Gold Fields Ltd (GFI) 2004 Q2 法說會逐字稿

Good morning and welcome to the Gold Fields Limited second quarter 2004 conference call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for questions following the presentation.

Statements in this conference call concerning the company's business outlook or future economic performance, anticipated profitability, revenues, expenses, or other financial items and product line growth, together with other statements that are not historical facts are forward-looking statements as that term is defined under Federal Securities laws.

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, fluctuations 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 filing with the Securities and Exchange Commission.

At this time I would like to turn the floor over to your host, Mr. Willie Jacobs, Senior Vice President of IR. Sir, you may begin.

Thank you very much, Sidney. Ladies and gentlemen, welcome to the teleconference call for the Gold Field results for the period ending December 2003. We have on the telephone conference call, Ian Cockerill, our Chief Executive Officer; Nick Holland, our Chief Financial Officer; Mike Prinsloo, Executive Vice President for the South African operations; and John Munro, Executive Vice President of our International operations. They will speak in the order that I mentioned their names. After everybody has spoken, we will take questions and Stephanie will give us the guidelines on how to do that. I'll now hand the call over to Ian Cockerill.

Thank you very much, Willie, and good afternoon, everyone. As you heard, Willy has introduced everyone and the sequence in which we will be talking, which is as per our standard format.

Firstly, let me remind you what I said in our previous quarterly review. We've had an extremely difficult first quarter. We said that we needed to move away from the Wal-Mart strategy of high volume and lower grades, thus taking advantage of prior received land to program prices to one of a more selective strategy, and mine grades and mining mix, what would refer to as the Sachs Fifth Avenue approach to mining. This was in direct response to our operating environment that was remaining stronger for longer than many people had anticipated and was an absolutely essential need for to us protect our margins.

I'm pleased to say that the latter strategy is well in hand and is already showing signs of delivering better operational performance, particularly from our South African operations; however, the South African tankers do take a time to turn around but it is encouraging to see positive grade emerging from our mines along with Gold outlook. I'm sure Mike Prinsloo will give us a little bit of an oversight on that in his section of the presentation.

Overall, all operations reported improved performance with the exception of Driefontein where a significant fire constrained output, unfortunately from our high grade shafts. Severely limiting gold production for this quarter from Driefontein. However, particularly pleasing was the performances out of Agnew, [inaudible] and Australia, as well as the Damang mine in Ghana which reported a record output in terms of both production, throughput and ounces.

As an overview, it is pleasing to announce that for this quarter we achieved the full end key results. Headline earnings per share are up 64% in dollar terms. $36 million or 7 U.S. cents per share. Operating profit was up 4%, to $80 million. Gold production increased marginally to just over 1.4 million ounces, as I said despite the problems that we had at the Driefontein mine. Total cash costs were up to $308 per ounce but were down in rand terms which reflects a further 9% strengthening of the rand against the U.S. dollar which occurred throughout the quarter.

Two further international acquisitions were made. Firstly, an option to purchase the Cerro Corona project in northern Peru and we took a strategic stake in the Fujian Beijing mining company which has a very important gold mining asset in eastern China. This, along with an exploration joint venture with that company in and around their mines. And this further enforces our internationalization policy which has a specific emphasis towards more vulnerablized [sic] economies or more exposure to more vulnerablized [sic] economies.

Agreement was also reached for the Mvelaphanda as to the financing terms of our proposed empowerment deal which is likely to be concluded sometime in March. Also we successfully concluded an offshore capital raising that raised $225 million gross or about $217 million net. The proceeds of which will be used for existing capital projects and future growth opportunities.

So finally, we're also pleased to announce that the Board has declared an interim dividend of 40 South African cents per share that will improve the shares trading [inaudible] on the 13th of February and will be paid out on the 23rd of February.

And with those brief introductory remarks, I will hand you over to Nick Holland now to take you through the financial highlights.

