Gold Fields (GFI, Financial), despite a lower gold price environment, has managed to reposition operations that helped it to deliver positive cash flow once again in the recently reported quarter. Also, a handsome increase in the production has encouraged Gold Fields, and it expects an upbeat performance in the upcoming fiscal year as well. It is focusing on cost reduction initiatives to improve its margins. Gold Fields is also among the top companies in the league in terms of cash generation. This positive market position and good track record in cash generation might help the company to deliver better results in the upcoming quarters.
Expectations for 2015
Moving on, for 2015, Gold Fields is focusing on various initiatives to improve its profitability. Under one of its most profitable initiatives, Gold Field is engaged in selling most of its non-core assets and is now trying to invest in most core assets which delivers best risk adjusted returns. Under this initiative, the company has already sold Chucapaca, Yanfolila and Asosa offerings and succeeded in gaining much from it. However, as a result of ongoing weak gold pricing, Gold Fields is focusing on opening ore bodies for future benefits. To add more value to this, the company is making significant investments in Brownfield Explorations. There are many more investment plans lined up under Gold Fields’ camp which are mainly targeting long-term growth.
Moving to South Deep, the company is making good progress and is also seeing positive signs for future growth with this. The performance of South Deep is also a prime preference for the investors governing their investment decisions. But the company thinks that the knock on effect might affect its smooth flow. The problem with this is that the company cannot mine the open stops which they were planning to mine. Gold Fields is expecting the benefits from these stops to remain shy in 2015 and 2016 as well. This has also affected its production outlook. Gold Fields is expecting lower production figures as compared to the previous quarters.
Gold Field is also targeting short-term growth. To achieve this, it is focusing on some short-term basics to improve profitability in the short term. This will further boost Gold Fields’ confidence of better performance in future. Another important thing that Gold Field is focusing on mining at higher levels with the open stops as with greater mining the company will get greater volume. It is now mining about 25% from the open stopes and moving ahead it is focusing on achieving about 70% of mining activity which improve its production leading to better financial performance in 2015.
Conclusion
Moving on to the fundamentals, the stock looks expensive with a trailing P/E of 214.71 due to sale of non-core assets. However, the company is showing near term growth which is well evident by forward P/E of 20.39. As the gold prices are expected to decline further in future, the earnings in the next five years are expected to decline with a CAGR of -39.81% which is disappointing so in my opinion the investors should see investment in Gold Fields from side lines and wait for the over all industry to recover.
