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No Photos 30th May 2015
Gold Fields' Stock Sell-Off Is Overdone - Gold Fields Limited (NYSE:GFI)

SummaryGold production volumes fell in the quarter due to planned mine sequencing.Gold Fields is on the hunt for workers with mechanized mining skills for South Deep.Gold has climbed as the market now expects the U.S. Fed to put off raising interest rates until later.The selloff in Gold Fields stock is overdone despite lower earnings.Gold Fields (NYSE:GFI) is a South African gold producer with eight mining operations in Australia, Ghana, Peru and South Africa. Gold Fields' shares plunged following a weak first quarter earnings report. Falling gold prices coupled with low gold sales negatively impacted revenue growth in the period. Low gold production was mainly due to mine sequencing and lower grade processed material as anticipated in the mine plan. We think the selloff in Gold Fields is overdone and makes a great buying opportunity in the current gold rally.Gold Fields: 1-year stock chart. If you are looking for the best deals on gold visit Merrion Gold website. You'll find out more about their big offer of gold bars Among their gold coins you will find South African Krugerrand, American Gold Eagle or Canadian Maple Gold. Don't wait. Invest in gold now:merriongold.ieMerrion GoldHospitality House16-20 South Cumberland StreetOff Merrion SquareDublin 2, IrelandPh: 01-2547901Source: Yahoo! FinanceEarnings reviewGold Fields' stock price fell sharply after the company reported a normalized earnings loss of $13 million or $(0.02) per share, down from normalized earnings of $21 million or 3 cents per share in the same period last year. This earnings loss relates to the negative deferred tax charge of $21 million to account for exchange rate changes, including the devaluation of the Peruvian Sol relative to the U.S. dollar.Gold equivalent production was 501,300 ounces, down 10% due to the recovery of lower gold grades, but came within 1% of the company's production plan. Gold Fields' executive team expected low gold grades and low production volumes for the quarter because of planned mine sequencing. St. Ives, Agnew/Lawlers and Granny Smith were the only two gold mines in the company's portfolio that registered production growth.Gold minesGold productionYoY % changeAustraliaSt. Ives98,7002%Agnew/Lawlers59,6000.7%Darlot11,200(51%)Granny Smith72,0008%PeruCerro Corona66,600(17%)GhanaTarkwa135,800(6%)Damang39,000(9%)South AfricaSouth Deep36,300(39%)*Note: Negative values are denoted in parentheses.The extended Christmas break and the knock-on effects of the four-month safety stoppage affected gold production at South Deep. Gold Fields expects South Deep's production to pick up and meet full year guidance estimates of 228,000 gold ounces, up 15% from 2014.South Deep has the potential to produce over 700,000 gold ounces and $850 million or more in revenue per annum (using current gold prices) over a 70-year mine period. Gold Fields has turned its focus to hiring workers with mechanized mining skills to take South Deep to full productivity. The shortage of mechanized skilled workers in South Africa has made it difficult.Gold Fields signed a three-year wage deal with trade unions at South Deep that will result in average annual wage increase of 10% over the next 36 months. The wage deal will not only promote a stable working environment at South Deep, but also make South Deep competitive and appealing for a highly skilled mining workforce.South Deep still has a lot of work to do to reach production at full design capacity. It operates at a loss at current gold prices because of its high cost profile, but the company expects to break even at the end of 2016."I think it is probably going to take the rest of the year to get the right team in place for us to be able to have the right skills vertically across the mine for us to sustainably get this mine working in the right direction," Gold Fields CEO Nick Holland said on the earnings call.Gold sales for the first quarter were 509,000 ounces and priced at an average gold price of $1,198/oz for total revenues of $610 million. Revenue declined 15% on lower gold equivalent sales and bullion prices. Gold prices started the year strong, peaking briefly over $1,300/oz. before falling back to last year's lows following speculation about the U.S. Fed raising interest rates. A rise in interest rates would make the U.S. dollar more attractive and reduce the appeal of gold.Gold is a non-interest paying investment vehicle, so hiking rates lessens gold's appeal when compared to yield-bearing assets such as U.S bonds and equities. The economic data flow as of late has been quite poor and gives off an impression that the U.S. Fed could likely put off raising interest rates until later in the second of this year. The U.S. dollar has somewhat eased on weak data and spurred safe haven buying in gold.The drop in gold prices in the March quarter outweighed the drop in operating costs. In turn, operating profits and cash flow tightened. Operating cash flow slipped 24% to $150 million, pushing free cash flow into negative territory after accounting for capital expenditures.The increase in capital spending reflected the purchase and replacement of 18 new trucks that cost about $46 million at the Tarkwa gold mine. Gold Fields expects free cash flow to improve in the second half of the year, considering capital spending will mostly take place during the first two quarters.Gold prices extended their gains to a three-month high, as the U.S. dollar has contracted on expectations that the first rate hike since 2006 will come later rather than sooner. We believe gold prices could carry this momentum into the next few weeks and reach $1,250/oz. if U.S. data continues to miss expectations. This bodes well for gold stocks in general.The selloff in Gold Fields' shares is overdone despite soft earnings. The executive team had already expected lower grade gold production results due to mine sequencing, which negatively influenced financials. The market has overreacted and the selloff makes a great buying opportunity to catch the upside of the current gold rally.Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.' - -

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