Thank you, Ian. With the increase in the gold output, to 1,045,000 ounces, and the consequential increase in gold sold, together would be increasing a dollar per ounce price achieved from $360 an ounce to $390 per ounce. Revenue has increased from $397 million U.S. dollars in the September quarter to $431 million U.S. dollars in the December quarter.

Operating costs have increased from $315 million U.S. dollars in the previous quarter to $347 million in the December quarter. This increase is all due to the 9% weakening or strengthening of the rand dollar exchange rate from $744 in the September quarter to $676 in the December quarter. In rand terms, operating costs increased by less than 1%, quarter on quarter.

Operating profit has increased from $76 million U.S. dollars in the September quarter to $80 million in the current quarter, an increase of 5%. Net operating profit after amortization reduced from $36 million to $35 million. The Australian dollar, once again strengthened in the quarter from 68.14 U.S. cents to 73.41 U.S. cents. And, again on the Australian dollar financial instruments of $17 million was earned during the quarter compared to $5 million U.S. dollars in the previous quarter.

Subsequent to the quarter end, the gains on the Australian dollar financial instruments have been crystallized at $116 million U.S. dollars by entering into equal and opposite transactions relating to the Australian dollar, the United States saw the four purchase agreements and pushed full-option structures. The close out of the outstanding open positions of $275 million U.S. dollars was at an average spot rate of $76.7 U.S. cents to the Australian dollar.

The underlying cash receipts in respect of this crystallized profit would prefer to match the maturity dates of the original transaction structure of this profit of $115 million U.S. dollars. Of this total amount, $102 million U.S. dollars has been brought to account in our earnings from the period, the time the hedges were established which is the end of December of 2001, up to the end of 2003. So further $11 million or so will accrue in our earnings in the March quarter and thereafter, it will be purely a question of cash receipts over the balance of the hedge.

In addition, in order that the company is able to participate in further Australian dollar depreciation, a strip of core maturing Australian U.S. dollar core options were purchased in respect of a total number amount of $275 million U.S. dollars, of which the value dates and amounts matched those of the original structure. These were purchased at a cost of $8 million U.S. dollars and the cost of this is also deferred to match the maturity dates of the original structure. The net benefit of the transaction is that we have captured the current mark-to-market value of the Australian dollar currency instruments, and for a small cost of less than 2 U.S. cents we have captured all of the upside that may still exist in the Australian dollar.

In terms of the cash generated to date, the U.S. hedge is $44 million U.S. dollars and taken into account the net crystallized value on the closeout of the hedge, in total value secured to date, it's $152 million U.S. dollars. Interestingly, it's compared against the purchase price of the Australian assets in December of 2001 of $232 million U.S. dollars.

Exceptional gains in the quarter were $6 million compared to $27 million U.S. dollars the previous quarter, of which $25 million U.S. dollars related to the sale of mineral rights of [inaudible] to Angler [ph] gold. The purchase consideration for these rights was $45 million U.S. dollars is expected to be received in the next few weeks.

Net earnings for the quarter were $42 million compared to $57 million in the previous quarter. Headline earnings stripping out asset sales, as well as the profit of the disposal of the investments increased from $22 million in September, to $36 million in the December quarter. The balance sheet and the financial position remain strong and at the end of the quarter, offshore debt amounted to just $15 million. All of this debt has since been retired, and the offshore operations are debt-free.

With the capital raising of $225 million undertaking during the December quarter, as you heard earlier, offshore cash is paying for organic growth and other growth opportunities offshore, at $325 million U.S. dollars. This compared to local borrowings of $164 million U.S, giving net offshore cash of $161 million. Those three configuring of the balance sheet has been in line with our long-term strategy of providing the necessary cash to pursue our offshore growth aspirations.

Cash flow from operating activities for the quarter was $95 million, which was matched by cash expended on investment activities of $96 million, virtually the full amount we spent on capital expenditure compared to $74 million in the previous quarter. Essentially all of our cash has been reinvested into capital because of the Tarkwa project and the conversions on the mining which in turn will have fairly heavy capital over the next year along with the Australian lower expansion project of $125 million Australian dollars. Taking into account the proceeds of the equity rising, our cash in-flow for the quarter was $198 million, leaving net cash at the end of the quarter of $161 million.

