UPDATE 3-Gold Fields retains 2011 target after profit leap

Thu Aug 11, 2011 10:26am EDT

Related Topics

* Q2 adjusted EPS 184 cents vs 189 cents in Reuters poll

* Adjusted EPS up 15 percent from 160 cents previous quarter

* Sticks to full-year target of 3.5-3.7 mln ounces

* Shares up over three percent (Updates with CEO comments, details on safety, stoppages, outlook)

By Ed Stoddard

JOHANNESBURG, Aug 11 (Reuters) - Gold Fields , the world's fourth-largest gold producer, reported a 15 percent rise in quarterly profit that was just shy of expectations as investors expected blockbuster growth from the surge in bullion.

Shares of Gold Fields rose more than 4 percent, however, as part of an industry-wide advance after bullion climbed to a record $1,813.79 an ounce.

The company stuck to its full-year production target of 3.5 to 3.7 million ounces, one that analysts said would be tough to meet, given safety-related stoppages.

"They should just be able to make that target. There are fewer holidays in South Africa over the last half of the year," said David Davis, analyst with SBG Securities in Johannesburg.

Safety remains a concern. The company said 13 workers were killed in the first six months of the year, up from 11 in the same period in 2010.

"I can't put my finger on it to be honest. We've been doing a lot of the same things that have proven successful for us over the last two years and yet for some reason we've just had a very bad round and I know that it's not sustainable for the operations," chief executive Nick Holland told Reuters in an interview after the results were released.

He said safety stoppages linked to these fatalities had cost the group about 1,200 kg or roughly 42,000 ounces in lost ouput in the first six months of 2011.

South Africa's mines are the deepest and among the most dangerous in the world, and authorities typically shut operations for a few days after a fatality.

STRONG RESULTS EXPECTED

Analysts had expected strong results from Gold Fields, as the average gold price was up about 9 percent to $1,509 an ounce during the quarter, and the miner had said output would rise in the April-June period.

Adjusted earnings per share totalled 184 cents in April-June, versus a Reuters estimate of 189 cents, and up 15 percent from the 160 cents it posted in the previous quarter.

SBG's Davis said earnings should also be lifted in the third quarter, given the current performance of the gold price.

The precious metal has risen 20 percent since the end of June, as investors seek a safe haven from stock market volatility and European and U.S. debt woes.

Holland, who unlike some of his peers is usually reluctant to give a target for the gold price, said he did see potential for upside for spot prices even from their current lofty levels.

"The ingredients we see today could provide the potential for more upside than downside," he told Reuters. He said these ingredients included rising physical demand out of India and China and debt downgrades in major markets.

Costs are a concern for the miner. Gold Fields said its total cash cost for the year would likely be $790 per ounce (178,000 rand per kilogram), sharply higher than the $760 per ounce that it estimated in February.

Gold Fields said it was hit by higher power costs in South Africa and West Africa, as well as higher-than-expected wage costs and increased royalties at all of its operations.

As expected, its output in April-June was up five percent to around 872,000 ounces.

Looking ahead, the company said some of its global projects were progressing well as part of its plan to reach a production target of close to 5 million ounces by 2015.

It also said it was on course to complete a feasibility study for its potentially lucrative Chucapaca project in Peru by mid-2012.

Holland told Reuters Insider TV that the group planned to continue spending on exploration.

"We're now spending more than $160 million a year on exploration. As a consequence we have a wonderful pipeline of projects ... and we will continue spending that sort of money or even more," he said. (Reporting by Ed Stoddard; Editing by David Dolan and David Hulmes)

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