A tough operating environment at home has spurred Johannesburg-based
In the past few months, the company acquired the Cerro Corona gold-copper project in Peru and formed several partnerships to explore for and develop gold properties in China.
President Ian Cockerill says the diversification program is aimed at reducing geographical, technical and political risk, but Gold Fields, like most South African gold companies, is also struggling to manage currency-related risks that are eating into domestic profits.
In the quarter ended Dec. 31, 2003, the company saw its total cash costs of production rise to US$308 per oz., compared with US$282 per oz. in the previous quarter. The increase reflects the rand’s 9% improvement against the U.S. dollar for the period. In the comparable quarter of 2002, total cash costs were a mere US$197 per oz.
As a result of South Africa’s “volatile rand operating environment,” Gold Fields posted net earnings of US$42 million for its latest quarter, on production of 1.05 million attributable ounces. This compares with net earnings of US$57 million on production of 1.03 million oz. in the previous quarter, and net earnings of US$83 million for the comparable quarter of 2002.
Headline earnings (net earnings less the net after-tax effect of asset sales and the sale of investments) were US$36 million, up from US$22 million in the previous quarter. The increase is attributed to higher gains on foreign debt and cash, and on financial instruments.
Operating profit at South African mines fell to US$21 million from US$29 million in the previous quarter, owing to lower production and the lower rand gold price. On the positive side, international operations contributed US$38 million of the total net operating profit, compared with US$29 million in the previous quarter.
In light of these challenges, it is not surprising that Gold Fields is eyeing acquisition and exploration opportunities in all the major gold provinces of the world.
The Cerro Corona acquisition gives the company its first operational exposure to South America, and a base from which to grow.
Based on a 2003 feasibility study, Cerro Corona is designed to produce 147,000 oz. gold and 65 million lbs. copper annually (280,000 oz. gold-equivalent). Plans to double production in a second phase of mining are being studied.
Total operating costs at Cerro Corona are estimated at US$212 per oz. gold-equivalent. The gold-copper porphyry deposit lies just north of
Gold Fields is also forging ahead with an agreement with Fujian Zijin Mining Industry, one of China’s largest gold producers (300,000 oz. annually).
As a first step, Gold Fields purchased US$7.7 million in the initial public offering of Zijin on the Hong Kong Stock Exchange. At 18 million shares out of 318 million issued, it was the largest single purchase in the offering.
The partners intend to form a joint venture, owned 60% by Gold Fields, to advance and explore Zijin’s portfolio of projects in China. The company’s main asset is the Zijinshan gold mine in Fujian province, the largest producing gold mine in the nation.
Gold Fields is also involved in a joint venture to identify and explore gold properties in Shandong province, China’s richest gold- producing region. The area of interest is known to host several multi-million-ounce gold deposits.
Elsewhere in the world, Gold Fields has secured an option to earn 60% of a gold project in Sardinia, and is carrying out exploration programs in Finland, Ghana, Guinea, Tanzania and Burkina Faso.
On the development front, expansions are planned at Tarkwa in Ghana and at St. Ives in Kambalda, Western Australia. New mills are being constructed at both projects.
Feasibility studies are continuing at the Arctic platinum project in Finland, with work focused on two bulk-tonnage deposits potentially minable by open-pit methods. A production decision is expected later this year.
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