Gold Fields Ltd (GFI) 2004 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Gold Field Limited first quarter 2004 results conference call. At this time all participants have been placed on the listen only mode and the floor will be opened for your questions following the presentation. Please note statements in this conference call concerning the company's business outlook or future economic performance anticipated profitability, revenues, expenses or other financial items and the product line growth together with other statements that are not historical facts are forward-looking statements as that term is defined under Federal Securities Law.

Forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those,* set forth in such statements. Such risks, uncertainties and factors include but are not limited to foreign business risks, industry cyclicality, fluctuation in customer demand and order pattern, the seasonal nature of the business, changes in pricing and general economic conditions as well as other risks detailed in the company's filings with the Securities and Exchange Commission. It is now my pleasure to turn this over to your host Mr. Willie Jacobs, the Senior Vice President of Investor Relations. Sir you may begin.

Thank you very much, Enrique. Ladies and gentlemen thank you for joining us for this conference call. We have in the room Mr. Ian Cockerill our Chief Executive Officer, Nick Holland our Chief Financial Officer, Mike Prinsloo (ph) Executive Vice President for South African Operations and John Munro, Executive Vice President for International Operations. I'll hand you over to Ian Cockerill, Ian?

Willie, thank you very much indeed and good morning everybody. First of all I will make some opening remarks and my colleagues Nick Holland will take you through the financials, Mike Prinsloo will overview the South African operations and John will talk to the International operations prior to the final round up myself.

At the end of the last quarter, we made a statement that the September quarter would likely to be extremely difficult due to the increased cost outlook after the wage increases that were granted in July a sluggish production outlook and a stronger end.

Our prediction turned out to be spot on, but despite these problems, I believe that Gold Fields has put in a creditable performance, further underlining the inherent quality and the geographic diversity of our asset base.

Gold output is being maintained at 1.038 million ounces, costs while up 6.6% in local currency terms, on reflection not only the wage increase granted in July but also this is the first full quarter when the close forced a vertical shaft as being fully expensed rather than being partially capitalized. Regrettably a 4% strengthening of the RAN- dollar exchange rate meant that the dollar costs per ounce were up 10% quarter on quarter. Despite these issues operating profit was accreditable $77m strongly supported by our offshore operations both from Ghana as well as Australia. Interesting enough 62% of our operating profit now emanates from these international operations.

These operations also accounted for 30% of net earnings for the quarter and is the sale of Block 1C11 from Grecian Centre and where Gold was excluded, offshore net earnings were actually 64% of total net earnings, that's excluding both corporate and expiration expenses further underscoring the point I made earlier that whilst RAN strength has impacted the South African operations the obvious corollary is that the offshore operation is kicking nicely particularly in Ghana, which is dollar denominated area.

We've also announced in the last quarter reserving fees for 3 million ounces to give us a total group attributable level of 81.5m ounces and also we announced the acquisition of the 41% interest in our Arctic Platinum, who was previously owned by Auto Compute (ph), which means we are now the 100% owner of that 12m ounce project. Something that we are able to achieve at a price some what below $4 per ounce institute reserve.

Whilst early in this year we felt that the RAN would begin weakening before the end of calendar 2003, we are now the opinion that the RAN will remain at or around current levels until some time next year. However, the reversal of the RAN's current strengthening trend while likely once international interest rates turn upwards and the interest rate overcharge begins to disappear. Because of this we believe it is important for Gold Fields for the medium term, and that I mean the next two to three quarters, to reposition South African operations to accommodate the stronger RAN scenario. A process which we commenced towards the end of the September quarter. Interestingly enough, had we received the same RAN-dollar exchange for this quarter that we did in the June quarter and allied that to this quarter's stop dollar gold price, we would actually have received next to 116m RAN in revenues and I think that emphasizes the bottom line impact with the stronger end.

Throughout fiscal year 2003 and for the first part of this quarter, we've taken advantage of the weaker end and the consequences high RAN to kilogram prices received to increase the mining's low grade material, accept lower cut of grades, drive down unit costs. This is an entirely appropriate response, but now we feel it is necessary to redirect our local line strategy and to learn to live with a firmer end.

The inherent quality and flexibility of the Gold Fields asset base means that we can do this and we have already started to close down low grade production, move personal to better quality areas, quickly do reviews, and in many instances shut down or certainly curtail capital and merchant cost expenditure and has increased retention on our recovery with old gold and the opening up of the high grade (inaudible) opportunities.

This will lead to an improvement in gold output that is likely to take a couple of quarters to fully flow through and to realize from the top line. With that brief introduction let me hand you over to Nick to take you through the finances.

Thank you. With gold sales being similar to the previous quarter the increase in gold price from $349 in the June quarter to $360 in the September quarter has resulted in an increase in revenue from $383m to $397m. Operating cost increased 12% quarter-on-quarter from $280m to $315m. In RAN terms operating costs increased by 5.4% quarter-on-quarter. The international operations were flat in RAN terms quarter-on-quarter and local operations costs increased by 7.4% due to two main factors. Firstly, the annual wage increase for the lower graded workers kicked in as from 1 July. In RAN terms this amounted to some 13% of related mineral costs and the overall on impact on the Stafcon (ph) cost was 4%. As you heard earlier, Cliff Four Shaft (ph) was regarded as a full operating shaft as from 1 July and this accounted for a further 1.5% of the cost increase. The balance of the cost increase is mainly due to additional work on equipping for all Gold campaigns across the local operations.

