Climate change — Extreme weather events cast cloud over Gold Fields’ H1 production, earnings 

With record-high prices, it should be sunny days for gold producers – unless the weather takes an unexpected turn for the worse. 

That has been the case for Gold Fields, which saw its production fall 20% in the six months to the end of June to 918,000 ounces – a steep decline that prevented the company from taking full advantage of the red-hot gold price, which surged to record highs of more than $2,400 an ounce during the period. (The price has since scaled new peaks to top $2,500 an ounce).  

“We had a one in a 100-year rain event in western Australia and at Salares Norte we had the coldest winter in 70 years in Chile,” CEO Mike Fraser told Daily Maverick. 

The big chill in Chile stalled the planned ramp-up at Salares Norte after material in the piping of the process plant literally froze, forcing it to shut down temporarily. 

On different sides of the Pacific Ocean, that was a pair of extreme weather events – one in a century and one in seven decades – in the space of just a few months. And in Peru, production at the company’s Cerro Corona was also hampered by heavy rains, which forced it to mine lower grade areas. 

As a mining company, many of Gold Fields’ costs are fixed, and the lower production in the face of these events – as well lower output stemming from operational problems at its South Deep mine in South Africa – saw its costs soar. 

“The lower volumes significantly impacted unit costs with all-in costs (AIC) increasing by 47% Y-ear-on-year to $2,060 an ounce and all-in sustaining cost (AISC) increasing by 44% to $1,745 an ounce,” the company said.

The upshot was that Gold Fields’ normalised earnings fell 22% compared to the same period in 2023 to $335-million. 

The gold price was still a godsend and the company’s earnings would have looked far shabbier at lower prices. But if production had not tanked 20%, its costs would have been much lower and the price would have mostly flowed to its bottom lime. 

It must be said that the company had flagged these weather issues in operational updates, but its share price still fell as much as 5% at one point on Friday, signalling that the toll extracted was harsher than the market anticipated. 

Gold Fields does expect significantly higher production in the second half of the year of between 1.11 million and 1.21 million ounces and as a result a steep fall in unit costs. 

With the gold price still in record territory, that should help to boost the company’s bottom line.

And the company is paying close attention to the weather as climate change is clearly a material risk. 

“Modelling performance now cannot just be on averages of one in 100 years but acknowledging that sometimes we are going to get more than one such event … consecutively. So the volatility in the environment is something that we have to build into our normal plans rather than just thinking about it as a risk to mitigate against,” Fraser told Daily Maverick. DM