Looking briefly at the results for the six months ended December 2003, the half year for this company, compared to the six months ended December 2002, you recall it went from 2.2 million ounces in the six months to December 2002, to 2.1 million ounces in the six months up to December 2003. This reduction was due to low grades of the South African operations and the sale of Santilina [ph] in the previous year. This was partially offset by increased production from the international operations.

The gold price received increased from $318 per ounce to $375 an ounce in the six months just ended. This resulted in an increase of revenues from $752 million to $828 million. However, the significant strengthening of the rand from 10 rand 07 in the six months to December 2002 to 7 rand 10 in the six months to December 2003 has resulted in a drop in operating profit from $288 million, to $157 million U.S. dollars. This is the main contributor to the reduction in net earnings from $135 million in the six months to December 2002, to $98 million in the six months just ended.

On that I will turn it to Mike Prinsloo. Thank you.

Thanks, Nick. Good morning, ladies and gentlemen. The South African operations had another challenging quarter with Driefontein suffering the fates of the fires at Five West and Four West shafts. I compared our production from last quarter and all operations have been busy with repositioning and restructuring to fight off the fate of the strong rand and the volatility to protect our margins.

As Ian mentioned, we've moved off the higher volume and lower grade, which was being pursued as an opportunity when all operations were in the rand kilogram [inaudible] above 110,000 kilogram to a lower volume, higher grade price, because this dropping rand kilogram has impacted on the margins. The volatility of the rand was never without planning and poor costing in the communication with the work force so we have taken a more conservative approach in gain for the lower volume and higher grade struss [ph]. I will mention the grades and then speak of operations.

In the quarter we concluded the moth balling of the [inaudible] number nine shop marginal project and we [inaudible] had four shafts which was a problem in the last quarter. Costs were well contained at all operations in spite that we did incur additional costs in repositioning where the marginal penalties at [inaudible]. On top of this, there was additional costs in Driefontein associated with the fire, and equipping new additional areas to accommodate the crews which were affected by the fires.

On the safety front, we had a disappointing quarter with the exception being cleared, we have reenergized our full compliance and communication plan across operations to consolidate on the gains that we have been successful on in our safety confines to date.

Capital expenditure was in line with the reprioritized capital budget. We took a position last quarter to reprioritize and some of the medium and longer term projects have been slowed down and some have deferred or moved up and at least 50 have been put on ice. CC [ph] being as I mentioned last quarter, will not impact on us in the short term, but it could unstifle these results. For a sustained period it will start impacting on our moderate positions. The key driver for all of these projects remains value.

For the corporate restructuring and repositioning of the margin continued with the mine thrusts being the reduction of volumes in the marginal and [inaudible] and the redeployment of these crews for better quality and stronger volume. And increased focus on the high extraction programs and speeding these up and a continued focus on our old gold winning programs with other initiatives to restore mining mix and guide to a steady state. Further initiatives for containing costs in revenue generation and capitalization is ongoing.

Our production for the quarter across ops 698,000 ounces compared to over 711,000 ounces for the September quarter. Mining, as a result of Driefontein's fire, we saw that drop. Starting volumes were down 5% with development volumes up 1% and total cash costs at $345 U.S. dollars per ounce. Capital expenditure across operations was $38.6 million compared to $40 million last quarter. Driefontein produced 272,000 ounces compared to 289,000 ounces last quarter at a cash cost of $336 an ounce. Giving us an operating profit of $10.5 million U.S. compared to $17.9 million U.S. last quarter.

The mine issues at different times is the fire. We've managed to put the fire out and this past weekend we've returned into the fire areas and by the end of this week, production will have returned to normal in the fire affected areas. This will impact in the March quarter for about six weeks on production to about 150 kilogram to 200 kilogram impact on [inaudible]. The mine issue is to restore volumes and restore the mix to prefire levels. And then to optimize, number one plant moles, which is complete now. Looking forward in terms of the March quarter we can expect an improved performance from Driefontein now that the fire is behind us in spite of the Christmas break that we had.

