World number four gold miner Gold Fields (GFI) is looking to restructure its South African operations as a result of the strong rand and the likelihood that the currency will maintain its strength, Gold Fields chief executive Ian Cockerill said on Thursday.
"We thought the rand would depreciate to R8.50 to the US dollar by year-end but perhaps that was too optimistic or pessimistic, depending on your view, and at this stage the rand may only weaken at the end of the year," Cockerill told a grouping of reporters following the release of Gold Fields' September quarterly results.
"Halfway through the September quarter we decided to reposition the company. We stopped mining the low-grade areas and moved to the high-grade areas. We will focus on 'old gold' recovery," Cockerill said.
However, Cockerill wouldn't be drawn on whether the restructuring would result in retrenchments but he did say that the prospect of retrenchments could not be ruled out.
As a result of the restructuring process, Gold Fields has served its various staff associations and unions with notice of a 60-day review period.
At present, Gold Fields is relying on natural attrition at Gold Fields' South Africa operations, where employee turnover is about 800 people per quarter or 3,500 people per year, to reduce its head count.
The group has reviewed its capital expenditure and during the September quarter Gold Fields' capital expenditure fell to R553 million from R709 million in the June quarter.
For the September quarter, Gold Fields reported headline earnings per share of 35 cents, down 66% from 104 cents in the June quarter, and below analyst expectations.
Despite the worse than expected results, Gold Fields was quoted at R105.50 per share on the JSE Securities Exchange South Africa, up 200 cents or 1.9% from R103.50.
The key impact on the company's results was a stronger rand and Australian dollar against the US dollar, the sale of mineral rights and land to AngloGold and higher wage costs in South Africa.
During the September quarter, Gold Fields had a net cash outflow of R1.269 billion from a negative cash flow of R754 million in the June quarter.
During the September quarter, Gold Fields made a profit on the sale of certain mineral rights and associated assets to world number two gold group AngloGold (ANG).
The pre-tax profit on this sale amounted to R187 million and after accounting for the deferred tax release, the total impact on earnings was R240 million (US$32 million).
However, Gold Fields has yet to bank the money from the sale to AngloGold as the transaction has yet to be approved by the Competition Tribunal, Gold Fields chief financial officer Nick Holland said.
"We don't think there is going to be any issue with the transaction," he added.
Gold Fields remains on the lookout for acquisitions but given the current high US dollar gold price many prospective targets are trading at high valuations and are generally hotly contested, said Gold Fields head of international operations John Munro.
"Pure US dollar gold plays are currently valued at a $450/oz gold price," he added.
The spot gold price was last quoted at $389.90/oz, up $3.45/oz from Wednesday's close of $386.45/oz.
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