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Gold Fields: Risks and opportunities at its operations - Seeking Alpha

Friday, 5 April 2019

Summary

  • GFI's FY 2018 operational performance suffered a setback during FY 2018.
  • Despite the unimpressive performance, share prices were supported by a rally in gold prices.
  • The gold price rally finally seems to have found some ground.

Thesis

Gold Fields Ltd. (GFI) is one of the largest gold miners in the world. Headquartered in South Africa, the company operates with 8 mines and 2 projects located across five countries.

In this article, I have analyzed the financial and operating performance of GFI. During FY 2018, the company has demonstrated mixed financial performance in terms of top-line revenues and bottom-line earnings. On the operational front, GFI suffered a Y/Y decline in production together with an increase in mining costs. This has affected the mining dynamics of the company, particularly in its most significant mining asset namely the South Deep mine (in South Africa). Nevertheless, due to its high correlation with gold prices, GFI's share has recently witnessed upside following the recent rally in gold prices. However, since the prolonged gold rally finally seems to have found some ground, we would need GFI to actually deliver solid performance on its operational front, in order to witness any noticeable price gains.

Performance review and way forward

During FY 2018, GFI's GAAP EPS amounted to a negative $0.42 and missed the expectations by $0.18. Moreover, its revenues of ~$2.5 BB also witnessed a 6.5% Y/Y decline but exceeded expectations by $50 MM. As we will elaborate in the following discussion, GFI's gold production suffered on a Y/Y basis, hence, the $50 MM excess of revenues over expectations appears to be supported by a persistent increase in gold prices.


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