Kloof produced 365,000 ounces up on the previous quarter of 363,000 ounces at a cash cost of $349 U.S. announced resulting in an operating profit of $7.4 million which is a sign this last quarter's operating profit. The mine issues were clear for restoring mining mix and volumes on the new strategy and accelerating the [inaudible]. Outlook for the coming quarter will be slightly lower than the December quarter due to the impact of the Christmas strike that impacted on operations.

Beatrix produced 161,000 ounces compared to 159,000 ounces last quarter at a cash cost of $354 an ounce resulting in an operating profit of $3.7 million, compared to $3.8 million U.S. last quarter. The issues there are restoring four shaft to dry even. That's crucial for us, otherwise we're going to have to downsize the operations substantially. We are restore the [inaudible] all the shafts on the new strategy and accelerate the Three shaft project Bolivar, start Bolivar.

What is important is the two [inaudible] shaft which is a big capital program we've been running for 15 months at that mine. That is planned for hauling this coming weekend and will impact on the safety and environmental results and give a lot more flexibility in terms of establishing operations. The outlook, for the coming quarter, is steady at One, Two and Three shafts, and an improvement at Four shaft expected.

Conclusion, the mines on the South African operations and the coming quarter and the June quarter, mine shafts will be to deliver the volumes that is expected to improve grades that we've seen, across all operations, we're just trying this new strategy. We have seen about 100,000 centimeters grains per ton, [inaudible] improvement in value for the six weeks that the program was in place and we have seen another stakeup of another 100 centimeter grams. So those values should be coming through as we push the volumes through in the coming quarter.

And now I will hand it over to John.

Good morning, everyone. From the international operations group, it is certainly a pleasing quarter. The highlights of the quarter are an increase in both attributable gold production, up to 345,000 ounces for the quarter, versus 327,000 ounces in the September period. Operating profit was up some 25%, to $60 million U.S. dollars, as Ian indicated, the highlight of the quarter was certainly the performance of our two smaller mines at Damang and Agnew. They both experienced exceptional performance. Our two larger mines in St. Ives and Tarkwa certainly had steady forces but we believe that there's more discoveries and better performance there and we look to that in the future.

From an overall perspective, it is important to note the significant contribution from the international group this quarter, and it demonstrates the benefits of a growing diversity in the geofied portfolio of operations. We start with Tarkwa and in terms of detail of production results, gold production was down slightly from $148,000 to $142,000 ounces for the quarter and this is due to slight interruptions due to rain and a crasher breakdown. This production also included a 10,000 ounce reduction in gold and process on the [inaudible], which is very pleasing.

Total cash costs were up some 10% to $227 U.S. dollars an ounce. This represents a 17 U.S. cents increase and associated with some slight increases in mining costs, maintenance and some processing costs some of which are one-time costs. This sort of level of total cash cost is unacceptable and we expect to pull that back over the coming months. The operating profit was marginally up to $23 million for the quarter on the slightly higher gold price offset the lower gold production.

In terms of outlook, we are particularly focusing on stripping of the main pits at Tarkwa, and while we do not expect to have the total cash cost back immediately we expect to do that by year end. Gold production is expected to be around current levels for the remainder of the financial year.

Staying in Ghana with our Damang operation. We had a record quarter of gold production, up to 77,000 ounces, some 10% above the September level and that's in the back of continued optimization of the milling circuit at that mine. Cash costs are stable and results, operating profit was up 38% to $13 million on the back of the increased production and higher gold costs. In terms of outlook of how we expect this mine to maintain the record levels and expect gold production levels between this quarter and the previous quarter and the cash costs to be stable.

