Gold Fields Profit Down 11% as Strikes, Blaze Reduce Output

November 27, 2012 at 08:41

truthing

Gold Fields’ third-quarter profit declined 11 percent as strikes and a fire cut output at its South African mines, the company said yesterday, increasing the possibility that the bullion producer will reorganise.

“You’ve gone through a strike that’s cost you R2 billion in revenue, we’ve lost 145 000 ounces of production, it has worsened our financial position, and some of those areas that we did not mine for a while we are still trying to build back up, so it’s a big headwind,” chief executive Nick Holland said yesterday.

Output was hurt by a deadly blaze at the Ya Rona shaft that made the operation inaccessible for about 46 days. A wave of strikes that halted gold, platinum, coal, diamond and iron ore mines also curbed Gold Fields’ output.

The firm has been trying to boost output to take advantage of prices for the metal that have risen for 11 consecutive years.

About 29 000 employees joined two months of wildcat strikes at Gold Fields mines in August and September. That, combined with rising power and labour costs “is increasing the risk of a significant restructuring of our South African operations in the near to medium term”, the company said.

South African output fell 11 percent to 387 000 ounces in the quarter, with 30 000 ounces lost to the fire and 35 000 ounces during a strike at the Kloof Driefontein Complex operation. Total output slid 5.9 percent to 811 000 ounces from the second quarter.

Shares in Gold Fields rose 1.54 percent to R106.62 yesterday.

“We did have guidance for impact of the strike in the third quarter, but I think more importantly Gold Fields announced that it will have a strategic portfolio review,” SBG Securities gold analyst David Davis said.

Headline earnings declined to R1.4bn, or R1.95 a share, from R1.6bn, or R2.20 a share, in the previous quarter, the company said in a statement.

Gold analysts in South Africa compare quarters sequentially.

Gold Fields and other South African-based producers were reviewing their assets and “looking for quality in their portfolios, not quantity”, Davis said.

The company said in August, prior to the strikes, that it would produce no more than 3.4 million ounces of gold-equivalent metals in the year to December. It had already trimmed its full-year production target to 3.5 million ounces in May. The previous range was 3.5 million to 3.7 million ounces.

The Chamber of Mines anticipates that mining companies will be forced to cut their workforces as a result of high pay increases they awarded to end the strikes.

“The mining industry is going to restructure, there are going to be retrenchments because the levels of wages are high, not in absolute terms, but relative to productivity,” the chamber’s chief executive, Bheki Sibiya, said in Cape Town last week. He estimated the cuts would exceed 10 000 workers.

Job losses are a last resort, but “still a risk”, Holland said.

“One of the key things we are going to have to determine in 2013 is how we can improve the productivity, because if we can get the productivity up, we can do a lot to save jobs,” he added.

Gold Fields also has operations in Peru, Australia and Ghana. International regions accounted for 424 000 gold-equivalent ounces, compared with 425 000 ounces in the previous quarter, the company said.

Gold Fields intended to reduce South African operations to 40 percent of total output, preferably by increasing volumes mined outside the country, Holland said.

There had been a “natural decline” at some South African production sites of around 5 percent to 7 percent annually for the past five years, he said.

“If we could reduce that, or just flatline our production for 2013, that would already be a major achievement.”

The mining company’s management appear to be seeking to diversify further, “for example, moving out of South Africa as fast as they can to protect the business in case South Africa erupts into a mass of protest and violent strike action again”, John Meyer, a partner and mining analyst at SP Angel in London, said yesterday. “A fall in gold prices could be terminal for some shafts and many jobs.”