Gold Fields GFI reported decent fourth-quarter results that weren’t terribly surprising given that management had prereleased some of the 2012 fourth-quarter operating results in January 2013. The company’s quarterly results were a story of two contrasting regions, with Gold Fields’ international segment achieving healthy production growth while the firm’s South African segment saw quarterly results continue to be crimped by the country’s mining strikes.
Gold Fields’ international operations generated 496,000 gold equivalent ounces during the fourth quarter, marking an 11% increase from the third quarter. This improved performance was driven by optimizing mining operations at Cerro Corona and Agnew. Going forward, we don’t expect the international operations to see significant production growth, but some incremental gold output growth from small brownfield projects and further mine optimizations is certainly projected in our forecast.
We expect much stronger production growth going forward from the company’s hitherto-underperforming South African segment, which was weighed down by the extensive mining strikes in the country during the middle and back half of 2012. Having spun off its KDC and Beatrix mines in South Africa through the IPO of Sibanye Gold in February 2013, Gold Fields now has only one operating South African mine, South Deep, which we still project to ramp up to a production run rate of 700,000 ounces per year by the end of 2015. While South Deep saw cash costs inch close to $1,200 per ounce during the fourth quarter of 2012, we believe cash costs will come down significantly once the expansion project is completed, because of the benefits of a fully mechanized operation at South Deep (as opposed to traditional South African gold mines, which rely on employing large numbers of mining workers). However, we still expect Gold Fields’ production costs to remain well above the industry average over our explicit forecast horizon, which is why the firm does not enjoy an economic moat.
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