Moving across to our St. Ives operation in Australia. Gold production was up from 127,000 ounces in September to 140,000 ounces in December and that's largely on the back of a substantial program that we have underway at the moment. This program involves some .4 million tons of all being treated at the Harmony [ph] mill. This is over and above the existing capacity on site of some 1.5 million tons all being treated. Total cash costs just below 400 Australian dollars an ounce.

We're moving in the right direction having been over $410 an ounce in the previous quarter. We cautioned previously that the cash costs for this year will remain around these levels with the commissioning of a new underground mines in this fiscal year. And let me stand on that point very briefly. This has been a conscious strategy to bring in production on line a number of mines ready to reduce our alliance on the existing underground mines which is a mature operation. During the quarter, starting at the other end, at the underground mines that got underway and continue to build these two mines for the coming two quarters.

Operating profit at St. Ives will have some 50% to $15 million for the quarter, and that is at the back of our higher U.S. dollar gold price experience on conversion; although the actual price is static at around 550 Australian dollars an ounce. In terms of outlook, we look to maintain these levels of gold production and the cash costs to be stable this year around this level and wish to see the benefits of the commissioning of the new mine in the 2005 fiscal year.

Finally, Agnew, which is certainly the star of the quarter, gold production is up to 50,000 ounces from 45,000 in September and that's in spite of cutting back the more throughput tonnage on the back of these higher grades to optimize the margin. As a result of the higher level of gold production and excel come performance total cash is down from $372 Australian an ounce to $296 an ounce. This translated into a 61% increase in operating profits to some $9 million U.S. dollars for the quarter.

The underground mines in Agnew continue to perform very well. And we don't see [inaudible] between this quarter and the previous quarter in the coming period. It's very difficult to expect this type of performance to be maintained.

Just to end also, a brief word in our major offshore projects. First is the expansion of the Tarkwa mine in Ghana, the first element of that is the construction of the new 4.2 million ton mole. With the erection of the major equipment and we are on track for the commissioning of this plant for the end of this calendar year. The other elements of the expansion is conversion to undermining in Tarkwa. The equipment has been ordered and it will be arriving in the port of Timon in Ghana at the end of this month.

Moving over to the St. Ives optimization project. During the quarter we announced a quarter to proceed with an investment of some $125 million Australian dollars and that's to construct a new 4.5 million ton per annum mole and CRP plant at St. Ives. Initial sites are underway at the moment and every detail is designed. We expect to commission this plant within this calendar year.

Finally, the [inaudible] project, we have been fairly quiet on this project in recent quarters as a result of the uncertainty in the market but we have been actively working at this site in Northern Finland. Going into the future, it will be referred to as the Suhanko project. This has two large open pit projects at Kontijarvi and Ahmavaara. During the quarter we focused on detailed exploration, on the [inaudible] with the very large trench covering underneath the strattling. Those trenches allowed us to get a better handle on the geology, as well as some very detailed grade. And probably the most important result coming out of this is it's been indicated by the diamond building undertaking the previous period. So it's a nice problem to have, the more we [inaudible] the higher the [inaudible] tends to get.

During the remainder of this 2004 calender year we look to advance the arctic platinum project quite aggressively with a view to an investment decision by December of 2004. And the key activity over the period will in fact be a fairly large scale mine and the entire scale both in the concentrated of floatation mythology, as well as others.

Thank you and I will hand you back to Ian Cockerill.

John, thank you very much, indeed. I think at this stage, it is quite useful to remind listeners, that what has been our long-stated corporate strategy and that's namely; one, the optimization of our existing operations, through inward investment, cost reduction and enhanced performance. Essentially making sure we make the assets work. Two, growing gold fields by our organic opportunities explorational success. And three, being our strength when it comes to assisting with the goal market development.

Now this strategy remains as relevant today as it was when we first developed it, but I would like to say a few words about the international growth component. Initially it's our intention to add the further 1.5 million ounces to our existing production base over the next five years, and preferably from U.S. dollar denominated areas in the world. The reason we wish to do this is to make sure that we have the better balance in our portfolio so that we have almost an equal balance between both onshore South African production and international production.

