Gold Fields First-Quarter Profit Falls, Beats Estimate

Gold Fields Ltd. (GFI), the fourth-largest producer of the metal, trimmed its full-year production outlook because of technical difficulties after reporting an 18 percent drop in first-quarter earnings.

The new target is 3.5 million ounces compared with a previous range of 3.5 million to 3.7 million ounces, Chief Executive Officer Nick Holland said today in an interview in Johannesburg, where the company is based.

“Instead of being somewhere in the range, we think now we’re going to be at the bottom of the range,” he said.

Gold producers including AngloGold Ashanti Ltd. (ANG), Harmony Gold Mining Co., and Gold Fields are struggling to boost output to benefit from rising prices and counter higher costs. They are being confronted by ever-deeper mines, government measures aimed at reducing accidents, and mounting labor disputes and technical obstacles.

Gold Fields cut its minimum output forecast from Ghana’s Damang mine this year to 175,000 ounces from 210,000 ounces because of a program to improve its performance that may cost $50 million to $60 million in the next three years. Mining in the pit is also switching to ore containing about 1.4 grams a ton from 2 grams for safety reasons, Holland said.

The minimum expected production from the Agnew mine in Western Australia was cut to 160,000 ounces from 190,000 ounces as poor ground conditions that eroded first-quarter output are expected to continue, the company said.

The stock rose 1.9 percent to 100.68 rand at the 5 p.m. close in Johannesburg, giving the company a market value of 73 billion rand ($8.8 billion).

Lower Output
First-quarter profit fell 18 percent from the preceding three months as production slid 6 percent to 827,000 ounces and costs rose 13 percent to $870 an ounce. The company produces about half of its metal in South Africa.

Earnings excluding one-time items declined to 2.17 billion rand, or 3 rand a share, beating the median estimate of seven analysts surveyed by Bloomberg for 2.69 rand.

Gold Fields reported a 255 million-rand tax credit in the quarter. The South African government scrapped a 10 percent secondary tax on companies and introduced a 15 percent withholding tax on dividends.

AngloGold, the world’s third-largest gold producer, last week beat expectations with a 46 percent increase in adjusted earnings excluding one-time items to $1.11 a share, helped by a $90 million tax credit. Harmony, Africa’s third-biggest producer, also beat estimates with earnings of 2.34 rand, boosted by a 652 million rand tax credit.

Reduce Dependence
Gold Fields, planning to have 5 million ounces in production or in development by 2015, is studying opportunities in Finland, the Philippines, Peru and Mali as it looks to reduce the proportion it mines in South Africa, which already has the world’s deepest mines. Labor and power costs in the country have increased by more than inflation for each of the past three years.

The Far Southeast gold-copper resource in the Philippines could be Gold Fields’ biggest mine ever, Holland said in the interview. Preliminary estimates suggest it contains more than 52 million ounces, worth about $80 billion at current prices.

“You don’t find that kind of resource easily,” Holland said. “It’s very large.” Gold Fields has started a so-called prefeasibility study to determine whether a mine will be viable, Holland said.

In Ghana, Gold Fields will probably secure a special tax arrangement known as a stability agreement, Peet van Schalkwyk, head of West African operations, told reporters. Rivals including AngloGold have stability agreements, giving them more favorable tax rates.