2023-08-24 16:09:04 ET
Summary
- Gold Fields Limited released its H1 2023 financial results, with lower gold production but increased revenues compared to H1 2022.
- The company's net debt has increased after it acquired a 50% stake in the Windfall project in Canada from Osisko Mining.
- The Salares Norte project will begin gold production in 4Q23.
- I recommend buying GFI between $11.50 and $10.75 with possible lower support at $10.25.
Part I - Introduction
In August 2023, Johannesburg-based Gold Fields Limited ( GFI) released the H1 2023 financial year results.
Note: This article updates my June 21, 2023, article. I have followed GFI on Seeking Alpha since April 2021. Below is a quick snapshot of the company's producing assets worldwide.
Gold Fields is diversified and spread over three continents, an important element in reducing risks.
GFI Map Assets H1 2023 Presentation (GFI Presentation)
The South African gold miner had a lower attributable production for H1 2023 of 1,154.2K Au Oz compared to 1,201K Au Oz for H1 2022. Revenues for H1 2023 were $2,266.3 million , up 1.4% compared to H1 2022.
The company's net debt, including lease liabilities, has increased to $1,028.3 million after the initial payment related to the 50/50 JV Windfall Project in Canada together with Osisko Mining (OBNNF). The Windfall project is expected to produce a full-year average production of 306K oz Au , 8.1 g/t Au average grade fully diluted, assuming 3,400 tpd. The total gold reserve is about 3 Moz.
The project acquisition cost of C$600m to be paid in two tranches, with a separate exploration commitment of C$75m.
Also, the Salares Norte project remains on track for first gold in 4Q23.
GFI H1 2023 Highlights (GFI Presentation)
1 - The investment thesis
As I said in my preceding article, Gold Fields is an excellent choice for a long-term investment that I recommend in the gold sector. The growth prospect is impressive with the Salares Norte about to produce in 4Q23 and the recent Windfall Project.
However, Gold Fields Limited is highly correlated to the gold price even if the company produces little copper.
GFI 1-Year Chart Gold, Silver, Copper (Fun Trading StockCharts)
The outlook for gold has weakened significantly since the Fed decided to raise interest again to tame inflation. The Fed is expected to hike interest rates twice by 25 points for the remainder of 2023, and we may experience further weakness in the gold sector, with the US dollar going stronger. However, I expect the Fed to pause indefinitely in 2024, which is bullish for Gold and Silver next year. I think we will have to be a little patient.
Thus, it is even more imperative to trade short-term volatility. I recommend using about 40-50% of your position to take advantage of the short-term ups and downs while accumulating a long-term position on the side.
The best strategy is to trade LIFO while keeping a core long-term position for a much higher level and enjoying a significant dividend.
2 - Stock performance
GFI has dropped significantly since May but is up 47% on a one-year basis. GFI performed better than most of its peers and the VanEck Vectors Gold Miners ETF ( GDX).
Part II - Gold Fields - Balance sheet and Production history H1 2023: The raw numbers (ADR ratio 1:1)
Note: As most are South African gold and PGM miners, results are posted every six months . However, production is indicated per quarter and six months, which can create confusion.
Gold Fields | H2 2021 | H1 2022 | H2 2022 | H1 2023 |
Total Revenues in $ Million (6 months) | 2211.6 | 2,235.3 | 2,051.4 | 2,266.3 |
Net income in $ Million (6 months) | 401.9 | 509.7 | 201.3 | 457.8 |
EBITDA $ Million (6 months) | 1077.3 | 1,223.1 | 857.5 | 1,205.2 |
EPS diluted in $/share (6 months) | 0.45 | 0.56 | 0.22 | 0.51 |
Cash from operating activities in $ Million (6 months) | 541.6 | 871.0 | 508.2 | 735.2 |
Capital Expenditure in $ Million (6 months) | 590.7 | 519.8 | 549.5 | 502.8 |
Free Cash Flow in $ Million (6 months) | -49.1 | 351.2 | -41.3 | 232.4 |
Total cash $ Million (6 months) | 524.7 | 724.1 | 769.4 | 650.5 |
LT Debt (incl. current) in $ Million (6 months) | 1,078.1 | 1,175.3 | 1,079.3 | 1,279.9 |
Shares outstanding diluted in millions | 887.72 | 894.67 | 893.16 | 894.60 |
Dividend $/ share (6 months) | 0.1720 | 0.1782 | 0.243 | 0.249 |
Source: Company booklet and Fun Trading
Gold Fields: Balance sheet details
1 - Revenues were $2,266.3 million in H1 2023
GFI 6-month Revenue History (Fun Trading)
GFI announced revenues of $2,266.3 million for H1 2023, up 1.4% from H1 2022.
