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Gold Fields warns of gloomy cost outlook
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25th October 2007
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South African gold producer Gold Fields' cash costs, which were one of the main culprits for the drop in its September quarter's earnings, could continue to nudge upwards in the 2008 fiscal year, the company said on Thursday.

In the three months to September, cash costs went up by 7%, but Gold Fields was expecting to slightly improve its costs in the December quarter.

CFO Nick Holland cautioned, however, that year-on-year costs for the 2008 fiscal year could increase by between 10% and 15%, as labour costs and input costs continued to drift higher.

In the September quarter, the results of which were released on Thursday, costs had jumped to R99 227 /kg, or $435/oz, from R92 273/kg, or $405/oz in the previous quarter.

The impact of high wage settlements, which averaged at about 9% in the quarter, and lower production at mines in Australia and Ghana all influenced the costs, which CEO Ian Cockerill described as "unacceptably high".

At Tarkwa, in Ghana, total cash costs increased by some 37% to $423/oz, as unusual high levels of seasonal rainfall during the quarter had cut production. He said that the rainfall at Tarkwa had exceeded a fifty-year high, impacting on the mining and processing operations.

At St Ives, in Australia, total cash cost increased from $491/oz in June, to $551/oz in September, an increase of more than 12%.

These cost increases did, however, influence the company's earnings, cutting it by some 19% to R429-million in the quarter.

In the period under review, Gold Fields produced just over one-million ounces of gold, with output from its South African operations increasing slightly from 685 000 oz to 689 000 oz.

Production from its international operations, however, dropped by more than 5% to 312 000 oz.

In 2004, the company had set out plans to add 1,5-million ounces a year of international gold production by 2009, and on Thursday it reported that it would continue to focus its efforts on achieving this goal, despite its recent decision to sell two international operations.

But Cockerill pointed out that, should the target not be achieved, the company would not see it as a failure, as the the miner would not "slavishly" try to add additional ounces, without adding any value to the company.

"We've still got a long way to 1,5-million ounces. If we fall short, we fall short."

Gold Fields recently sold two international operations - its Venezuelan assets, and its Essakane project in Burkina Faso.


Meanwhile, Cockerill said that investors were becoming "increasingly cautious" about South Africa as an investment destination.

The increased cautiousness was influenced by a range of issues, including South Africa's political situation, Cockerill, who is heading up one of the world's largest gold mining companies, said.

But the cautiousness did not mean that investors were putting up any red flags, senior vice president for corporate affairs Willie Jacobsz pointed out.

He explained that, during a recent international road show, the company had picked up that investors were paying attention to how matters, such as the local political situation were playing out.

"There is an interest in what is going to happen in South's not a major concern," Jacobsz said at a media briefing, where the company reported on its September quarterly results.

Edited by: Liezel Hill


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Gold Fields CFO Nick Holland discusses cost pressures (25/10/2007) By Lizelle Cronje
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