JOHANNESBURG (I-Net Bridge) -- Gold Fields [NYSE:GFI; JSE:GFields], the world's number four gold producer, generated 5% higher headline earnings per share for the quarter to end December of 147 cents - on the back of a R263 million ($36.34 million) foreign exchange gain.
Production for the quarter was up 1% to 31,580 kilograms, while costs were up 7.7% compared to the September quarter at R83,707/kg ($11,567/kg).
Gold Fields sold its gold at an average price of R144,485/kg ($19.963/kg) during the quarter, or 1.7% more than in September.
The company's operating margin shrunk from 42% to 41% quarter on quarter.
Core earnings, which exclude gains and losses of on foreign debt, were reported at 108 cents per share, compared to 142 cents per share previously, a drop of 24%.
The company generated a net R261.8 million ($36.06 million) in the quarter, boosting overall cash position to R1.412 billion ($195.1 million) by the end of December. An interim dividend of 90 South African cents has been declared.
At Gold Fields' South African operations, production was relatively flat at 20,352 kilograms compared to 20,194 kilograms in the previous quarter, although this includes production from South Deep. Without South Deep, production from the company's existing mines was down 3.4% quarter on quarter.
At Driefontein production fell 4% to 7,692 kilograms due to a redesign and replanning of the 4 shaft extraction pillar, according to the company. Production at the mine is expected to fall further in the next quarter because of the Christmas break.
At Kloof production was down 5% to 7,172kg following a decrease in yields. Gold production for the March quarter is expected to be similar to December's.
Gold production at the company's international operations increased by 2.4% to 13,402 kilograms at a total cash cost of R83,338/kg ($11,520/kg).
At the Ghanaian operations, costs will remain under pressure going forward due to continued costs of on-mine power generation, as the company struggles with hydropower issues.
At the Venezuela asset, Choco 10 which was purchased last year, production is expected to fall from 22,800 ounces in the December quarter to below 9,000 ounces in the next quarter due to a lack of water and lower grades.
In Australia, production from the Agnew mine is expected to increase to over 60,000 ounces from the 59,200 ounces produced in the December quarter, as higher grades and tonnages come through.
Newly acquired Western Areas, 95.6% owned by Gold Fields, reported gold production of 32,271 ounces for the quarter ended December, compared with 32,532 ounces for the September 2006 quarter from South Deep.
Cash costs for the December quarter were $649 per ounce from $624/oz in the quarter before. Total production costs declined to $692/oz in the December quarter from $735/oz in the September quarter. The gold price achieved declined to $393/oz from $408/oz.
The company said the fourth quarter had been an eventful one. Significant progress was made on both the South Deep shaft incident and the underground fire.
Western Areas said results for the fourth quarter were broadly in keeping with the revised production plan following the shaft incident at South Deep in May, compounded by the underground fire that started on August 31 in the 95 3W project area.
The total plant feed for South Deep for Q4 was 6% higher than that of Q3, with 279,568 tonnes of underground ore (Revised Plan: 273,788 tons) and 204,152 tonnes of low grade waste dump material (Revised Plan: 90,000 tonnes) having been processed, resulting in the production of 1,973kg of gold. Gold sold was 1,814kg.
The head grade of the underground ore decreased from 6.88g/t (Q3) to 6.74g/t (Q4), whereas the overall head grade inclusive of low grade waste dump material decreased to 4.20g/t over the same period (Q3: 4.50g/t) due to the high volume of low grade waste dump material processed.
It was necessary to process this volume of low grade waste dump material in order to optimise the utilisation of the metallurgical plant, as well as to generate the required volume of tailings for the emplacement of backfill, the company noted.
Given the high fixed costs for South Deep, all unit production costs remained high due to the lower production levels. Cash operating costs increased from R146,848/kg in Q3 to R158,546/kg ($21.911/kg) in Q4 due to additional labour costs, an increase in consumables relating to the underground fire and the transportation on surface of underground ore, and low grade waste dump material from the South Shaft Complex to the metallurgical plant at the Twin Shaft Complex.
The operating loss from gold operations for Q4 increased marginally to R102 million ($14.09 million) from Q3's R100 million ($13.82 million), this being partly due to the strengthening of the rand, which had a negative impact on the rand gold price. Gold revenues decreased by R9.2 million ($1.27 million) from quarter to quarter.
Gold Fields plans to delist Western Areas, but the company said that this is a new beginning for South Deep.
"The Twin Shaft Complex is being re-commissioned, the synergies with Kloof are being explored, and there are exciting opportunities for promising new and continued development that can be realised through the skill and resource that Gold Fields has," it concluded.
Gold Fields also terminated its toxic hedge book, which came with its purchase of Western Areas. The book was terminated at an annual spot price of $622.14/oz at a total cost of $528 million.
"We terminated the Western Areas hedge book because we believe in gold," commented Gold Fields CEO, Ian Cockerill. "The hedge book was significantly under water and was a crippling liability to the South Deep mine. Now we can bring the asset to account in a transparent manner."
December 2006 to December 2014 and consisted of options, with a delta of 1,005,000 gold ounces and deferred premiums, Gold Fields said.
At the end of the December 2006 quarter, the marked to market value of the hedge book was $383 million, with a deferred premium of $157 million, for a total of $540 million. This compares to the total cost of termination of US$528 million, it added.
"Gold Fields is of the view that the price of gold remains firmly in a long- term upward trend and, with that outlook, it does not make any sense whatsoever to be hedged," he said. "It also ensures that Gold Fields remains fully transparent to investors, and that its balance sheet remains simple to understand."
In addition to closing out the hedge book, Gold Fields announced that it will place $1.2 billion worth of new shares through a book building exercise to pay down debt it took on in its acquisition of the South Deep gold mine.
"The books will open with immediate effect and pricing is currently expected to be announced by no later than close of business on Tuesday, January 30, 2007," said the company.
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