Gold and platinum producers are on a roll. Sibanye-Stillwater, which produces both metals and reports its interim results next week, has signalled to the market that it expects its earnings to soar 3,780% (this is NOT a typo) to almost R10-billion.

Impala Platinum, which was in the red for years, expects its full-year profits to rise by more than 400%. And so on and on. 

The company that Sibanye was spun out of, Gold Fields, reported its interim results on Thursday 20 August. It showed a more than doubling of its first-half earnings to $323-million and the group declared an interim dividend of R1.60 per share — the same amount it paid out for all of 2019. 

This is largely because of prices. Gold’s spot price has been on a tear as the global economic meltdown triggered by the pandemic boosts its appeal as a safe haven — though it must be said that wider equity markets have also recovered dramatically, which may slow the flight to bullion. 

Still, gold in recent weeks has scaled record highs above $2,000 an ounce and that will be reflected in second-half and full-year results for the likes of Gold Fields and Sibanye. 

The party is far from over and there is lots that could keep the price on the bubble in these uncertain and turbulent times. But price is not the whole story. 

Gold Fields has had a relentless eye on cost containment and productivity improvements, with a focus on mechanisation, since it unbundled its labour-intensive South African operations into Sibanye. 

The company says it can still make money at considerably lower prices.

“While we have seen new records for the gold price in recent weeks, we continue to run and plan our business at lower gold prices.

“For our next reserve declaration at year-end we expect to use a gold price assumption of US$1,300/oz, up from US$1,200/oz used in recent years. In addition, we maintain a strong focus on cost containment and aim to continue to deliver the higher gold price to the bottom line,” the company said. 

Virtually all Gold Fields’ profits come from outside South Africa, where it has only one operational asset left, its “problem child”, the mechanised South Deep mine west of Johannesburg. 

South Deep, which was shut for an entire month during the initial hard lockdown, contributed very marginally to the period under review, generating just $5-million in free cash flow. The mine has had a painful history with difficult geology that has stymied past efforts to lift output in a profitable way. 

But at current prices, CEO Nick Holland told a media conference call that the mine was expected to start contributing considerably more to the group’s earnings. Similar forecasts have been voiced before, but they were made before gold hit $2,000 an ounce or about R1.1-million a kilogram.

Holland won’t be around, though, to make good on this latest pledge as he will step down in September of 2021, in line with the company’s policy of compulsory retirement at age 63.

Holland has a number of projects he wants to see through before calling it a day. He said during the media call that Gold Fields was expecting to finally get approval for a solar power project it has been trying to get off the ground to reduce its dependence on unreliable Eskom. 

“I would like to state that Nick Holland, after 24 years as executive director and 13 years as CEO, will retire from his position in September 2021,” chair Cheryl Carolus said at the company’s AGM. 

“A global search for a suitable replacement will commence soon.” Holland, an accountant by training and a former CFO, has long been an articulate voice in the industry who oversaw the Sibanye unbundling and the drive to mechanisation with an eye on profitable ounces. 

The Gold Fields that exists today, with operations spanning the globe, is largely a result of his vision. Known for his flamboyant dress sense, Holland combines a no-nonsense demeanour and focus on the bottom line with an earthy charm and has played a major role on the South African and global mining stages. 

Still, Holland has a number of projects he wants to see through before calling it a day. He said during the media call that Gold Fields was expecting to finally get approval for a solar power project it has been trying to get off the ground to reduce its dependence on unreliable Eskom. 

“We have a 40-megawatt solar project that we have been trying to get approved for three years. And I’m hopeful that we’re getting closer now. I’m hopeful that we will get approval in the next month or two… Our application is now well advanced, it’s in a defined process where we need to get an answer in a certain period of time. So we are more optimistic,” Holland said. 

With load shedding back in full swing and throttling the tepid recovery South Africa’s economy is experiencing after what is widely seen as a monumental contraction in the second quarter of 2020, it would be astonishing if such an approval was not made. 

But never underestimate the capacity of this government to disappoint. Meanwhile, whether Gold Fields’ gets its solar project or not, the sun is shining on gold producers. The job that Holland is retiring from will be coveted by more than a few executives. DM/BM