...Gold Fields swings to profit
JOHANNESBURG (Reuters) - South Africa's Gold Fields Ltd., fighting a hostile takeover bid from Harmony Gold, swung back into profit in the second quarter helped by stronger output and lower costs.

The star of the quarter was the Tarkwa mine in Ghana, where production shot up 34 percent, boosted by a new mill and as Gold Fields took control of the operations after having contractors run them previously.

Second-quarter profits were dampened by an exceptional loss of 109 million rand, due to heavy spending in defending itself against Harmony's $5.2 billion bid.

Gold production, which rose four percent quarter on quarter, is seen climbing again in the third quarter, but if the rand stays at current buoyant levels, profits could be hurt, the company said.

Gold Fields, the world's fourth-biggest gold producer, said it had spent 83 million rand battling the bid by sixth-ranking Harmony, which is seeking to create the sector's global leader.

It also paid 65 million rand for a failed merger with Canada's Iamgold, opposed by Harmony, but those two items were partly offset by income of 39 million rand from sales of investments.

Gold Fields posted adjusted earnings per share of 20 cents for the three months to end-December following a surprise loss of one cent in the previous quarter.

The result was exactly in line with expectations of 20 cents for EPS, excluding debt and effects of financial instruments, according to an average of six forecasts by analysts polled by Reuters. The forecasts ranged from five cents to 33 cents.

OPERATING PROFITS SOAR

While the bottom line was dampened by the exceptional loss, operating profits soared 40 percent to 637 million rand as gold output increased by four percent to 1.048 million ounces.

The star of the quarter was the Tarkwa mine in Ghana, where production shot up 34 percent, boosted by a new mill and as Gold Fields took control of the operations after having contractors run them previously.

"We anticipate further improvements in the March quarter," Chief Executive Ian Cockerill told a conference call.

Cost cutting has become a major wrangling point between the two companies, so Gold Fields trumpeted a fall of 2.4 percent in its total cash costs to 64,921 rand per kilo.

The company said its cost-reduction programme resulted in savings of 100 million rand in February-December 2004 and an additional 70 million rand was expected in the first six months of calendar 2005, some 40 percent higher than targeted.

Harmony, due to post its results on Thursday, has pledged to cut cash working costs to 77,500 rand/kg in the second quarter.

Gold Fields said a strong rand was forcing it to trim operations at its Beatrix mine, which would result in around 250 kg less production in the third quarter than in the second.

"We are starting to shut down some of the marginal areas at Beatrix and we will in this March quarter be stopping surface treatment of material," Cockerill said.

Gold Fields shares, which have sunk 30 percent since the Harmony bid was launched in October, closed on Friday up 0.44 percent in Johannesburg at 66.31 rand.