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Why South Deep Mine Could Be Key to Gold Fields’ Future

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Dec. 26 2017, Updated 4:00 p.m. ET

Returns for GFI

Gold Fields (GFI) has returned 37.5% YTD (year-to-date) as of December 18, 2017. It has easily outperformed its South African mining peers (GDXJ). AngloGold Ashanti (AU), Harmony Gold (HMY), and Sibanye Gold (SBGL) have returned -10.4%, -16.3%, and 5.5%, respectively.

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Operating performance

Overall, South African miners have been plagued by the law and political issues in 2017. However, Gold Fields has performed well operationally. In its latest quarterly results, it generated positive cash flow of $152 million. Its overall production was a beat despite a miss at South Deep, its South African mine.

Gold Fields has reaffirmed its production guidance for 2017 despite the issues that are impacting its South Deep mine in South Africa. In the first quarter of 2017, the mine was impacted by two fatalities. While the mine produced 10% more gold quarter-over-quarter in 2Q17, the company said it still hasn’t completely recovered from the issues. Gold Fields expects other mines to offset the impact of lower production at South Deep, and thus it maintained its yearly output target of 2.1 million to 2.15 million ounces.

South Deep: The key issue

The major factor impacting Gold Fields’ future outlook could be the turnaround at its South Deep mine, which has been disappointing analysts and investors for the last five years. Most analysts are now divided on GFI’s future mainly because of South Deep’s fate. Some of them suggest selling it off or splitting it. The company has maintained that South Deep remains a core asset and can be turned around to perform profitably.

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