Gold Fields Ltd (GFI) 2004 Q4 法說會逐字稿

Good morning, my name is Andrea and I'll be your coordinator today. At this time all participants will be in a listen only mode. We will be facilitating a question and answer session towards the end of today's conference. If at any time during the call you require assistance please press star followed by (0) and the coordinator will be happy to assist you. As a reminder this conference call is being recorded for replay purposes. I would now like to turn the presentation over to the host of today's conference call, Ian Cockerill, Chief Executive Officer of GoldFields Limited. Please proceed.

Thank you very much indeed Andrea. Good afternoon or good morning ladies and gentlemen wherever you are in the world. With me today I have Nick Holland, the CFO, we have Mike Prinsloo, Executive Vice President of the South African operations, as well as John Munro, the Executive Vice President in charge of our International operations. This is the feedback for the fourth quarter of the fiscal year 2004 as well as the results for the whole of the fiscal year 2004. As for the normal format I'll give a brief introduction, Nick will take it through the financials, Mike will talk to the South African assets, John to International and then I'll do a final wrap-up.

When we last spoke it was against a backdrop of a strong Rand, pressure on our South African operations and good international margins in our offshore operations. Nothing much has changed other than conditions in South Africa have if anything become even more challenging, but it is encouraging to report that GoldFields has responded well to this extremely tough environment and has once again produced a good set of operating results. For the issues under management's control, i.e. gold production as well as cost control, we can report positive trends for this quarter. For the quarter gold production is up 1% over the March quarter to 1.042m oz and total cash costs are flat at about US $312 oz, but they are down 2% in Rand terms, to just over R66,000 kg. So it is somewhat disappointing, that despite these great efforts at the operating level the lower received price of US $395 oz, which is down 3%from last quarter's US $407 oz, resulted in operating profit dropping from US $96m in third quarter to US $83m in this quarter. This has flowed through to the bottom line so the headline earnings have also reduced from US $33m previously to US $20m in this quarter, and this is purely a result of the gold and exchange rate changes that we've encountered over the quarter, and this has masked an otherwise creditable operating performance. However, all of the operations are cash positive at the operating line, and Nick will take you through the financial side of the business directly after I finish this section. To use a soccer analogy, the year under review I guess could best be summarized as one of two halves. The first half, where we were engaged in the entirely correct response to a weaker Rand, where we lowered our [payments] and pursued a strategy of high volume and mining of lower grade material at the South African Ops, which is the Wal-Mart approach, was changed in the first quarter of this year to a better quality and a lower volume strategy the one we call the SAKs 5th Avenue approach.

It's very pleasing to see that results are being delivered from this change of course and our South African operations have largely responded well and are now in a better position, or better positioned to deal with the challenging local conditions. While year on year gold production is down by 176,000 oz, to 4.2m oz, this is mainly due to natural grade declines at Driefontein and Kloof, the closures of some shafts at Kloof and Driefontein, as well as a loss of some production from the high cost [Capenema] mine that was sold during the course of fiscal year 2003. The impact of a Rand that has appreciated by 24% over the corresponding period last year is reflected in the unit cost increase from US $212 oz in fiscal 2003 to US $302 oz this year. While in local currency terms the increase was a more muted 8% increase to R67,000/kg.

Unfortunately within this production profile it is fair to say that Beatrix has been disappointing. It's the one operation in South Africa that has not delivered what we had hoped it would do, and while both Kloof and Driefontein have repositioned themselves very successfully into our higher grade strategy there is still a lot that needs to be done at Beatrix to make sure that we can get up to where we should be. Beatrix is a mine that traditionally in this group has performed well. There is a good operating team there who have a 'can do' mentality and I know that the team is desperate to try and turn the operation around and we sincerely believe that it will do so. Mike will go through some of the initiatives that Beatrix is undertaking to make that turnaround effective sooner rather than later.

