Gold Fields lost more than 10% of its market value on Thursday in its biggest one-day fall in six months even though it said production will increase by 20% over the next two years.
The SA-based miner global player, which reported annual earnings on Thursday, is counting on its greenfield Salares Norte project in Chile, expected to come on stream in April after repeated delays, as well South Deep in SA, the potentially lucrative asset that has long been an albatross around its neck.
Though the shares fell as much as 11.8% to R222.77 on the JSE they are still almost 30% higher over the past year on a total return basis including reinvested dividends.
Anchor Capital investment analyst Stephan Erasmus said the market was probably concerned about higher capital spending and production costs, as well as gold mineral reserves that are down 3% year on year.
“The Salares Norte project in Chile is yet to come into production after several delays and management has guided to increased total project capital cost,” said Erasmus.
Management attributed the higher forecast sustaining capex to operations such as its South Deep mine, “which has been a problem in the past”.
The total Salares Norte cost was revised up to $1.18bn-$1.20bn, from the initial estimate of $860m. In 2023, the projected total cost was $1.04bn before the project hit another snag, stalling its first gold production to April from December.
Gold Fields posted a 5% rise in normalised earnings to $900m in the year to end-December, supported in part by a higher rand-gold price.
The company and the sector as a whole have been insulated against the downturn is commodity markets generally thanks to buoyant demand for gold, which is regarded as a safe haven in times of uncertainty.
Gold Fields has mines in Australia, Ghana, SA and Chile, meaning it is exposed to the vagaries of the foreign exchange markets. However, that worked in its favour in the reporting period, as reflected by rand weakness against the dollar.
New CEO Mike Fraser said in a results statement on Thursday that Gold Fields was committed to building a business delivering “competitive returns to shareholders and sustainable value for stakeholders through the price cycles”.
“This means being disciplined about how we allocate capital, reducing costs in a sustainable manner and ... pursuing accretive growth opportunities to maximise the value and quality of our portfolio,” he said.
Fraser assumed his new role earlier in February, replacing Martin Preece who had been interim CEO after the sudden departure of Chris Griffith in 2022.
Gold Fields generated free cash flow of $1bn from its operations in the reporting period compared with $855m a year earlier, enabling it to declare a total dividend of R7.45 a share, matching that of 2022. That’s equivalent to 40% of its normalised earnings, in line with its policy of paying 30%-45% of normalised earnings in dividends.
Gold output, excluding the Asanko Gold Mine in Ghana, was in line with its guidance at 2.24-million ounces. All-in sustaining costs — the industry measure of total production costs — was $1,295/oz, better than the guidance range of $1,300/oz-$1,340/oz.
For 2024, attributable gold equivalent production is expected at between 2.33-million ounces and 2.43-million ounces. All-in sustaining costs of $1,410/oz-$1,460/oz are expected.
Update: February 22 2024
This story has been updated with new information.
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