Hit by lower gold prices and rising costs at home, Gold Fields reported a second-quarter loss yesterday and said it was expanding abroad with a $300 million (R3.1bn) deal to buy three Australian mines from top producer Barrick Gold.
The company said it made a net loss of $129m in the three months to June compared with a net profit of $27m in the previous quarter and $105m in the same quarter last year.
Earlier this year Gold Fields separated off the bulk of its assets in South Africa, where labour and political risks are seen as relatively high in the context of a sharp fall in gold prices, a point underlined this week by a new strike threat.
“The gold industry [in South Africa] is frankly in crisis at the moment,” chief executive Nick Holland said.
Gold Fields’ shares fell by 9.13 percent to close at R59.89 yesterday, with the strike threat in South Africa hitting the shares of other producers in the country.
The company said the Barrick acquisition, which would be 50 percent payable in shares, would add 452 000 ounces to its annual production and make it Australia’s third-largest gold producer. The company expects to produce between 1.83 million and 1.9 million ounces this year.
Following the acquisition, Australia would be Gold Fields’ largest regional production centre, it said, accounting for 42 percent of group production, with Ghana decreasing to 34 percent and Peru and South Africa remaining largely unchanged at 13 percent and 11 percent, respectively.
“The acquired assets are located in a preferred jurisdiction that we know well and where we have significant operational and management experience and infrastructure to maximise the value of the acquired assets,” Holland said.
“This acquisition further repositions Gold Fields as an international gold producer with a well-balanced global footprint, which should enhance our risk profile and global credit rating,” he said.
The company said its second-quarter loss was mostly due to impairment charges in Ghana of $143m at its Tarkwa mine and $127m at Damang.
The charges related to its decision to curtail processing activities at the operations because of the lower gold price.
The average gold price in the June quarter was 13 percent lower at $1 405 an ounce and the spot price has lost about 30 percent since its record high of just more than $1 920 scaled in September 2011.
Rival AngloGold Ashanti also has troublesome assets in Ghana and its chief executive said this week that its flagship Obuasi mine there was unsustainable.
But Holland said Gold Fields remained committed to the west African country, which is the continent’s second-largest bullion producer. Tarkwa’s total cash costs are relatively low at just more than $800 an ounce.
“Tarkwa is still a great operation and we are not concerned about Tarkwa,” Holland said.
Damang’s road to solid profitability would be a longer one.
“I think we have done a lot of capital stripping to uncover what we believe is still a world-class ore body and the challenge now is for us to bring that to account in a profitable mine. It’s got good grades,” Holland said.
Holland said Gold Fields was looking for a buyer for its Arctic platinum project in Finland.
n Sapa reported that Holland had offered to waive his bonus after an investigation into the company’s black economic empowerment (BEE) transaction at its South Deep mine.
“In recognition of the concerns which have been generated around the BEE transaction relating to South Deep, chief executive Nick Holland has offered to waive his bonus in respect of the 2013 financial year end,” Gold Fields said.
The investigation revealed the deal was not consistent with company standards. The company’s board initiated the investigation into the BEE deal last December after it was questioned in media reports.