However this year has been far from uneventful and many good points have also emerged. First the change in the operating strategy to respond to the tougher economic conditions is bearing fruit and we believe still has some legs. Secondly we've managed to arrest the acceleration in unit costs despite severe price pressures from both labor and administered price increases here in South Africa. We substantially complied with the conditions of the Mining Charter and during the year under review sold a beneficial 15% interest in our South African assets to Umbrella Fund Resources for a consideration of R $4.1b. We finished the year in a sound financial position. We have a strong balance sheet with the ability to self-finance ongoing development programs as well. We have also participated in the continual rationalization of the industry by selling a piece of ground straddling the boundary between our Driefontein mine and Anglo Gold Ashanti's Tartona [ph] operation which was done for the mutual benefit of both ourselves as well as Anglo Gold.

We have also made good progress with our planned strategy of increasing our international production levels by 1.5m/oz per year, within a five year period by expansions in our operations in Ghana and Australia, together with advancing the state of the two new Greenfields projects, Artic Platinum in Finland as well as Cerro Corona in Northern Peru. Finally we've had success in our exploration endeavors with good results emerging from the Greenfields projects in Ghana, the Committee Bay in Canada as well as positive results coming from both our Australian and Ghanaian mine sites. John will take you through some of these issues in his section of the call. With that overview let me hand you over to Nick and he'll take you through the financials.

Thank you Ian. Good afternoon. Revenue for the quarter was US $434m which was US $10 below the previous quarter due to a reduction in the received price from US $407 oz, to US $395 oz. This reduction occurred despite a [inaudible] gold production increasing by 9,000 oz quarter-on-quarter to 1,042,000 oz. Operating costs for the quarter were $US 357m compared to US $345m the previous quarter. And the increase in mainly due to additional volume mined in Australia, most of which has been charged to gold-in-process. But if one looks at costs net of gold in process changes, costs for the quarter were virtually in line with the previous quarter at US $351m. We exercised continued good cost control during the quarter, particularly for [inaudible] operations, which despite an increase in volume mined, managed to show a reduction in the underground cost per ton.

Operating profit for the quarter was US $33m compared to US $96m the previous quarter, with this reduction, almost exclusively linked to the lower gold price achieved. The operating margin achieved for the quarter was 19%, compared to 22% in the previous quarter. After taking account of financial income and other sundry income as well as the exploration spent for the quarter, profit before tax and exceptional items were US $24m compared to US $51m in the previous quarter. Again, we're seeing the impact of the lower price.

Based on an annual impairment review done on all of our assets, we made a decision to effect an impairment of the Beatrix 4 Shafts or otherwise known as the Oryx Mine, to the tune of US $62m. The net effect of this was US $45m after tax. Being a fairly marginal operation, this mine is particularly sensitive to changes in the gold price and in particular the Rand exchange rate and that is why we effected the impairment. This doesn't necessarily mean that the mine is going to be scaled back, this is an accounting adjustment, and we believed it was prudent given the state of the Rand to effect this write-down.

A net loss for the quarter of US $25m was thus incurred, compared to US $38m profit in the previous quarter. However, if the impairment is stripped out, that brings us back to headline earnings, which for the quarter were US 20m compared to US $32m in the previous quarter, that's the real number.

Cash flow from operations for the quarter was US $66m, and that was down from US $77m in the previous quarter. Cash expenditure for the quarter was high at US $139m, compared to US $109m the previous quarter. The high capital expenditure is mainly due to the significant expenditure currently being incurred on the organic growth projects in Ghana and Australia. The project in Ghana is to convert from contract mining to [under] mining, and to install a mill. This is US $160m project. The project in Australia is the construction of a new replacement mill, and that's going to cost AUS $125m. During the quarter, around US$35m was spent on the Australian project, and US $58m was spent on the two projects in Ghana. There is around US $70m left to spend on these two projects, and thus the capital burn rate will remain fairly high for the next two quarters, whereafter these projects will be commissioned. This is the main reason that we show a cash net outflow for the quarter, of US $74m. That leaves us with cash at the end of the period of $656m, compared to $721m at the beginning of the period.