The balance of the 12% increase in dollar terms directed to the strengthening of the RAN - dollar Exchange rate, which moved from 7 RAN 74 in the June quarter to 7 RAN 44 in the September quarter, a strengthening of 4%. The high costs resulted in operating profit declining from $99m in June to $76m in September. Operating margin was thus 19%# for the September quarter.

The Australian dollar once again strengthened during the quarter, but not to the same extent as previous quarters. In the September quarter, the Australian dollar moved from US66.2 cents to US68.1 cents, a move of almost US2cents, compared to a US0.07 cents gain in the previous quarter, up to US66.2 cents. As a consequence, the gain on foreign debts and on financial instruments reduced from US$42m to US$5m. This was also due to a significant reduction in offshore debt in the previous quarter due to prepayments made.

The financial instruments, our Australian dollar/US dollar currency financial instruments, which were established to protect the cash flows of the Australian operations against possible strengthening of the Australian Dollar against the US Dollar. At the quarter end US$300m was outstanding under these instruments, with a market-to-market* value of US$80m. An exceptional gain of US$27m was generated for the quarter, with US$25m of this gain arising from the sale of sale of certain (indiscernible) and mineral rights and associated assets to AngloGold. The considerations for these assets were* US$42m and this will be paid once Competition Commission approval for the transaction is obtained, this is imminent.

Profit before tax was at $66m compared to $124m the previous quarter. Taxation was significantly lower at US$5m compared to US$23m in the previous quarter, due to a lower operating profit and also a differed tax release of $7m relating to the sale of the mineral rights to AngloGold.

Net earnings for the quarter were about $56m compared to $98m for the previous quarter, and $52m in the corresponding quarter in the previous year. The group had a net cash outflow for the quarter of $170m, compared to a cash outflow in the previous quarter of $67m. The cash outflow during the current quarter is due to the lower operating profit, tax payment of $33m relating to prior periods and the final dividend for the 2003 year of $63m, which* was paid during the quarter.

In addition, US$23m was expended on the purchase of the remaining 49.0 percent interest in Arctic Platinum. Further, a private placement joint venture option was completed with Bolivar Gold Corporation on the Alquilo (ph) district in Venezuela. The investment in Bolivar amounted to US$12m for the purchase of 15.0 percent interest. Ian will explain how successful these types of exploration placements have been to Gold Fields.

We thus ended the quarter with a cash deficit of $39m. Our offshore debt reduced by a third to $12m during the quarter, and now stands at just US$29m, with $19m relating to the acquisition of the Australian operations and $10m still outstanding on the purchase of the mine.

We also have near cash in the form of liquid investments of approximately US$100m, which could be disposed of opportunistically. So the financial position of the company remains strong and will be further bolstered by the US$42m we are to receive from AngloGold during the course of this quarter. With that I'll hand you over to Mike.

Thanks Nick. As Ian mentioned we've had another challenging quarter in our South African operations. Driefontein and Kloof experienced high seismocity during the quarter and different times volumes were impacted by two fires that we had at the Two East Shaft and Five West Shaft. Both those fires are under control and then we'll be returning back to normal of production.

Both these mines however maintained gold production equal to the previous quarter. Grades at Beatrix were down at number Two Shaft and at Four Shaft, as well as surface grades, which was up but in a slightly lower gold output at Beatrix for the quarter.

The wage increase had impacted on cost at all operations and the strong RAN continued to put huge pressure on our margins and on our capital programs. As Ian mentioned, we have taken and are taking all the necessary measures to reposition operations to secure and reinstate the respectable margin that each of our operations.

Tonnage deliveries for the quarter were up by a 4.0 percent at slightly lower grades as mentioned. Cost in RAN millions was up 7.0 percent and RAN per ton 3.0 percent, with type of cash cost up in RAN per kilogram of 9.0 percent due to the wage increases and the lower kilograms at Beatrix. In US dollar terms, costs increased by 13.0 percent due mainly to the reasons mentioned and the strength of the RAN.

We are very proud, at last all our capital programs resulting in some of the medium and long term projects being slowed down. Some of them differed or moved up and some being put on ice. These will be reviewed on an ongoing basis depending on the position that the RAN takes over the next two to three quarters.

So in summary for the quarter we produced 710,600 ounces for the quarter, a cash cost of $307.00 per ounce, and total production cost of $335.00 an ounce. We spent US$40m on mechanical programs* compared to US$76m in the last quarter, which just shows the cut back and the re-privatization of a couple of programs with a strong RAN.

As I mentioned, the recession continues at all operations where we are repositioning crews from the marginal areas that are not making contributions, and that influence the profits and putting them into higher grade areas to strengthen our margins.