The way of obtaining this goal I think we've already made a good start with our internal expansion projects, the challenge just described to you, as well as the arctic platinum project, which we do hope we will be ready for investment decisions by the end of 2004. Also the recently acquired option to purchase the Peruvian Cerro Corona open pit project, which was being predicated on the initial 60 million ton pit. We believe this clears up our potential beyond the parameters of the feasibility study. And we're quite hopeful this could add further value to that project.

In addition, we have been actively churning our exploration portfolio and continually upgrading it, its quality with particular reference to both geological address as well as potential. And I have said on several previous occasions, and I will repeat that I'm very hopeful that within the next 12 to 24 months, Craig Nelsen and his team will be in a position to talk about some interesting discoveries which they have got.

Also, we continue to look at other investment opportunities and all the time we're mindful of our commitments to value adding transactions to our shareholders account and not to the vendors. I think our track record in this regard speaks for itself, and clearly we want to continue with that.

If we look now at our existing operations, I mentioned in my opening that we were in the process of repositioning the South African operations and Mike has taken you through some of those initiatives and certainly we are beginning to see some of the benefits of that process. This is not an overnight story and it's fair to say that the volatility of the rand does play havoc with forecasting, as well as planning. As you saw we have bridged under 85,000 rand kilogram for the last quarter, yet we're now seeing prices that are in the low to mid-90,000 range per kilogram.

This has a significant gearing effect, particularly in our South African operations but I would like to say that we're not relying on a weakening rand to return the operations to respectable margins. Rather we seek to actively manage our mining mix, stop the economic mining, increase quality volume, seek out all gold recovery opportunities and all the time keeping an eye on all unnecessary costs. This will induce that we can enhance and sustain our margins irrespective of where the gold price takes us.

So in conclusion, we remain positive about the gold price fundamentals as we have been for the last two and a half, three years. We believe this is on the back of further potential dollar weakness, continued financial market volatility and clearly the more favorable attitude towards gold as an investment which I think has been aptly demonstrated by the success of the recently launched gold bullion securities on the London Stock Exchange. The 100% gold-backed gold back investment instrument.

The repositioning of our South African operations is on track and showing signs of delivery. Our international operations continue to perform at a consistently high level. We have a nice platform of international projects spread out over the next few years. And our balance sheet is well positioned to take advantage of genuine value-added transactions and when they arise. With that, I would like to say thank you for listening and now we will take any questions that you may have.

Thank you. The floor is now open for questions. If you have a question, please press the numbers one, followed by four on your touch-tone telephone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order that they are received. And we do ask that while posing your question, you please pick up your handset to ensure proper sound quality. Once again if you do have a question at this time, please press the numbers one, followed by four on your touch-tone telephone. Our first question today is coming from Mr. Dave Kusmanich of J.P. Morgan. Please pose your question.

Hi, good morning. Ian, would you mind talking through the remaining elements that you would need to see to comsummate the Mvelaphanda relationship.

Nick, I will pass that question to you.

Dave, the process from here on is that the circular to shareholders we expect to post during the course of February, we would then have the shareholder meeting during the course of March. We'll define how the transaction is committed and once the shareholder approvals are in place, the equity offering will be undertaken is the last piece of the financing jigsaw will then be completed and that will then signify closure of the transaction. So if all goes well, we hope to finalize this sometime during the middle to latter part of March, 2004.

Okay. Is the strategy if the Mvelaphanda raising is not successful?

I assume the strategy will be successful but I think it depends to the extent it's not successful, if there's a huge hole in financing then clearly there's a major problem in terms of the market's perception of the deal. But I have to tell you, that's not the indication we are getting because Mvelaphanda has done a premarketing road show late last year into North America and all the indications are from them and their advisors that people are particularly keen to invest in this transaction. They see this as an alternative gold leverage play and we're pretty confident that they'll be able to get this finished.

Obviously if the conditions change between now and then, that's a whole new ball game.

