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Gold Fields Expects Lower Production at South Deep Mine

- By Alberto Abaterusso

Nicholas J. Holland, CEO of Gold Fields Ltd. (GFI), revealed the company's first-quarter 2017 production at its South Deep mine in South Africa could be lower than expected due to safety stoppages.

While Holland was not able to disclose how significant the impact on production will be, he did say the company will release an update in April.

At the South Deep mine, which is located in the Gauteng province of South Africa, Gold Fields produces gold through underground activities. The mineral deposit has been determined to hold 37.3 million ounces of gold reserves.

The news is disappointing as the mine finally reported a rise in cash flow in 2016, bringing the net cash flow to $294 million, an increase from $123 million in 2015. The South African miner significantly drove this increase with net cash inflow of $12 million generated last year versus an outflow of $80 million in 2015.

South Deep is one of the company's eight mines in three continents. The other seven producing mines are Cerro Corona in Peru, Agnew/Lawlers, Darlot, Granny Smith and St. Ives in Australia and Tarkwa and Damang in West Africa.

South Deep produced 290,000 ounces of gold in 2016, a 47% increase on a year-over-year basis. In 2015, Gold Fields produced 198,000 ounces of gold at the mine.

The South African mine contributed 13.5% to Gold Fields' total production in 2016. According to the company, once the mine starts running at full capacity, it "will be a key contributor to Group production and cash flow."

Lower production at South Deep in the first quarter of 2017 can have a meaningful impact on the total production, with negative consequences for both cash flow and earnings.

As of today, only one forecast for Gold Fields' earnings has been released for the first and second quarters of 2017.

Source: MarketWatch.com

For the full year, 12 analysts forecast average EPS of 20 cents. The average ranges between a low estimate of zero cents and a high estimate of 52 cents.

The average target price per share is $3.76, a 20.5% upside from yesterday's closing price of $3.12 per share.

While the gold stock has been dowtrending since the beginning of February, it has gained 3.65% year to date. Gold Fields is trading with a price-sales ratio of 3.13 and a price-book ratio of 0.7.

The enterprise value is $3.73 billion and the EV/Ebitda ratio is 3.34 times.

Disclosure: I have no positions in Gold Fields Ltd.

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This article first appeared on GuruFocus.