Net income was $457.8 million or $0.51 per diluted share, down from $509.7 million or $0.56 in H1 2022.
The increase was due to the 4% higher gold price received, partially offset by the 2% lower gold sold.
The cost of sales before amortization and depreciation increased by 2% from $923 million for the six months ended June 30, 2022, to $939 million for the six months ended June 30, 2023, mainly due to inflationary cost pressures impacting all regions, partially offset by the weakening of the Australian Dollar and South African Rand.
Finally, the adjusted EBITDA for H1 2023 was $2,424 million, down from $2,590 million in H1 2022.
2 - Free Cash Flow was $232.4 million in H1 2023
GFI 6-month Free Cash Flow (Fun Trading)
Note: Generic free cash flow is the cash from operation minus CapEx. The company has a different way of calculating the free cash flow. The company indicates an adjusted free cash flow of $140.2 million.
The trailing 12-month generic free cash flow is $464.5 million , with $232.4 million in H1 2023.
The company said in the press release:
Adjusted free cash flow decreased by 52% from US$293m for the six months ended 30 June 2022 to US$140m for the six months ended 30 June 2023 due to lower cash flows from operating activities, higher investment in working capital, higher dividends and Windfall capital contributions, partially offset by lower capital expenditure.
The interim dividend for H1 2023 is ~$0.249 per ADR or a yield of 4.10%.
3 - Net debt was $629.4 million at the end of June 2023 (or $1,028.4 million, including lease liabilities)
GFI 6-month Cash versus Debt History (Fun Trading)
The net debt is now $629.4 million , with a net debt to adjusted EBITDA ratio of 0.42x. The net debt differs from the GFI calculation of $1,028.4 million, including $399 million in lease liabilities.
The net cash is $650.5 million in H1 2023, down from $724 million in H1 2022. Debt, including current, is now $1,279.9 million , not including liabilities of $399 million (long-term and current).
The net debt, including lease liabilities, is $1,028.4 million. In the press release:
The net debt/adjusted EBITDA ratio of 0.42 at 30 June 2023 compared with 0.33 at 30 June 2022. The net debt/adjusted EBITDA ratio of 0.42 at 30 June 2023 is based on net debt of US$1,028m and adjusted EBITDA of US$2,424m. The net debt/adjusted EBITDA ratio of 0.33 at 30 June 2022 is based on net debt of US$851m and adjusted EBITDA of US$2,590m.
GFI Debt situation (GFI Presentation)
4 - H1 2023 gold equivalent production details
The attributable gold equivalent produced in the second quarter of 2023 was 576.5K Au Oz and Production for H1 2023 was 1,154.2K Au Oz.
Note: To compare H1 2022 versus H1 2021, you add 1Q22 plus 2Q22 for H1 2022 and 1Q21 plus 2Q21 for H1 2021.
GFI Quarterly Production History (Fun Trading)
- AISC and Gold price history.
Total CapEx was $502.8 million in H1 2023, up from $519.8 million the preceding semester. The gold price was $1,927 per ounce compared to $1,851 per ounce in H1 2022. AISC for H1 2023 is $1,215 per ounce.
GFI Quarterly Gold Price and AISC History (Fun Trading)
5 - 2023 guidance (excluding Asanko)
Gold equivalent production is expected to be 2.25 Moz to 2.30 Moz in 2023. Details are presented below:
GFI 2023 Guidance unchanged (GFI Presentation)
Part III - Technical Analysis (short-term) and Commentary
GFI TA Chart Short-Term (Fun Trading StockCharts)
Note: The chart has been adjusted for dividends.
GFI forms a descending wedge pattern with resistance at $12.45 and support at $11.3.
When a security's price has been falling over time, a wedge pattern can occur just as the trend makes its final downward move. The trend lines drawn above the highs and below the lows on the price chart pattern can converge as the price slide loses momentum and buyers step in to slow the rate of decline. Before the lines converge, the price may breakout above the upper trend line.
The trading strategy I recommend is to take LIFO profits between $12.5 and $13 (about 25%) with possible higher resistance at $14 and buy back between $11.5 and $10.75 with possible lower support at $10.25.
Watch Gold like a Hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Gold Fields: The Salares Norte On Track For First Gold In Q4 2023