Gold Fields pays off Tarkwa loan (May 21, 2001)

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

The South African company used cash flow from operations, as well as proceeds from the closing of its last hedge position, to finance the final US$25-million payment on the loan.

Tarkwa has long been a strong generator of cash flow for Gold Fields, through its 71%-held subsidiary, Gold Fields Ghana.

Toronto-based Repadre Capital (RPD-T) holds an 18.9% stake in the operation, with the remainder held by the government of Ghana.

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 bank syndicate led by N.M. Rothschild. Gold Fields Ghana refinanced the project through Standard Bank of London the following year. Under the new terms, it had owed US$30 million, due by 2004.

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

The implications of the transaction are two-fold for Gold Fields: the company is now totally unhedged and is also debt-free.

However, early payment of the project loan, combined with a US$64-million dividend payment, cut into the company’s cash position at the close of the quarter ended March 31. The company had a cash position of R155 million (US$20.8 million) at March 31, down from R642 million (US$86 million) at the end of 2000.

Attributable gold production decreased slightly to 889,000 oz., down from 941,000 oz. in the quarter ended December 31, 2000. Cash costs averaged US$192 per oz. Gold production for the first nine months of fiscal 2001 topped 2.8 million oz.; for the year, 3.5 million oz. are projected.

Tarkwa contributed 115,000 oz. during the March quarter, up 10% from the previous three months. However, cash costs rose to US$148 from US$134 per oz., owing to a higher stripping ratio and a lower head grade. A feasibility study on the third phase of operations is scheduled for the end of the year.

Meanwhile, at the Driefontein operation in South Africa, production slipped slightly, to 331,000, at a cash cost of US$179 per oz. Gold output from the nearby Kloof operation declined to 285,000 oz., while cash costs grew to US$207 per oz.

In Finland, Gold Fields has earned a 30% vested interest in the Arctic Platinum project by spending US$5 million on exploration. This can be increased to 51% in return for spending US$13 million on exploration. A scoping study recommends proceeding toward a bankable feasibility study.