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Johannesburg - Gold Fields [JSE:GFI] CEO Nicholas Holland assured investors that the group is well prepared to shoulder a decline in gold prices.
He was speaking to Fin24 after the firm reported that output dropped 1.6% to 548 000 ounces in the three months to June from 557 000 ounces the previous quarter.
However, Gold Fields’ profit excluding one-time items was $18m in the second quarter, compared with $5m in the first quarter.
Holland explained to Fin24 Gold Fields' new target strategy.
"We have taken, what we believe, is a bold step to move away from ounce of production targets to cash flow targets.
"At the beginning of the year, I set a target for us in 2014 at a gold price of $1300 an ounce to achieve a 15% cash flow margin."
He said this is after all the bills have been paid, including all taxes, royalties and all capital expenditure.
"In quarter one, we achieved 13% free cash flow margin and generated $54m of cash. In quarter two, we generated an 18% free cash flow margin, thus exceeding our target that we set out and have increased our cash generation to $66m."
This strategy is starting to work over the first six months of this year.
"We’re able to improve our earnings; and our earnings in this
particular quarter are up to $25m from $21m the previous quarter." He
pointed out that these figures are what Gold Fields refer to as
normalised earnings.
He said that the group's dividend payout to shareholders represents around 32% of its normalised earnings.
The board approved an interim dividend of R0.20 a share.
"So
for those of you who do believe in the future of the gold market, as I
do, you can see that the leverage exists and you can also see that with
potentially higher gold prices, we will make more earnings and we will
reward our shareholders."
Watch: Gold Fields CEO optimistic about gold market
He also assured investors that Gold Fields is able to weather a fall in gold prices.
"If gold prices decline from here, we will be able to break-even, even if gold prices go down to $1 000 per ounce.
"We won’t lose money at that level", but he was quick to add "we won’t make money either".
Holland added that said he is confident gold price will return to levels seen previously.
"However, we must be patient ... so for those who are prepared to be patient, I think the rewards are there."
- Fin24
