Why does Gold Fields use NCE to measure its cost performance?
Notional cash expenditure (NCE) is a proprietary ‘all in’ performance measure developed by Gold Fields. It is
aimed at introducing greater transparency around the all-in costs of producing an ounce of gold. This is
particularly important for both producers and investors in a context of ever-escalating input costs. NCE includes:
- All operating costs
- All capital expenditure (e.g. growth and sustaining capital expenditure)
- All near-mine exploration expenditure
Gold Fields believes this provides a more accurate measure than the commonly used ‘cash costs’. In part, this is
due to NCE’s explicit inclusion of ‘growth capital’. In doing so, NCE recognises the bulk of capital invested in new
production is largely aimed at replenishing the industry’s declining output – rather than delivering growth per se.
This helps explain why primary gold supply has remained stagnant over the last 10 years, despite higher gold
prices providing a significant driver for growth.
By using the ‘cash costs’ measure, many within the industry are claiming high operating profit margins that are
not, in reality, supported by underlying cash flow. This may have had an impact on the number of external
stakeholders currently demanding a greater share of (apparently) higher operating profit margins in a number of