Gold Fields back in profit, South Deep still problematic

August 20, 2015 6:11 AM

"We're good at a $1,000. We can be robust at $1,000," Holland said.

A mine worker is seen underground in South Deep mine outside Johannesburg June 4,2010. REUTERS/Siphiwe Sibeko

Bullion producer Gold Fields swung back into the black in the second quarter but cut production forecasts for its problematic South Deep mine in South Africa, a mechanised operation that has had many set backs.

The company said on Thursday that South Deep was expected to produce 6,500 kg of gold this year, down 8.5 percent from a pervious forecast of 7,100 kg.

South Deep, which sits atop a mammoth 40-million ounce reserve, is Gold Fields' last remaining South African asset. It is fully mechanised and has been plagued by a number of technical difficulties.

Gold Fields said it still maintained a target of breaking even on the project by the end of 2016.

The company has a wage deal in place at the mine until March 2018, which means labour costs should not take it by surprise. By contrast, its South African peers are locked in protracted wage talks with restive unions.

Chief Executive Nick Holland told Reuters the focus at South Deep was on getting work practices and safety right, a process that was hurting production now but should pay off in the longer run.

"If you fix safety, you fix productivity and work practices ... we stopped work in a lot of areas we were not happy with," he said.

Holland said overall the company was of the view that it could make money, even if gold's spot price dropped to $1,000 an ounce.

Gold has rebounded nearly 6 percent from a 5-1/2-year low of $1,077 touched in late July to more than $1,140 an ounce but is 40 percent off record peaks above $1,920 scaled four years ago and is vulnerable to sudden shifts in sentiment.

He said costs at Gold Fields' Peru operations were below $700 an ounce and the company was also benefiting from currency depreciations in Australia and South Africa, as gold is sold in dollars.

The company reported normalised earnings for the quarter to the end of June of $22 million versus a loss of $13 million in the previous quarter.

This translated into earnings of 3 U.S. cents per share, just shy of a Reuters' forecast of 3.4 cents.