Gold Fields pays off Tarkwa loan (May 10, 2001)

Denver — Gold Fields (GOLD-Q) has paid off the project loan for the Tarkwa gold mine three years ahead of schedule.

The South African company used operational cash flow and proceeds from the closing of its last hedge position to come up with the final US$25 million.

Tarkwa is located in southwestern Ghana. It has long been a strong cash flow generator for Gold Fields, through the company’s 71%-held Gold Fields Ghana subsidiary.

Toronto’s Repadre Capital (RPD-T) holds an 18.9% stake in the operation. The Ghana government owns the remaining 10%.

Production began in May 1998 at a capital cost of US$162 million, which covered the first two phases of operation. Financing came from a US$75-million project loan from a banking syndicate led by N. M. Rothschild. In 1999, Gold Fields Ghana refinanced the project through Standard Bank of London. Under the new terms, the company owed US$30 million. This was due in 2004.

In February, Gold Fields Ghana bought back 160,000 oz. gold forward sales at an average price of US$256.10. The transaction generated US$4.5 million towards the loan payment. The hedging facility was required under the terms of the project loan. The remaining funds came from Gold Fields’ cash position.

Gold Fields is now totally unhedged and debt-free.

However, the early payment of the loan, combined with a US$64-million dividend payment, cut into the company’s cash position at the end of the March quarter. Gold Fields has a net cash position of R155 million (US$20.8 million) as of March 31, down from R642 million (US$86 million) at the end of 2000.

On the whole, Gold Fields posted a reasonable quarter, avoiding the slow startup that is common in South Africa after the Christmas and New Year season.

Attributable gold production decreased slightly to 889,000 oz., down from 941,000 oz. in the December quarter. Gold production for fiscal 2001 topped 2.8 million oz.

Tarkwa contributed 115,000 oz. during the March quarter, up 10% from the previous three months. Cash costs were up to US$148 per oz. from US$ 134, due to a higher stripping ratio and a lower head grade.

Production was off slightly to 331,000 oz. at the Driefontein operation in South Africa, with cash costs of US$179 per oz. Gold output from the Kloof operation declined to 285,000 oz., while cash costs grew to US$207 per oz.

The company expects to complete metallurgical upgrades to processing at Driefontein and Kloof during the next three months. The upgrades are already showing improvements in recoveries and costs.

Gold Fields has reduced overhead costs by integrating the Oryx operation as the fourth shaft of the Beatrix complex. The company has also decided to scale back mining at St. Helena. It intends to close the operation and salvage useable equipment.

Farther afield, Gold Fields remains bullish on the Arctic Platinum project in Finland. By spending US$5 million on exploration, the company has earned a 30% vested interest. Gold Fields can ultimately earn a 51% interest by spending US$13 million on the project.

A recently completed scoping study recommended procedure towards a bankable feasibility study. This should be finished by June 2002. The company has commenced a major drilling project aimed at producing a new resource estimate. This should be compiled by June.

Gold Fields posted a net profit of US$33 million (or 7 per share) in the first quarter of 2001. For the nine months ended March 31, the company reported net earnings of US$99 million (22 per share).