "South Deep mine will be smaller than initially planned for at least the next three years as the company focuses on keeping it profitable."

  • GFI 15-Year Financial Data
  • The intrinsic value of GFI
  • Peter Lynch Chart of GFI

The miner experienced technical problems for several years at South Deep mine and because of this, the company had to drop the target to produce 650,000 to 700,000 ounces by 2017.

Holland does not see the miner being able to reach this production target in the first three to five years. Therefore, he extended the temporal horizons for South Deep to 2021. However, Gold Fields Limited will publish a five-year plan for South Deep mine in February.

South Deep is the only asset that Gold Fields holds in its home country, South Africa, and is situated in the magisterial districts of Westonaria and Vanderbijlpark (Gauteng province), approximately 27.9 miles southwest of Johannesburg.

During the first half, production at South Deep increased 87% year over year, and AIC decreased 19% year-over-year. The progress at South Deep in terms of improved operations was possible thanks to an improved safety ratio, a higher rand gold price and favorable working capital movements, an increased development of the mine (from 1.1 miles in first half 2015 to 1.9 miles in first half 2016) and an increased destress mine (from 0.005 square miles in first half 2015 to 0.007 square miles in first half 2016).

Helped by the above mentioned improvement in the operations, the net cash outflow at South Deep for the period was 50 million rands compared to an outflow of 728 million rand ($52.3 million) in first half 2015. Within this half year number, the mine was cash positive in the second quarter 2016 for the first time since the company bought the operation for about $3 billion in 2006, Gold Fields said in August.

As a result of improved performance at South Deep, GoldFields increased the fiscal year 2016 production guidance for the mine from 282,191.7 ounces to 317,465.7 ounces.

The miner also increased the AIC guidance for the year from 575,000 rand per kilogram ($1,265/oz) to 595,000 rand per kilogram (US$1,310/oz) due to increased capital expenditure (from 211 million rand to 1,210 million rand) and higher working costs.

Gold production at South Deep in South Africa increased with 87% from 2,332 kilograms (75,000 ounces) to 4,356 kilograms (140,000 ounces) due to increased volumes and grades.

When we have a look at first half 2016 results, Gold Fields reported headline earnings of $124 million, or 16 cents per share, compared to $5 million, or 1 cent per share, for the first half of 2015.

Normalized earnings for the period were $103 million, or 13 cents per share, compared to $8 million, or 1 cent per share, reported for the first half of 2015.

Higher 2016 first half earnings were driven by lower operating costs that have been influenced by weaker local currencies against the U.S. Dollar, an increased attributable gold equivalent production 0.8% year-over-year and to a 3% year-over-year recovery in the gold price.

On the ride of increasing gold prices, shares of GFI increased by 77% on the NYSE over the first half of 2016. Now that the FED decided to keep interest rates unchanged, we can expect a further increase in the price of this gold mining stock as gold trades higher.

With raising gold prices it should not be difficult for GFI to keep South Deep, the world's largest gold deposit after Grasberg in Indonesia, profitable and cash flow positive. South Deep makes up about three quarters of the company's reserves.

On Sept. 21, Gold Fields Limited (ADR) closed at $5.18 per share, up 9.05% from the previous close. The stock gained 87% year to date.

The Enterprise Value/EBITDA is 5.76, and the price-book (P/B) ratio is 1.45.

Disclosure: I have no positions in Gold Fields Limited.


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