Turning to Driefontein. Driefontein produced 299,000 ounces for the quarter, a cash cost of $294.00 and ounce. All the marginal areas have been reviewed and areas without cut offs have been stopped and the crews moved to high grade panels. This applies equally to the development and development crews have been put into all gold winning programs. Resulting profit in operating profit for the quarter was US$18m.

The number Nine and Ten Shaft feasibility study and safety the level decline -- the feasibility study on depth extensions at Driefontein have been concluded and the results will be tabled to the Board in November's Board Meeting. Driefontein commissioned the number one plant sagged most during the quarter. We did experience some electrical and other technical problems towards the final commissioning of these modes, this resulted in us not being able to treat Wolwvo (ph) for the month and we've kept that on surface for stock pile. We will endeavor to treat all the stockpile* in the current quarter, if that might be all the gold being produced in the current quarter. And so we can expect the slightly lower gold production from Driefontein in the December quarter compared to September, with that coming out in the March quarter.

What is important to note is that Driefontein has commissioned a new sag mole at both the number Two Plant and the number One Plant at the last year, and we've also commissioned all the associated infrastructure that goes with these projects, whilst we've been maintaining production throughout at both plants and I think that's been a pretty good achievement. As Nick mentioned we did sell off Block 1C11 to AngloGold during the quarter.

Turning to Gurd (ph). Gurd produced 262,000 ounces for the quarter resulting in operating profit of 55m RAN or US$7m, at a cash cost of $320.00 an ounce. The grade problems we experienced at Kloof in the September quarter over the June quarter at number Three, Four and Seven Shafts, those have been addressed and those grades are now in a steady state and should remain at these levels going forward. As Ian mentioned, number Four Shaft has now been fully expensed and not capitalized any further.

The marginal project at number Nine Shaft which we've started four quarters ago, we took the decision at the end of the September quarter to moth ball this project and put it on ice, mainly due to the strength of the RAN. It's not making a contribution at 85,000 RAN a kilogram and with its* capital investment into this project acquires a price of about a 100,000 RAN a kilogram for it to make a contribution. So, that project has been put on ice.

The KEI debt extension project has been completed and these findings will be tabled to the board in March and the EVI feasibility study that also was put on ice,* as we don't see it being of any value at these current levels.

Gold production for Kloof for the December quarter will be similar to the September quarter. Turning to Beatrix, Beatrix produced 160,000 ounces at a cash cost of $328# US an ounce. The mine problems experienced, they were the grade problems at two and four Shaft as well as some volume problems at four. This resulted in an up-driving profit of $4m US per quarter.

Our focus remains* on grade and keeping the money-mix in balance and there is a lot of focus being applied to the number three shaft, which is now in its production build up phase and should assist Beatrix to the mine (inaudible) this time.

Then number two (ventilation *shaft at Beatrix that is due for completion in January and that could bring lot more flexibility in the two Shaft complex and not only from a money point of view but also from a grade point of view and should assist us stabilize the number two shaft*.

During the quarter we started fall treating*surface drop-down at the neighboring Jao (ph) mine and that in addition with quarter will gain interest [Indiscernible] spike and full treatment, that will make an added contribution to the Beatrix profile.

In conclusion, then, the creation of mines on the South African ops helps to continuously re-position ourselves in terms of RAN/kilogram cost we are receiving and do send an efficient manner * to reinstate respectable margins at almost all the South African ops.

Thank you. I'll now hand you over to John.

Thank you and good afternoon. The international operations group had very good performance in this quarter, again lifting gold production quarter-on-quarter. This quarter up to 328,000 ounces of gold attributable to Gold Fields. This is at a total cash cost of some $338 US an ounce, slightly up on the previous quarter.

As Ian indicated, this represents some one-third of Gold Field's attributable gold production and just short of two-thirds of operating profit. This particularly on the back of the Ghanaian operation's ability, to capitalize on the higher US dollar gold price available to us at the moment.

Looking at the individual operations and starting with our two Ghanaian mines and talk with first, this mine had a really excellent quarter, in fact achieving rare core production through the crushing and heapage plant with volumes just over 4 million tons for the quarter. This increase in volume is on the back of the ongoing optimization of that crushing and leaching circuit there, particularly on the back of our ability to continue using additional plant that we acquired from Tib Arabia in the deal some three years ago.

Gold production increased by 20,000 ounces from the June quarter, up to 148,000 ounces. This is in the back of the higher volumes treated in the plant, but along with our ability to continue pulling down gold from the gold impurities from the leach pads, listed on the back of the success of our solution upgrade which will be under way for the bulk of this calendar year. So, we are very pleased that it's starting to bear fruit continuing to allow- - to recover gold from the leach pad.

Total cash costs were flat quarter-on-quarter at $210 US an ounce and that's despite an increase in stripping ratio from about 1.7 in the previous quarter, to just over 2 in the September quarter.

In terms of outlook for [Indiscernible] we do look to maintain levels of gold production just short of 150,000 ounces a quarter for the foreseeable future and look to maintain the current level of total cash costs.

Moving across to the Timan goldmine, volume streaks a day decreased to just short of 1.2 million tons for the quarter. This is on the back purely of the shut down of the site milling circuit for a substantial reap, maintenance period, in particular the replacement of the (indiscernible). That flowed through into reduction in gold production to some 70,000 ounces for the September quarter against 78,000 in the June quarter.

