Fed hike could knock gold price down to $1 000/oz – Gold Fields

JOHANNESBURG (miningweekly.com) – A raising of US interest rates in December could knock gold back to a level of $1 000/oz, Gold Fields CEO Nick Holland said on Thursday, when the company saw its share price soar 29% to R39.98 a share, the most in a single day since September 1999.

This followed the company's South Deep mine raising its game in the three months to September 30, with net earnings and cash flow lifting in what was also a fatality-free quarter.

The Johannesburg- and New York-listed company’s only South African gold mine – South Deep, west of Johannesburg – used 26% less cash to deliver 42% more gold to a level of 54 900 oz (1 709 kg), driven by a 30% increase in tonnes milled and a 13% increase in underground yield.

The US Federal Reserve sent out new signals on Wednesday that officials would raise interest rates in December as long as job growth and inflation trends did not take a turn for the worse, and on Thursday the South African Reserve Bank lifted South Africa's interest rates by 25 basis points to 6.25%.

At a media roundtable attended by Creamer Media’s Mining Weekly Online on Gold Fields' results for the three months to September 30, Holland was answering journalists questions against the background of gold tumbling to a near six-year low of $1 064/oz this week. (Also watch attached Creamer Media video).

“We think that a Fed hike, assuming that it does now come in December, could knock gold back again . . . maybe it takes another knock to $1 000/oz.

“We’ve talked to a lot of people in the market. We’ve talked to research agencies in the US who do work for us. That seems to be the consensus, and it may stay there for a little while,” the head of the Johannesburg- and New York-listed gold mining company commented.

Federal Reserve uncertainty on an interest rate increase has been playing havoc with the gold price in recent weeks.

"This uncertainty is just hammering us," Gold Fields CFO Paul Schmidt commented.

But the long-term fundamentals for gold remain positive, based on projections of inadequate supply.

“It doesn’t matter what we do now as an industry, a supply fall-off is inevitable,” said Holland.

This was because expenditure on exploration had been cut year-after-year for 20 years and the coming together of the absence of new projects, declining grades and soaring costs was set to lower supply in a context of continued demand.

Gold recycling was falling as the gold price and demand from China, India and central banks was continuing but the exact longevity of gold’s downturn was uncertain.

“Is it three years of pain, four years, five years? Now that’s the million-dollar question. We don’t know. But we’re in a long-term business and we can’t take decisions for one year,” Holland told journalists after his company reported higher net earnings and higher net cash flow in the three months to September 30.

Net third-quarter earnings rose from $12-million last quarter to $18-million.

Operational cash flow of $75-million was two-and-a-half times higher than the $30-million in the corresponding period last year, which enabled Gold Fields to cut net debt by $50-million to $1 427-million and bring it to 1.41 times earnings before interest, taxes, depreciation and amortisation.

Higher production, weaker currencies and the lower oil price helped it to realise a free-cash-flow margin of 11% at a third-quarter gold price of $1 103/oz and saw its total all-in costs reduce to $961/oz on 557 000 oz produced from July 1 to September 30.