Gold Fields Limited (ADR) (GFI), AngloGold Ashanti Limited (ADR) (AU): Who’s Affected By This Unrest?

Gold Fields Limited (ADR) (NYSE:GFI) tries to improve its cost profile
Just like AngloGold Ashanti Limited (ADR) (NYSE:AU), Gold Fields Limited (ADR) (NYSE:GFI) had to omit its interim dividend. The company reported that its all-in sustaining costs rose 8.6% to $1,416 per ounce. This means that Gold Fields Limited (ADR) (NYSE:GFI) would not be profitable if gold prices stay where they are right now.

In an attempt to improve its cost profile, Gold Fields Limited (ADR) (NYSE:GFI) announced a $300 million deal to purchase three Australian mines from Barrick Gold. These mines operated at all-in sustaining costs of $1,145 per ounce in the first half of this year. The thing that might concern investors about the purchase is the fact that Gold Fields decided to spend this money instead of saving it.

Gold Fields’ South Deep project in South Africa was supposed to break even this year. However, the company has stated that it is still cash negative. A possible strike would only deepen the existing problems.

Bottom line
In addition to falling gold prices, which is a universal problem for all gold miners, these South African miners carry additional risks. All three miners were unable to operate profitably in the second quarter of this year, mostly because they had relatively high costs of production; this is why they would vigorously oppose wage increases proposed by unions.

On the other side, unions are not likely to be cooperative. The strike could last for a long time, and outbreaks of violence and physical damage to mines are also possible, as it has happened before.

In the current market, investors can find gold miners that have lower costs and operate in safer countries. I expect more downside for these three stocks.

The article South African Labor Unrest Brings More Downside to Gold Miners originally appeared on Fool.com is written by Vladimir Zernov.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.