Total cash costs were largely flat and this meant this mine remained a very good cash generator for our group, again able to make use of the higher US dollar gold price. In terms of outlook, we do look to lift gold production back towards the level we have achieved in the previous quarter with no further interruptions to production expected.

Moving across to Australia [Indiscernible] a very good story there. You'll be aware of the path to this mine, the history of this mine, some 18 month ago being at a loss making situation and having faced some quite substantial challenges over the last year with a number of problems with [Indiscernible] walls and in fact from some of the underground mines.

Very pleasingly in this quarter, we were able to lift gold production by some 20% to 45,000 ounces for the quarter and total cash cost are very pleasingly down to 370 Australian dollars an ounce, from $450 announced in the previous quarter. This result really reflects the reaching of full production on the King (ph) underground mine, which has been under commissioning over the last year, as well as a good performance in the crusader and delivery complex.

The King mine is performing much better than we had anticipated with better grades being achieved and the all-body impact being bigger and thicker than we had initially anticipated from expiration drilling.

In terms of outlook, we look to maintaining these levels of gold production, and this level of total cash costs for the coming quarters.

Finally, on to St. Ives, you'll note that volumes treated for this mine were down - - I'm sorry, were up quarter-on-quarter to just short of 1.7 million tons for the period. This does not translate into high-level* gold production due to a change in the mix treated as well as a substantial reduction in head grade.

Just focusing on the mix of treatments the bulk* increase in volume treated would in fact came from an increase in e-peach treatment on the back of an optimization of that plant. We also did some additional tolling in this quarter and bare* in mind that the heap leaching and the tolling comes with lower grade than the conventional treatment of all through our existing mole. The mole was in fact offline for one month during the quarter for a routine maintenance shut down.

The biggest driver for the reduction in gold production was the drop in head grades quarter-on-quarter and this is on the back of some difficulty in getting some of the high grade stuff open on the Junction underground mine, you'll recall this line has created difficulties for us in previous quarters. This was also exacerbated by a lack of high-grade* ores in particular from the Kamaria [ph] [Indiscernible] which hadn't been operating in the June quarter but is now being depleted and upgraded to 5 grams a ton is also a very substantial driver of the high grade seen in the June quarter. We also saw a drop off in high-grade* ores from the (indiscernible) open pit in the September quarter where we are starting to see those starting to return in this coming period.

Total cash* costs for St. Ives were up over 400 Australian dollars announced for this quarter. A not particular pleasing situation but one that we had anticipated and drawn your attention to in the previous quarter. This is on the back of particularly the commissioning of two new underground mines at St. Ives this year as well as the commissioning of one new open pit mine. This is in the back of a concerted strategy to reduce our reliance on the Junction underground, which* up to date has been our only source of higher-grade* underground ores. So, during this year, we will be commissioning the Argo and Leviathan underground mines and this higher total cash cost situation is likely to persist for the bulk of this year and that really represents these three mines being in bought out phase* and as a result not accepting full volumes or the long term growth that they will ultimately reach.

The high total cash cost position was expected and we have taken a very substantial tolling program, which* will continue for the balance of this financial year. While this will not affect the total cash cost, it in fact produces some great substantial cash flow for St. Ives, which are particularly important in this period of US dollar gold strength.

In terms of outlook, we do look to a modest increase in gold production from St. Ives in the coming quarter but we do not expect a substantial movement in total cash costs during this financial year. We do expect to see the balance of closing additional underground mines really starting to materialize in the 2005 financial year.

Finally, on to the major international expansion projects and starting with $150m expansion at [Indiscernible]. The first phase is the construction of the 4.2 million ton per annum milling facility, construction work on site has commenced with the excavation of foundations and most of the major equipment has been ordered. So, that project is well on track for the commissioning expected around November, December of next year. The other element of that expansion project is the conversion to earner mining. During the quarter we completed or finalized selection of the fleet and placed our orders for the [Indiscernible] beginning to excavate it.

Moving across to St. Ives, we have [Indiscernible] expansion project on the drawing board or be it in* feasibility. We completed the feasibility study during this quarter and expect to take an investment proposal to our board during the December quarter. \\\\\ You recall the feasibility study was focusing on the replacement of the existing many facilities at St Ives with a facility of a one and a half times the existing capacity.

Finally moving across to Damang inspiration project not as good and you were there, you recall we've been exploring for Tarkwa(Inaudible) at Damang we hadn't set any counts of gold's in the full 27 kilometers of stratling available at Damang but on almost 2/3of it we founds that the conglomerates were generally thin, the grade fairly modest and with a fairly steep depth or orientation which is going to make it unsuitable for open pit mining. We have got some other areas to continue to focus on at Timentor North, Timentor East, Lemoth and Bonzer and we expected these all are unlikely to present a stand alone development opportunity and more likely will be incremental feeds to the existing Damang mole.

Just going back to talk on St. Ives I think its particularly important to emphasize the significance of these projects against the background of a growing importance of the offshore portfolio to Gold Fields. And these two projects really are about securing the future of these two key assets. Thank you and back to Ian.