Dave, I think the other point to remember is that they are basically buying into Gold Fields at 83 rand a share. At the moment we're sitting at 95 rand a share. So really it's a good arbitrage opportunity and I think -- [audio difficulties]

Gentlemen, you may resume your teleconference.

Thank you, Stephanie. I'm not sure if Dave actually got the end of the previous question or not.

Sir, if could you please press 1,4 again?

That Mvelaphanda had initially bought in at 83 and the price is now 95.

Certainly there's already a positive arbitrage in their favor and that seems to be reflecting in their share price as well. So this stage, certainly everything looks reasonably good for them to get their deal away.

Thank you very much.

Your next question today is coming from Victor Flores of HSBC. Sir, please pose your question.

Yeah, thank you. Good morning. I have a question about the Cerro Corona project. Is the feasibility that you refer to a brand new feasibility that Gold Fields has undertaken? Or is this just an update of previous work done probably by [inaudible].

Victor, this is John Munro. The feasibility referred to in our original press release is the one done by the former earners and largely done by Minproc. The process we are going through is to satisfy ourselves on a due diligence basis that is acceptable from the point of view of executing the project on a minimum scale and that's really what Ian referred to as the due diligence that we have to complete in the next month or so and that really is the basis for exercising the option to proceed. In parallel, we're doing additional work on the expanded option, which is beyond what was contained in the original feasibility study.

Could you remind us what the plant throughput was in that feasibility and what the capital was?

The capital would be in the region of $110 to $120 million U.S. dollars. That is the throughput of 5.5 million times per annum or -- and that's based on the 65 million ton inventory in the pits. That produces around 280,000 ounces a year of gold equivalent ounces made up of 180,000 ounces of gold and the balance the copper equivalent.

Great. Now just finally, do you have an idea as to when you might be able to disclose the terms of the transaction?

Yeah, we have been requested by the current owners not to do so until the deal has effectively gone past the first step which is the due diligence phase and we expect to do that in late March and that's when we'll be in a position to talk more about the price of the transaction.

Excellent. Thank you very much.

Your next question is coming from Sam Robins of Robins Planning. Sir please pose your question.

My question is about China. I have heard rumors that some people think that in the gold mining industry, that the ultimate discovery of gold in China could either equal or be larger than what has been taken out of the ground in South Africa. Do you have any perspective on that?

Sam, to answer you, I don't. All I can tell you is they have been mining gold in China for well over 2,000 years, if not longer. Certainly, what attracted us to making the move into China and particularly into the Shandong area, as the first step, was it reminds us very much of the eastern Gold Fields in Australia. It's a green stone type of environment. There's some very good mines there, good grades. We like the country's operating cost structure. It's a very competitive cost structure. Highly productive work force. Well educated and it's got a low escalation rate in the country.

The reason we invested into Fujian is simply because this is a larger gold mine in China. It is also somewhat unusual because it's not a pit mine. And produces two streams, a heat bleach stream, as well as a milling stream. It produces around about 300,000 ounces of gold a year and certainly has anywhere between 5 or 6 million ounces of resource, most of which I think could convert to reserve.

So we think it's a great asset. We're very happy to be involved with those people. They seem to be extremely good operators. They have excellent exploration potential around their mine. And part of the deal we have done with them, we've taken a stake in the company, a small stake of about 1.6% through the Hong Kong IPO. But we also have a joint venture exploration agreement with them around their mine. Which looks very, very promising.

So we're very hopeful that China could deliver Gold Fields style targets. And we think over the years this will prove to be the case. We accept it will be a long-term process. We don't think that overnight we'll go in there with a big bang. Slowly, slowly, working with the locals, developing, growing our influence, and our production base in that part of the world.

All right, thank you.

Your next question is coming from Ano Ruton of Scotia Capital. Please pose your question.

Yes, good afternoon, gentlemen. On behalf of Dave Mallalieu, I would like to thanks for the St. Ives trip. But following that trip he's obviously interested in the tonnage and the grades distribution between underground and surface for the past quarter at St. Ives. Could you provide that data?

