Gold Fields stock plunges 24%, most since 1985. Swings to 4Q loss.

By Kevin Crowley

(Bloomberg) — Gold Fields Ltd. fell the most on record after saying production for 2016 will decline and leave the company relying on South Deep, its delayed South African operation, for a greater portion of its bullion.

Production will drop to 2.05 million ounces to 2.1 million ounces in 2016, from 2.16 million last year, the Johannesburg-based company said in a statement Thursday. That includes a 30 percent increase in output from South Deep, which is years behind schedule and is aiming to break even at the end of this year.

A mine worker is seen underground in Gold Fields' South Deep mine outside Johannesburg, in this file picture taken June 4, 2010. Gold Fields is looking to break even at its South Deep mine in South Africa by the end of the year, its chief executive said on Thursday after posting a drop in full-year earnings. REUTERS/Siphiwe Sibeko/Files
A mine worker is seen underground in Gold Fields’ South Deep mine outside Johannesburg, in this file picture taken June 4, 2010. REUTERS/Siphiwe Sibeko/Files

“It implies more reliance on next year’s production on South Deep and I don’t think the market is too sure about what South Deep can consistently produce,” Izak van Niekerk, a Cape Town-based analyst at Mergence Investment Managers (Pty) Ltd., said by phone. “Management is promising clearer guidance on that mine in 2017 only.”

Gold Fields tumbled as much as 24 percent, the most since at least February 1985, and was 15 percent lower at 56.30 rand at 10:51 a.m. in Johannesburg trading. The company swung to a fourth-quarter loss of $54 million compared with a profit of $21 million the previous quarter as it booked $300 million of impairments on investments, tax and operations in Ghana, the Philippines and Australia.

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South Deep

South Deep, the world’s largest gold ore body behind Grasberg in Indonesia, is a “kingpin” asset for Gold Fields, according to the company’s website, despite almost a decade of delays, accidents and losing money. The mine makes up about 75 percent of Gold Fields’ reserves.

It made progress in the period, with all-in costs down 19 percent to $1,156 an ounce and production up 24 percent to 68,100 ounces. Even, so Chief Executive Officer Nick Holland said he’s unwilling to give any firm production or cost targets until the end of this year.

Gold priced in rand is currently trading about 20 percent higher than the company’s estimates, helping South Deep. That means the mine may break even earlier than the end of 2016, Holland said.

“Who knows, we might get there a bit quicker,” he said. “But I’m cautious about what the rand might mean for our costs. In six months’ time it might change.”

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Quarterly Output

Gold Fields produced 566,000 ounces of bullion in the quarter, with all-in sustaining costs of $929 an ounce. Production was up 1.6 percent on the previous quarter while costs declined 2 percent.

Gold Fields is seeking to buy in-production assets in countries where it already operates. It paid about $300 million for Barrick Gold Corp.’s Yilgarn assets in Western Australia in 2013, which have generated enough cash to pay for themselves within two years.

“If we buy something, it’s got to add to the quality of the portfolio, it’s got to make us more cash,” Holland said. “Generally, if the deposit is say 10 years, we’d like to get our money back in half that if we could.”

Gold Fields forecasts attributable equivalent production of 2.05 million ounces to 2.1 million ounces for this year, with decreases in production in Australia, Ghana and Peru being offset by a 30 percent advance in South Deep production. All-in sustaining costs are seen at $1,000 to $1,010 an ounce, while capital expenditure will be $602 million.