South Deep’s performance lifts miner Gold Fields fortunes despite falling gold price

Leading South African miner Gold Fields Ltd, which owns mines from Peru to Australia, has reported a surge in quarterly profit for the first time in 16 years after the flag ship South Deep mine reported lower operational costs and improved production.

Gold Fields announced favorable performance figures for the South Deep mine project. It said South Deep delivered an improved quarter in Q3 2015, with gold production up by 42 per cent to 1,709 kg. However, cash outflow was down from US$27 million (approx. AU$37.8 million) to US$20 million in the September quarter.

Despite the poor performance in the gold market in recent years, the South Deep mine is likely to break even by the end of 2016.

Break even soon

The South Deep project was bought for $3 billion (approx. AU$4.1 billion) in 2006. Though it faced many delays it seems on course to break even by the end of 2016, Chief Executive Officer Nick Holland told Bloomberg.

“We are looking at about a 50 per cent improvement in production in the second half versus the first half,” Holland said. He praised the team under Nico Muller for starting to get to grips with a lot of the issues.

“So we expect quarter four to be better than quarter three," he said.

"There’s been a pretty dramatic improvement at South Deep," Richard Hart, a Johannesburg-based analyst at Arqaam Capital said.

“The more production that comes on track, the more it will be built into people’s valuation of the company,” the analyst added.

South Deep makes up about 75 per cent of Gold Fields’ reserves.

Net earnings attributable to shareholders will be $18 million (approx. AU$25 million) in the third quarter, which is 50 per cent higher than the previous three months.

Falling costs

Analysts noted that costs fell in the past few months and helped the mine to stay economically viable even as gold market was under stress. South Deep is the largest asset of Gold Fields. The improvements on the operational front is a signal that Gold Fields’ total financial performance will improve in the years to come.

Foir long, Gold Fields has been cutting costs and paying down debt to counter the slide in gold price that touched a five-year low of $1,064.55 an ounce on Nov. 18, 43 per cent below its June 2011 peak.

The lower bullion price has forced Gold Fields to hold back its Damang operation in Ghana because of the “challenged current environment.” However, Holland has ruled out selling the mine.

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