John thanks very much. Before we continue I think it appropriate just to say a few words about some of the other important areas of our business. Firstly, the current updates on the (Inaudible) transaction the (inaudible) transaction. As you're aware we were supposed to ---we gave a 120 day period exclusivity which expired in October that centered on a mutual agreement we would extend that, we have announced that we have extended this until February of next year. This is because the process has taken longer than anticipated, not because there are any problems with the transaction it is just complex and is requiring a lot of attention both from a legal perspective as well as a financial perspective. However, we certainly have no reason to believe that this transaction will not be closed and we certainly aim to be in a position to announce terms on the deal in the not too distant future.

Secondly, also the great side of the business you've heard from John and from Mike and certainly during the next quarter we will be going to the board to seek approval for the St. Ives mill expansion project. I'm certainly confident the board will give us a green light because this project has been presented to management by our project team and certainly the economics are quite compelling. Likewise the two South African projects, the drop down at Driefontein and the Kloof we also hope to have those in front of the board in the not too distant future.

Unto our expiration assets, these are reaping good rewards and the deliberate strategy of filing into junior companies, funding their projects in the system technically has been very successful. Those of you who** saw in t gold presentation will recall an initial investment to $25m is going into a total realize and unrealized portfolio of investments now* approaching through close to $18m in value. I believe that the quality of this portfolio is been very well managed by Craig Nelson and his team and gains from this strategy are already been flowed back into new ventures across several continents with all the running (indiscernible) of gold belts. Certainly the quality--- the nearer quality of the expression portfolio is improving all the time. At the end of November Craig he's going to be holding a one day exploration seminar for interested parties* down here in Johannesburg and certainly I think we will be looking to repeat the exercise in North America as well as some other stations* in the not too distant future.

Finally we're still very comfortable with the gold prices in the strong upward trend and despite the commissioning issues of Driefrontein number one plant in the October month it will raise* the impact as gold produced at that line. I believe that the repositioning of our South African to achieve improved output and the ability of our soundly performing offshore assets to take advantage of the better spot on gold price. Means that Goldfield's well though through plan to tackle the short term challenges which ultimately mean we're going to be very well positioned to benefit from the favorable gold environment. And with that I'll hand it over for any questions.

Thank you. The floor is now open for questions. If you do have a question you may press one followed by four on your touch-tone* phones. If you have a speakerphone* we do ask that you please pick up your handset to minimize any background noise. And for any point your question has been answered you may remove yourself from the queue by pressing the pound key.

Our first question is coming from Richard Palmboy of Plamboy Capital. Mr. Palmboy your line is live.

We'll move on to our next question, which* is coming from Victor Flores of HSBC.

Thank you. Good morning, I know we had a chat about this the other day but if Ian and Craig could perhaps just go through maybe the two or three key corporate development/expiration projects at the moment?

Victor--- Craig is on the line so I want you to talk to both of us. There are some cooperate development activities which are in the pipe line, but frankly I am not at liberty to talk about at the moment but if we look specifically on the expiration side I think the one expiration asset that's ---is certainly mature as far as we're concern is the Radius project in Guatemala. Regrettably, that's not big enough to become a Gold Fields operation and we are reaching an agreement with Radius that it will buy back our interest in that project in exchange for Radius shares, so we're going to get some good value after that with progressively nothing for us.

It has been a good progress made up in Community* Bay in Northern Canada. Before the drilling season closed off there were some very good hits that we had up there I think many of you may have seen those. In Africa we're making good progress and our Ghanaian operations with Viviannie and (indiscernible). The o-zone project, the African project is said to be showing very good possibilities of having a multiple ore deposits all within regional trucking distance of each other. It's still early days in both of these but initial indication looking quite glassy. Also in the world and I think its fair to say that most of our projects are still early stage but those who are most advanced* at the current time Victor.

Great. Thank you very much Ian.

Thank you our next question is coming from Graham Lang of Polit and Company.

Hi guys---Ian in your opening statement on your release here the quote I'd just like to read here "in addition pale limits* process of being reviewed since it is likely that the RAN will remain at current levels or stronger for longer than originally anticipated". Is there anyway you can expand on that with regards to central banks and what not.

With regards to central banks growth?

Well ---is there anyway you can extend on that statement in any ways? Where do you see the RAN going and why do you think it's* going to stick around here?

Okay. Look our strategy to date is willing to take advantage of what does the higher received RAN to kilogram price. Over last year or so we've had both prices in * RANs to kilo tons in excess of 100,000 RAN per kilogram. We took advantage of that by going into the low grade areas increasing in mining volumes accepting the fact that we will be mining low grade but getting a higher received price for the gold that was produced.

