Gold Fields' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Gold Fields (GFI)

Q4 2011 Earnings Call

February 17, 2012 9:00 am ET

Executives

Nicholas John Holland - Chief Executive Officer and Executive Director

Paul A. Schmidt - Chief Financial Officer and Executive Director

Analysts

Tanya Jakusconek - Scotiabank Global Banking and Market, Research Division

Unknown Analyst

Joung Park - Morningstar Inc., Research Division

Presentation

Operator

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Good day, and welcome to the Gold Fields Q4 Results Conference. [Operator Instructions] Please also note that this conference is being recorded. I would now like to hand the conference over to Nick Holland. Please go ahead, sir.

Nicholas John Holland

Thank you very much, and good morning, everyone, depending on where you are; and good afternoon for those people who are in the same time zone as us here in Johannesburg, South Africa. Thanks for joining me on this call to discuss our results for the quarter ended December and to give you some brief highlights of the year-end results as well. And joining me on this call is our CFO, Paul Schmidt; and also, Zakira Amra, our Senior Vice President of Investor Relations and Corporate Affairs.

I trust you've now had an opportunity to review our results announcement, which was released on SENS and our website this morning, and some of you may have had a chance to view the webcast. As with previous calls, I'm just going to give you some salient features of our results and then leave most of the time for questions.

Just dealing, first of all, with the quarter ended December. We've managed to produce 883,000 attributable ounces. That was marginally lower than the 900,000 ounces we produced in the September quarter. A couple of reasons for that small downward adjustment. First of all, we do report gold equivalent ounces. And in Cerro Corona, we lost about 10,000 equivalent ounces because of the copper-gold price ratio that changed. The underlying physicals were very good, but that was just the ratio of copper versus gold. So it was 10,000 ounces that declined there. We also lost about another 10,000 ounces. We didn't lose it, obviously, it's deferred. But 10,000 ounces lower for Tarkwa, which encountered principally some harder ores, which meant that the milling rate through the carbon in leach plant was slightly lower than the previous quarter at about 1,350 tons per hour instead of 1,450 tons per hour. The good news is that we did see this coming. This is not a surprise for us, and we've recently commissioned a new secondary crusher in front of the carbon in leach plant, which will enable us to increase our throughput as it will enable us also to grind the materials to the required grind and get that through the plant. And those were the 2 principal reasons behind the marginal decrease in production.

The South Africa region showed a small increase. The Australasia region also showed a small increase, and this helped to offset some of the declines that we saw in both Ghana and in Peru.

Looking on our cash costs. Cash costs for the quarter declined to $767 an ounce from $851 an ounce in the previous quarter. That's a 10% reduction. The rand exchange rates did help, which weakened to ZAR 8.08 for the quarter compared to ZAR 7.05 for the previous quarter. That did help. But not just the rand depreciation. We were also assisted by good control over our costs, and we've managed to, in fact, reduce our costs across most of the operations during the last quarter. So the combination of those 2 issues, the slightly weaker rand and improved cost control enabled us to improve our operating profit from $804 million in the September quarter to $877 million in the December quarter.

Net earnings for the quarter increased from $293 million in September to $336 million in the December quarter. We also declared a dividend during the quarter, and that was ZAR 2.30, which translates to about USD $0.29, and that brings our total dividend to the year of ZAR 3.30 or around about USD $0.45 for the year, which we understand puts us on a dividend yield of around about 2.5%. And I may be mistaken, but I think this places us right at the top of the gold sector in terms of dividend yields.

Payout ratios are pretty much in line with the policy. We say that we want to pay out 50% of our earnings subject to deducting growth capital, and that's in line. But if you look at the historical trend of our dividend payouts to our earnings over the last 5 years, we are somewhere around about 35%, around about 1/3 on average of our earnings over the last 5 years have been paid out. That's our reported earnings prior to adjustments, so. But we're pleased to be able to, first of all, show the improved gold price in the bottom line and then to also reflect that in higher dividends for shareholders. And in fact, we've been able to more than double our dividend compared to the previous year. So that's really helped us. And some might say, "Well, these earnings are just because of the gold price." But what's really interesting is that over the last number of years, if you take 2008, for example, to 2011, there's been a 81% increase in the gold price over that period. But over the same period, we've increased our EBITDA by 124%, we've increased our operating cash flow by 114% and our earnings by 169%. So we have, in fact, shown more than just the increase in the gold price and our earnings; we've, in fact, been able to expand our margin. And hence, this whole concept of notional cash expenditure that I've been preaching about for the last 4 years is so important because that is the best proxy for determining whether you make cash. If you can't make any cash flow after capital expenditure, then you should be worried about the business, even though NCE might be chunky from time to time as you do certain projects.

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