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Gold Fields profit declines

Gold Fields’ KDC
West No 1 metallurgical
Johannesburg, South Africa — 27 November 2012 – Gold Fields Limited “’ one of the world’s largest un-hedged producers of gold with attributable annualised production of 3.5Moz from eight operating mines in Australia, Ghana, Peru and South Africa “’  reports that third-quarter profit fell 11% as strikes and a fire cut output at its South African mines, increasing the possibility that the country’s second-largest producer will reorganise.

“We’ve gone through a strike that’s cost us US$225 million in revenue, we’ve lost 145,000oz of production, it’s worsened our financial position, and some of those areas that we didn’t mine for a while we’re still trying to build back up, so it’s a big headwind,” CEO Nick Holland said in an interview with Bloomberg News here.

Output was hurt by a deadly blaze at the Ya Rona shaft that made the operation inaccessible for about 46 days. A wave of strikes that halted gold, platinum, coal, diamond and iron-ore mines in South Africa also curbed Gold Fields’ production. The company has been trying to boost output to take advantage of prices for the metal that have increased for 11 straight years.

About 29,000 employees joined two months of wildcat strikes at Gold Fields sites. That, combined with rising power and labour costs “is increasing the risk of a significant restructuring of our South African operations in the near to medium term,” the company said in a statement.

South African output fell 11% to 387,000oz in the quarter, with 30,000oz lost from the fire and 35,000oz during a strike at the KDC operation. Total production slid 5.9% to 811,000oz from the second quarter.

“Importantly, Gold Fields announced that it would have a strategic portfolio review,” David Davis, an SBG Securities Limited gold analyst in Johannesburg, said in a phone interview. “They want to maximise cash revenue.”

Gold Fields and other South Africa-based producers are reviewing their assets and “looking for quality in their portfolios, not quantity,” Davis added.

The Chamber of Mines, an industry group representing South African producers, anticipates that mining companies will be forced to cut their workforces as a result of high pay increases they awarded to end the strikes.

“The mining industry is going to restructure, there are going to be retrenchments because the levels of wages are high, not in absolute terms, but relative to productivity,” the chamber’s CEO Bheki Sibiya said in Cape Town.. He estimated the cuts would exceed 10,000 workers.

While job losses are a last resort, they are “still a risk,” Gold Fields CEO Holland said. “One of the key things we’re going to have to determine in 2013 is how we can improve the productivity, because if we can get the productivity up, we can do a lot to save jobs.”

Source: Bloomberg News. For more information, click here.