Now we also felt and I think I make approach in the March quarter but we felt that by the end of calendar 2003 the RAN was likely to start weakening. We believe that--- I think in fairness probably until* the early part of this quarter and then come sort of all this time---this RAN is clearly going to be stronger for longer than we've even anticipated. We were one of the more I would say optimistic people than this part of the world. We thought the RAN was going to be relatively strong. Many people thought it was going to weaken a lot quicker than we did. We're now of the opinion if the RAN is likely to start weakening. Once you start seeing a much closer closure of the interest rate arbitrage* between our interest rates and international interest rates, possibly even when international interest rate starts to turn around. On that basis we think that it is prudent to position these operations here in South Africa to take account of a firm RAN probably for the next 2 or 3 quarters. It may not be entirely off the east step but we stop seeing an appreciable weakening of the RAN. And I guess what I'm saying is the government of the central---the South African governments had signaled that they're in favor for the relatively firm RAN they have set clear guidelines to eliminate inflation in this country as they set guidelines of between 3 and 6%. We have currently hit* ----the September figures were out recently and inflation was at 6%, produced a price inflation in fact of September was down 1%, it was negative 1% year on year. So I think that certainly the high interest rate policy has certainly squeezed inflation out of the South African financial system. But the other impact has been the relatively strong RAN. And we do believe that we're likely to have to sit with this for some time into next year.

Okay thanks very much.

Thank you our next question is coming Dave Kusmanich (ph) of JP Morgan.

Hi Ian just a quick question you did mention that as the RAN remains strong you would consider closing down some lower grade operations, or even redeploying workers. Is there the fear there would be actual job losses? And also on that question are you able to implement continuous operations at any of your mines?

As to the first part of the question Dave, clearly we're looking at--- we have closed down some of the four mine shaft for instance has already closed down, that was a project that was started about four quarters ago. And we---because it was a fairly high-risk* project, we did recruit some outside contractors to take us through that.

Closure of that project has meant that we've had to let those contractors go and our own people we have redeployed, as many as we can, certainly we're in close contact with the union and saying look, times are tough here in South Africa we've got to look at ways of trying to reduce the possibility of retentions* (ph). We certainly don't want to put people on the street if it's at all possible and if one looked at the profit equation, which is profit equals revenue minus cost, our experience here in South Africa has always shown us it's a lot easier to drive profits by driving the revenue line rather than just tuning back on cost. That doesn't mean to say that we profited on cost just that the leverage on the revenue line is always greater than on the cost reduction line. And what we do is we drive out what I would call the unnecessary costs, we keep that cost that will help us improve the revenue line and that is certainly what we're going to be concentrating on.

Oh sorry and the other issue of the continuous operations, continuous operations have advantages in some operations, the fact is that if you have got a fairly *marginal operation by running the marginal operation for seven days a week doesn't really help you. You just actually have a larger marginal operation than we had before. The first step in trying to turn around an operation is to improve the margins under your existing regime. Once you've got that increased and stabilized then you can start thinking about the continuous operations.

We've done continuous operations at some of our mines in the past we've found that the premiums that we have to pay in some instances are not justified in continuing of that process and also the need for maintenance particular in our deeper shaft. If you run continuous operations occasionally you start letting essential shaft maintenances drag out and that I think is somewhat dangerous.

If your operation is shallow in mines, with a shorter life there is no doubt the continuous operations are an option. But we've got long life, deeper shaft we need to keep the integrity of our main arteries in place. However we currently works an eleven shift fortnight and we are certainly in discussions with the unions to see whether or not it is possible to try and pull back those extra 26 Saturdays a year, that we're not currently working and that would be conjunction with working around national holidays and such like. I don't know whether we're going to succeed in that, we're certainly going to try because that I think will certainly help us.

Thanks.

Thank you our next question is coming from Brendan (ph) Founders of Deutsche Securities.

Afternoon gentlemen just a question for Mike in South Africa maybe just expand a little bit what's going on at Beatrix. It's quite a big move;* saw the marginal decrease in grades is sort of 20%, especially from underground operations. And then just chat about specifically close RAN* underground costs up 10% quarter on quarter whereas the rest of the group, just to at least in parts the wage increase?

Yes, Brendan, going to starting with Beatrix. For the majority of Beatrix, this problem lies at four shaft where four shaft for the quarter might a loss of 27m RAN it was mainly on the back of grades. Four shaft doesn't have a lot of fixed ability, we're busy pushing the development programs to get into a more flexible arrangement on grades and we have two mines through low grades and high grades ventures.

If you look at the gold production that came at the previous few quarters from number four shaft, we had really we had very, you know, higher grades this last quarter, really impacted on four shaft. We've taken the necessary measures and we've---hoped to restore their position we've already seen that start to turn on itself and improve---we might not get it all back in this coming quarter but definitely over the next two quarters. Part of the actions that we will implement at four shafts is labor repositioning in terms of knocking off probably about 4m RAN in the cost structure or overhead structure of number four shaft. And make it an---it is part of an all-inclusive* unit of Beatrix, that some overheads that we can trim and then combine them at same time.

So that's the Beatrix four shaft problem. To us RAN per ton is really linked to volumes a lot of that volume increases on the back of us having turned down number nine shaft during the quarter. And also four shafts are vertical---four shaft is now being costed, let's does not get (indiscernible) any more.

Brendan, the four sub vertical accounts for 24m RAN under that cost increase and if you strip that out the cost increase quarter on quarter like for like is just over 5%, much more in line with the other operations.

