In a report released July 27, Gold Fields Ltd. (GFI, Financial) announced earnings for the first six months of fiscal 2017 are going to be susbstantially lower than those it it reported in the comparable period of 2016.
The year-over-year changes in the miner’s earnings (EPS, headline EPS and normalized earnings per share) are displayed in the chart below.
The company attributes the decrease in earnings to two main factors: a stronger local currency versus the U.S. dollar will translate to higher costs and higher charges for amortization.
The latter is a consequence of a decrease in the volume of gold reserves at Tarkwa – as reported by Gold Fields on March 28, as well as higher volumes of mined and stockpiled mineral.
In addition, the results of the first half of 2017 will be impacted by a $30.2 million provision Gold Fields allocated as compensation for those miners who have contracted silicosis and tuberculosis. The company said this money was set aside in order to prevent a class-action allegation for thousands of workers who caught lung diseases. This provision may be increased in the future.
The miner expects to produce 550,000 ounces of attributable gold in the second quarter, up 53,000 ounces from the prior quarter, at an all-in sustaining cost (AISC) of $949 per ounce, a 6.6% decrease from the first quarter of 2017, and an all-in-cost Ă‚ (AIC) of $1,092 per ounce of gold, 2% lower than the previous quarter.
The figures on second-quarter production are expected to drive the first six months’ production up 3,000 ounces year over year. For the first half of the year, the miner expects to report an AISC of $980 per ounce, a 1.2% decrease year over year, and an AIC of $1,103 per ounce, which represents a 7.7% increase from the comparable period of fiscal 2016.
Despite expectations on lower earnings, the market is positive about Gold Fields as the stock climbed 3.06% over the last two trading days. The stock is currently trading around $4.04 per share, is uptrending and has outperformed its biggest peers so far this year, including Barrick Gold Corp. (ABX, Financial), Goldcorp Inc. (GG, Financial) and Newmont Mining Corp. (NEM, Financial).
The company is performing much better than its South African peers as well: it has outperformed AngloGold Ashanti (AU, Financial), Harmony Gold (HMY, Financial) and Sibanye Gold Ltd. (SBGL, Financial).
The definitive financial results for the first half of 2017 - which are scheduled to be released Aug. 17 - may impact the market value of this gold stock. The average analyst has set a target price of $3.24 per share, which is a mean of three estimates from analysts who were surveyed and a 19.8% decrease from the current price.
As of today, the recommendation rating is 3.3 out of a total of 10.
Disclosure: I have no positions in any stock mentioned in this article.
