Gold Fields (GFI)
of South Africa, the world’s fourth-largest gold miner, is a big player in a oddly battered industry. While the price of gold bullion rose about 10 percent last year, mining stocks fell. Gold Fields’ decline totaled 15 percent.
Production costs are soaring for Gold Fields and other gold miners. The company’s cash costs averaged $851 per ounce of gold mined in the third quarter, up from $816 in the second quarter and $697 a year earlier.
South Africa is the most important production country for Gold Fields, accounting for 52 percent of its output in 2010. The company has been hit hard by a surge in the country’s electricity prices — they increased 28 percent in April — and a 10 percent pay increase for South African mineworkers in the third quarter that came as part of a strike settlement.
The company is heavily dependent on labor-intensive, underground, hard-rock mines in South Africa that require a lot of energy. So it suffers more from rising energy and compensation costs compared to other gold miners, according to Morningstar.
Another problem is taxation. Gold Fields said in December that Ghana’s plan to raise tariffs on mines and impose a windfall tax may force it to stop expansion projects worth $1 billion at two mines in the country.
The company is trying to diversify its geographical reach. It has mines in Western Australia and Peru and is working on a project in Mali.
Gold Fields’ net income more than tripled to $293 million in the third quarter from $95 million a year earlier. Revenue jumped 28 percent to $1.6 billion.
Of five analysts tracked by Thomson/First Call, two have a buy recommendation on Gold Fields shares, and three have a hold recommendation.
The company next reports earnings Feb. 8.
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