On Thursday, Gold Fields Ltd. (GFI, Financial) reported financial and operating results for the first six months of fiscal 2018.
The South African gold producer closed the first part of 2018 with an adjusted net profit of 5 cents per share or $43 million, a 45% decline year-over-year. The net loss was due to an increase in exploration expenditures for Salares Norte.
The Salares Norte is a mineral project located in the Chilean region of Atacama. There, the company is targeting the completion of a feasibility study before the end of 2018. The analysts of Gold Fields Ltd. are determining the feasibility of extracting at profit the precious metal from gold and silver resources. According to data of 2017, there are about 49.5 million ounces of silver and 3.66 million ounces of gold nestled in total indicated and inferred mineral resources at Salares Norte.
The bottom line was backed by six-month revenue of $1.35 billion. That was 3.8% growth from the same period of fiscal 2017. A higher price of gold per ounce sold helped to sustain the turnover since Gold Fields placed lower volume on the market.
Gold Fields produced 994,000 ounces of attributable gold equivalent, 28,000 ounces of attributable gold equivalent less compared to the same period of 2017. A lower volume of metal produced impacted costs because fixed costs were spread over a lower output. Therefore, the all-in cost increase by $77 per ounce of gold to $1,169. The sustainment of higher funds used for growth purposes also impinged on costs.
During the first part of 2018, operations generated cash flow of $269 million. However, the free cash flow was negative because Gold Fields invested about $330 million as capex. Damang in Ghana and Gruyere in Australia are the projects that absorbed the most financial resources during the period. At the open pit gold mines of Damang, the company is engaged in activities to extend the life of operations by eight years to 2025.
The Gruyere project is a 50% joint venture with Gold Road Resources. Gold Fields is acting through its wholly owned Australian subsidiary, Gruyere Mining Company Pty Ltd. The project is under construction for the creation of a 13-year producing mine. From Gruyere, the South African miner expects to produce the first ore at the end of the current year. Gruyere will be a low-cost gold asset for the extraction of the metal from ore reserves of about 1.87 million ounces. Mineral resources are estimated to be 3.13 million ounces.
Despite the cash outflow, Gold Fields Ltd. said that the balance sheet remains solid. The company has $498 million in cash on hand and deposits, fixed assets valued about $4.27 billion and borrowings of $1.46 billion. The equity is valued $2.86 billion. Considering that the stock in Gold Fields Ltd. has a market capitalization of $2.49 billion on the New York Stock Exchange, the price-book value is 0.87. The industry has a median of 1.74.
The stock is trading at $2.68 per share and is below the 200, 100 and 50-SMA lines. The 52-week range is $2.57 to $4.70 per share.
For the 52-weeks through Aug. 15 the share price has fallen 35%.
The company has declared an interim dividend of 20 cents of South African rand, which is 20 cents lower than 2017 and on par with the company’s dividend policy. The board of directors is authorizing the distribution of cash flow at a 25-35% rate of adjusted net earnings.
In U.S. dollars, the stock has a forward dividend and yield of 7 cents, granting a yield of 1.98%.
The recommendation rating is 2.3 out of 5 and the average target price is $4.17 per share.
Disclosure: I have no positions in Gold Fields.
