The Gold Report - Thu, Feb 22, 2018

South African Gold Miner Offers Value Despite 'Flatter Medium-Term Outlook'

David Haughton, an analyst with CIBC, reviewed this company's 2017 financials and 2018 guidance.


Following Gold Fields Ltd.'s (GFI:NYSE; GFI:JSE) recently released financial reports, CIBC lowered its rating to Neutral from Outperform and trimmed its share price target to R56 from R71 on the company "to reflect the revised outlook and prevailing spot prices" in the form of a forecasted stronger rand, explained analyst David Haughton in a Feb. 14, 2018 research report. The gold miner's stock is trading today at around R46.39 per share.

The revised outlook is primarily attributable to the Deep South project, which had a "seasonally low Q1/18 (after the Christmas break)," which "could be a near-term headwind," Haughton noted. Gold Fields recently outlined a slower-than-expected ramp-up there, to 480 thousand ounces (480 Koz), and at a higher all-in sustaining cost (AISC) than anticipated. "Implementation of the plan and achieving the required efficiencies are key to the Gold Fields valuation," the analyst added.

In more positive news, Haughton pointed out that Gruyere and Damang are advancing on track with first ore anticipated in Q1/19 and Q2/19, respectively. Also on schedule is the feasibility study for Salares Norte, which is slated for release by the end of 2018.

In considering the company overall, its reported 2017 normalized earnings per share was as estimated, at $0.17, which falls into the pre-released range of $0.16-0.19. Production, at 2,160 Koz of gold equivalent (Au eq) and an AISC cost of $955 per ounce ($955/oz), exceeded guidance, which was 2,100-2,150 Koz at $1,010-1,030/oz.

Gold Fields provided 2018 production guidance, which was slightly higher than CIBC's, 2.08-2.10 Moz Au eq versus 2.03 Moz Au eq. The miner forecasted AISC at $990-1,010/oz, which was lower than CIBC's anticipated $1,056/oz.

In 2017, despite "heavy capital spending," Gold Fields "delivered a cash-neutral year," Haughton reported. As for capex in 2018, the company guided to $835M, which is in line with CIBC's estimate. However, "an additional $83M budget for the Salares Norte feasibility study was beyond our assumption," added Haughton.

He concluded that while Gold Fields' medium-term outlook is now "flatter," the company still "offers appeal for improving operations and value amongst South African gold miners."

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