The financial position of the company is very strong, with the only debt being the present value of the future interest stream on the Umballa [ph] loan structure that was put in place when we did the deal with Umballa [ph]. That's US $260m that has to be serviced over 5 years. And cash net of this debt is US $400m. And if one includes the crystallized value of the Australian Dollar [counter] hedge which we crystallized in January of this year, you can add a further US $100m of new cash that is currently categorized as receivables in the balance sheet. And in addition we have liquid listed investments of a further US $100m, so cash and near cash net of debt is in excess of US $600m and as Ian said to you earlier, that places us in an excellent position to complete the funding of our organic growth projects, and to provide funds necessary for the development of the Arctic Platinum Project, and the Sierra Corona project down the road.

I want to deal just briefly with the year results. The attributable production for the year was 4.2m oz, that's down from 4.3m oz the previous year. The total cash cost for the year went up from $212 to $302, and the vast majority there is due to the significant appreciation of the Rand, which moved from an average of R 9.07 in 2003, to R 6.90 at the end, the average for this year. So, that's a major change. The operating profit for the year was US 336m, that's down from US $523m. The price achieved for the year was US $387/oz, compared to US $333/oz in the previous year, and net earnings were US $111m compared to US $326m for the period.

With that I'm going to hand you over to Mike Prinsloo.

Thanks, Nick, and good afternoon ladies and gentlemen. As Ian mentioned the strategic repositioning for an R85,000/kg gold price, and moving with high volume low grade approach to a higher grade lower volume approach, we initiated Project 500 and that has been successfully implemented, but since then the price has further depreciated and we're now sitting about a R78,000/kg level. The main initiatives in this project which are ongoing, and will be continuously repositioned as the price goes further south is Project 400 which is the revenue side of the equation. There we've stopped all the [unpaid] areas and we've moved all the crews to higher grade areas and that strategy is showing fruits. We've increased our old gold initiatives, we've accelerated the high grade Pillar [ph] mining programs, and our whole focus going forward is now to restore volumes in these higher grade areas with a focus on [inaudible] and [inaudible] reduction. All the restructuring programs and repositioning programs at the shafts have been completed, however, that was done at R85,000, now we're doing it again, and that's an ongoing process as the price goes further south. These measures also apply to rationalizing corporate office and all the subsidiary companies, and to that extent the overall cost savings we're targeting is R8.5m per month, or by US $1.4m per month.

As the Rand has gone from above R95,000 to R85,000, to R80,000 and now below R80,000, we've implemented full strategies at these different price levels and the way I can describe it is the nut just gets tightened more and more, so we're going to do more of the same, we're having success with it. Our thrust in this coming quarter will be more on the revenue line where were targeting an additional 2-3% increase at all operations, upping the grade by a further 3-4%, and those are the two main drivers on the Project 400 side. On Project 100 we've actioned a cut in development, a 10% reduction in development at Kloof and Driefontein and Kloof and a 40% reduction at Beatrix. Similar levels of reduction in capital spend, 10% at Driefontein and between 40-50% at Beatrix.

On the employee side, moving between 3-5% of service labor, other sort of voluntary natural attrition process of the mines, or moving this labor that has been struck into gold winning programs. On other corporate costs, all operations we're targeting a 3% saving in this quarter as well. That should bring those into line with the new gold price at R78,000/kg.

Turning to the quarter, we had a reasonable quarter in terms of our gold production. We produced 700,000 oz compared to 695,000 oz last quarter at a total cost of R73,000/kg, or US $314/oz. Our operating margin decreased by about 4%, and operating profit was R163m or US $35m. In terms of CAPEX, our CAPEX programs were reduced and we spent R195m or US $30m in terms of capital at the three Ops. For Driefontein, Driefontien has a steady quarter producing 290,000 oz at a cash cost, total cash cost of US $317/oz, and our [position then] with a margin of 16% at R83,000/kg, and obviously a lot more work to be done to retain this margin at the current price levels.

We did ask Driefontein to mine in the range and reposition itself from where it was mining at 7.5g ton to 8.5g ton across the complex, and they've successfully done that and for the last two quarters are running at these levels and we should see that benefit coming through. That company is very favorably to a life of mine reserve yield, the published reserve yield of 8.4g [ton], so the one point we made at this morning's presentation was there's a lot of discussion as to whether we are high grading, well we're not high grading, at Driefontein we're mining 8.5g [ton] versus a life of mine published reserve yield of 8.4g [ton].