If I could just follow with a question, further question I mean if you taken Lebanon or not and we haven't seen we've put in 0.1 of a gram recovery in underground grades, despite the fact that you've taken Lebanon or not can we expect any recovery in the underground grade at Kloof? I mean how much volume was there at Lebanon that's been taken out of the system?

Lebanon we - we only stopped in this week, so with a full volume that is fully in the September quarter you will see that drop. Lebanon's grades were averaging about 4.4 grams a ton so you should see the (indiscernible) come through in t he December quarter.

And what was the volume in tons for this quarter?

For nine shaft that top-we'll get back to you with that specific number Brendan.

Thank you.

Thank you our next question is coming from Leon Estegiven of Investec (ph) Securities.

Hi guys the questions the first one just on Velaponda (ph) I get the impression that we might expect Vela come back in several---how about renegotiating the price, with the margin having declined sort of in the order of almost 200%# quarter on quarter. They must be looking at this and thinking that they're paying probably a bit too much, Ian can you address that just for now please?

Leon its Nicholas Holland and I'll deal with that question it seems I'm the one over here that's working mainly on the transactions. There's actually no indication at all that Vela wants to try and renegotiate the price. You've got to remember they are long term equity players here, they're a long term believers in the gold price and the short term move that we see is not going to scare them off.

They're incredibly committed to completing their transaction and that's one of the positive aspects of this whole negotiation, is the willingness on both sides to complete this transaction. So there is not even a question of the price being renegotiated in fact what you also got to remember is, that the 30 day wage average price of goldfields when we negotiated this deal was 83 RAN a share and that it's now about 100 RAN a share.

So in fact we're doing quite nicely in relation to the overall deal, given the fact that they could flip up into Gold Field shares as we explained before, when we announced the transaction. So we're still confident that this deal can be closed as Ian said earlier it is taking longer than we thought and one has to remember the number of people we're negotiating funding with both offshore and onshore. Eight government agencies and they do take their time but at this stage we still feel we'll get this done.

Thanks just something on the grade and the resource base, you've given indication now that we will be seeing the grade improving in the next quarter and probably more instead of six months out but can you give us an indication on how much improvement we can expect in the grade? Just looking at the average grade profile for the--- especially with South Gun (ph) undergoing operation have continued to declined, in the long term as well as over the last 18 months.

That sort of looks like there's not a lot of scope for basing that yield up significantly so if you could just give us an indication of how much that's going to be lifted? And then as part of that question does this sort of margin squeeze off Gold Field seen in terms of grams per ton yield. Does it not sort of put a question mark over the quality of the result statement a couple of weeks ago that came out with the massive increase in reserves? And now you're cutting back left right and centre.

Well in terms of the driving increase we've had to stick down (indiscernible) to a position where vital margins are running between 2000 and 2100 same grams. That is there main position going forward. So Goldfields come off about 600 - 700 same gram and driven down about 400 same grams. Different kind of link to the hold up in carbon liters and so the mining- mix shift from VCR previously 2/3s, 1/3 now 1/3, 2/3s with the common meter at 5 East and 1 East is the majority of the production. At Perth one in three (indiscernible) one in' three soft high grade areas are finished and we've had that stake down a bit local about 600 same gram. So the values that you see now are pretty much the values going forth. All of our gold initiatives and repositioning of ourselves in terms of the (indiscernible) grant I think we would probably see it come at 5 gram and can adjust on the values.

With regard, Leon, to the comment about the quality of the resources I think what you have to do is to compare a 3 month performance against what is essentially a 50 yr mine life. And the representatively* of a short term performance against the average grade of your resource. These resources have been carefully evaluated and assessed by professionals. They have been looked at by outsiders, to be blunt, I have absolutely no concerns whatsoever of the devaluation of the resource base. I think we are looking at a short-term* phenomenon

All right* thanks.

Thank you our next question is coming from Conrad Scargolo of BJM.

Good afternoon, Ian just for you this question. It's quite satisfying to see the sale of the G Fontaine Block to AngloGold. *On that similar topic, is there currently negotiations going on with respect to South B phase 2? And can we also hopefully expect the forward-looking* initiatives from two management teams on that specific block?

Are you talking about South East Phase 2?

Correct.

Yes you know there are - from time to time there will are discussions between ourselves and the parties on the other side of the fence looking at that. I think both parties recognize that there could well be some merit in cooperation, whether those discussions ever materialize into some form of transaction I think it will be premature to say. I think both sides need to understand what is really there other than what they think is actually there. We have undertaken a 3D seismic survey over the boundary. So it will include both the phase 2 grounds as well as our ground, which* has given us a lot more detail as to the structure. And that would help with making the final assessment. But it's still too early to say whether it will come to anything.

Thank you.

Thank you your next question is coming from Sam Robins of Robins Planning Company.

Thank you I know that the time is short. I have four quick questions. First of all regarding sustainable development I love the idea of you going into the raising of the roses and food. But do you intend to invest in this as a long-term* business? Or do you intend for other people that you're simply helping other people, you're a venture capitalist helping other people create that business.

Sam the answer to that question is the latter point. We just put C Capital in. It was all their intention at some stage to sell down the investment that we put in there basically if you take our bait off the table and then foster this project at a sustainable level. Take our money away and then invest into the next project. So exactly you're right. In fact the money has come out of what we call internally, the Goldfield Venture Capital Unit.