It's tends to be very variable in that mine, particularly as we build up the tonnage from the new underground mine. At the moment, roughly just under a third of the tonnage is coming from the underground mines and the balance from the open pits. Typical underground grades are variable and while we continue to operate the junction, they will be at the upper end of the range, which junction is typically running at 8 to 10 grams a ton. The Agnew and [inaudible] underground mines are slightly lower in grade, Agnew probably in the 5 to 6 ton range and the [inaudible] in the 5 gram or 10 range. So that's pretty typical underground grades and those low grades are very high mechanism. Typical open pit grades can be very variable between 3 and 5 grams a ton with around 4 grams a ton being more typical from that site.

Okay. Thank you. That's a lot of detail, thank you. And two questions about the South African operations. First of all, at Driefontein could you indicate when the fire actually started?

Yes, I know the first fire started the second week in September, and burned for just on five weeks and on the 27th, the night of the 28th of October, we managed to get back into that fire area. When the second fire broke out at our number Four West complex and that fire has been burning -- or that fire has influenced operations up to and including this past weekend when we reoutened the fire and it's now extinguished and we are going back in to the area to produce.

Okay. Thank you. Well, will this actually impact on the long term on the capital projects that you envision? Below the 52nd level.

The fire?

Yeah, the fire. Yes. Is there any permanent damage done, let's say that would prohibit you from developing infrastructure below the 52nd?

No, Ano. Both of those fires were in areas last mined about 35 years ago. In the shallow area of the mine and in the old work areas of the mine. We are going back in there to open up the old pillars so, no, it has no effect on the projects, the longer life projects going forward.

Okay. Thank you. And then lastly, Kloof underground, could you provide an indication of the grades? I noticed in the new release, it said grades improved and tonnage, obviously decreased a bit due to the higher grades. Could you give an indication of the actual grades?

It's 8.6 grams a ton.

Sorry. I must have missed that. Apologies. Thank you. That was all.

Any further questions?

Oh, sorry. No not from my side.

Once again if you do have a question at this time, please press the numbers 1, followed by 4 on your touch-tone phone. The next question is coming from George Lagum of RBC Capital. Sir, please pose your question. [no audio] You disconnected out of queue. The next is a follow up coming from Sam Robins of Robins Planning. Sir, please pose your question.

I wonder if you can explain why you sold a portion of the east dry Fontaine Mine to AngloGold.

That's a fairly straight forward question. If you look at the geology in that area and you look at the mining sequence, we have put into that piece of ground probably somewhere around about 12 to 15 years in the future. At that point, that would have been a very small piece of ground surrounded by largely, if not totally mined out, it would have been highly stresses. The chances of getting a reasonable level of extraction would have been fairly low. So that meant that that book of ground had a certain value in earnings.

If you look at AngloGold, they are virtually right on the border and it was simply a question of them going through this artificial boundary between ourselves and them, and just mining out that block today. Then they will be able to take out a lot more of that block, because it's obviously less stressed. So there's a certain value of that block in their hands. So what we did is, we did our calculations and we said, well if we mine it, it's worth x. If they mine it, it's worth a multiple of x and we sat down between the two of us, and we decided to share the difference. So we've got more value in our hands by selling it today, and they've been able to buy it for slightly less than if it was entirely theirs. So it's one of those rare situations where cooperation between neighbors means that two plus two does equal five.

I thank you and I am impressed by the way you people know your stuff.

That does conclude today's question-and-answer session. I would like to turn the floor back over to the speakers for any closing comments.

Stephanie, thank you very much. Ladies and gentlemen, thank you for listening today. It's been a pleasure talking to you, and we look forward to talking to you again, just before Easter. Where we'll refer back to the quarter three production results. Thank you and good day.

Thank you for your participation. That does conclude this morning's teleconference. You may disconnect your lines at this time. Thank you and have a great day.