JOHANNESBURG (Business Day) -- Gold Fields' [NYSE:GFI] downward revaluation of its reserves and resources at the end of June may invite some sneers after its complaints about hostile bidder Harmony [NYSE:HMY] forced HMY to restate a lower reserve position. But the circumstances are different.
The reduction in Gold Fields' reserves was largely at its below-infrastructure Eastern Boundary Area project at Kloof and arose from new information, which will require the project to be re-engineered and recosted. The Harmony restatement arose from Gold Fields' complaint that its rival had stated its reserves differently at various times.
Although Gold Fields' share price fell about 2% after the announcement of the 18% downward revision in its reserves, this was not because the market was valuing the company differently, but in line with a general move on the gold board as the gold price weakened. While the U.S. analysts base their valuations on gold companies' reserves and resources, the U.K. and local analysts take a different view.
Clearly, reserves and the life of the mine are important, but there are many other factors involved before an ore body translates into revenue. Factors such as trends in the gold price and the rand-dollar exchange rate are considered more immediately relevant to the decision to buy or sell the shares than the reserves statement.
There is also some room for manoeuvre in the reserves and resources as ore that may be of too low a grade to be included in the reserves statement may in fact be mined profitably once the infrastructure is in place. The life of the mine is also dependent on commodities prices, ability to extend operations to adjacent areas, the structure of the ore body, labour issues and technology.
Gold Fields is also on track to add 1.5 million ounces of gold production a year by 2009.
CEO Ian Cockerill told the Denver gold conference that the group had already secured about 900,000oz through St Ives, Essakane, Tarkwa and Cerro Corona, and he was confident that the remaining 600,000oz were achievable - despite the competitive environment, which was pushing up the price of good-quality acquisitions.