Yes second of all, the platinum - the buyout of a platinum partner, why did they sell out? Why did - were you willing to buy 100% of it?

Sam this is John Munro, you could start back* and look at a complete primary statement of the last eighteen months if not longer. Some time ago they said they were going to be exiting mining projects. And they really did demonstrate that over the last eighteen months with the various deals that they've done. And really our ATP remained the last vestige of mining project that we're actually involved in. So it was no surprise to us, we knew it was on the table for sometime. And that has to do with a broader movement of the company to getting into the higher end of the metal business rather than the digging the hole in the ground.

I think the evidence of that is that -- one of the reasons that our involvement toward the opportunity to leverage their higher voltage smelter which is the copper nickel smelter located in Finland. I think we've indicated in previous corporate briefings that in fact this is some time ago, that if we're unable to reach terms on using that smelter for treating the artic [indiscernible] from concentrate. And as a result it is a strategic imperative for them to remain according to this affair. In that they could not use this smelter to - (indiscernible) could not leverage this smelter. So if both micro and macro strategy that driven them to ultimately exit the project. And I think if you look at the subsequent deal with (indiscernible) it all falls into place - that's the strategy that was really there. And that really allows us to exercise the right - to (indiscernible) and we were obviously pleased to move to 100% interests in the project.

I think your management, and I've watched you quarter after quarter and year after year and I think your management is absolutely brilliant. I'm thrilled that you're devoted to the longevity of the company. With all the projects you've got going all over the world, I wonder if you ought to consider, as I think you once were, raising additional funds in the United States to finance South Africa - corrects himself - South America and Asian projects.

Sam I mean obviously we're trying to do as much as we can internally. But I think it's also fair to say that if you look at our balance sheet and to some balance sheet it's very under geared in comparison to our competitors. And so I think there are lots of different ways that we could finance any project other than just raising equity.

Okay finally one other little detailed question, your annual report showed that you spent $23m on exploration which is only about 1.5% of revenues. But your highlights show 70m, which* is about 4.5% which is where it probably should be. And I'm wondering what the correct figure is if it's able to be calculated at all?

The difference their* Sam is that the $30m is Greenfield exploration and the $40m is Brownfields exploration. So it's $70m in total split between in and around of mine sites and other parts of the world where no crane is* going in there is in (indiscernible) last year. That's the way see it.

Alright then thank you. Good job.

Thank you Sam.

As a reminder if you do have a question you may press on followed by four on your touch tone phones at this time. Thank you our next question is coming from Monair (ph) Ishmael of Casenoff (ph).

Thank you gentlemen. Just quickly you touched on the balance sheet and the fact that it is under geared relative to other gold players. Do you want to give us an idea - I mean you've got all this firepower*. Isn't this an opportunity that you know you could take to maybe you know some would say improve your capitol structure?

I 'll let Nick answer that one.

We are not - if I understand your question Monairwe're not adverse to debt. And if a good project comes along and there is a roll that debt can play then we will certainly consider that as part of any funding package. And as you've seen on other acquisitions we used debt rate successfully. On the St. Ives and Agnew acquisition in Australia we funded a large component, funded about 75% of the transaction from the use of debt. And fortunately we've almost paid off that debt in under 2 years. So we're not averse to debt. But I think debt for the sake of debt -We're not going to - we wouldn't just gear up our existing operations, for example to generate cash flow to be paid out shareholders. So debt has its place and we'll look at it at the right time. Actually we're looking at other forms of finance. We consider other forms of finance all the time. Should we approach the equity market, should we approach the debt markets, should we fund it internally? So it's an issue we continue to look at it's a financial strategy that continually changes depending on your circumstances. At a much weaker end we generate the pile up cash in South Africa but as of the moment we don't. So that also influences our strategy. Hope that long winded answer - helps to answer your question.

Oh that was good. Just (indiscernible) on the Canadian operations can you assume that it's in the twilight of its life now? Or are you can push it, to try and extend the life?

No we're pushing very hard to extend its life and I think there we had 2 opportunities to do that. The most significant is additional sources of hydrothermal (indiscernible) which are the bread and butter of our operation currently. We're currently doing a project called Rex which - - and it's got the footprints* of a hydrothermal starter. And that's the first and most important opportunity. Then we've got an additional lower grade with [indiscernible] A conglomerate gold* and those provide quite incremental fees which in fact the ones that make the money in that mole. So we've got - we still continue to drill holes in the ground there looking for opportunity. And in fact we've got a project looking at remodeling the entire original Demange body with a view to re checking *for regional opportunity or (indiscernible) opportunity and in fact opportunity has been on the (indiscernible). So we know that's very important for you to understand.

Good to hear thanks.

Thank you there appears to be no further questions at this time. I would like to turn the floor back over to management for any closing remarks.

Thank you. Well gentlemen and ladies who are listening thank you all for checking in today. And we look forward to talking to you early next year. Thank you very much in deed. Bye-bye

Thank you. And thank you callers. This does conclude today's conference. You may disconnect your line at this time and have a wonderful day.