In terms of outlook for September quarter Driefontein will produce slightly lower gold, that's on the back of the gold cleanup at number one, and two plants being complete and also from surface grades that are lower as planned. The cost will be slightly impacted on by the second year of the implementation of the new wage agreement which 7% across the lower levels in the organization.

Turning to Kloof, Kloof had a good quarter producing 260,000 ounces compared to 251,000 ounces last quarter, at a cash cost of US $350/oz versus US $348/oz last quarter, giving us an operating profit of US $7.4m. Their thrust is also to reposition themselves in terms of grade and they've come off the lows in the June and September quarters at 8.1g ton, up to now 9.5g ton which is exactly the same as the life of mine published guides. So again, we're not high grading, we've just repositioned the Ops to mining in high grade areas and mining to the life of mine reserve yield.

Then in terms of outlook Kloof will produce slightly higher in the September quarter than the June quarter so we can expect a better performance from them again, and however the cost will be slightly impacted by the second year wage increase that has been implemented. As Ian mentioned, Beatrix had a tough quarter and Beatrix produced 150,000 ounces for the quarter compared to 155,000 ounces last quarter. The total cash cost is sitting a US $396/oz and only for the first time made a loss of outcome US $8m so a lot of work still has to go into Beatrix. The reaction time at Beatrix hasn't been as dramatic as at Kloof and Driefontein because of the low grade and the difficulty in repositioning and high grading that mine, but we're confident that in the next two quarters we will definitely make huge impact there. Beatrix has had a mine gold factor problem and a quality focus problem in the last two quarters and we are busy restoring that process.

In term of gold, the outlook, we can expect higher gold from underground, but quarter on quarter the gold should be flat because it's offset by the surface gold treatment that has been stopped by Harmony. We were treating surface rock at the neighboring John [ph] mine and that is terminated at the end of July. Cost will also be slightly impacted on by the implementation of the second year wage agreement.

In terms of Beatrix's grade, we want to reposition Beatrix at 4.9g/ton on average across the complex that's come off the lows in September of 4.4g/ton by up at 4.7g/ton, still off the pace, so they've still got about [,2 or ,3 g/ton] to go, and if they do that, then Beatrix should restore itself with acceptable margins. That's in terms of the Ops. In terms of the operating platform that we've positioned ourselves with over the last 48 months, we've built new long life shops for the future, we've upgraded all our metallurgical plants, we continue to improve on the working conditions of the implementation of the environmental and ventilation programs to reduce temperatures further and down to 28.5º to reduce temperature across all Ops. We've invested heavily in our ore bodies and have a healthy 20 months of mineable [payable] ore reserve across the different shops on average. We've invested heavily in our people in developing and training them and conditioning them for the change and transformation that we are experiencing in South Africa and we will just continue responding strategically to a stronger Rand. Some have criticized us for doing it more slow than other mining operations but then these are very big operations and it takes longer to effect change, but at the same time once a change has been effected I think we can look forward to sustainable, improved results. Our hope is that we will survive and we will be last man standing in this tough environment. So the way forward is really repositioning, we'll continue to the new price levels, we will continue to ratchet up on Project 500 principles and we will drive productivity which is vital to avoid sharp plunges and to weather the storm that we are in. Thanks, I will now hand over to John.

Good morning. No doubt just as the South African environment is a particularly challenging one for our South African operations, the international operating conditions remain good and pleasingly our international mines have made good use of this opportunity. Total gold production for the quarter was up to 343,000 oz, and that's only just short of the record set in December of 347,000 oz for that period. Total cash costs slightly down at US $256 oz, reflecting more currency effects as well as some ups and downs in the various operations. Most importantly, at a consolidated level, the international group produced operating profits of some US $58m and that's pretty much stable quarter on quarter despite a US $10/oz decline in received gold price for this period versus the March quarter. So overall a very good contribution again from the international operations.

In terms of the individual mine reports, starting with the Tarkwa mine in Ghana, this was probably the one mine in the group that had disappointing performance with gold production down to 123,000 oz for the period. That reflects a 10% decline in volume through the heap leach plant primarily as a result of lack of ores from the open pit caused by disappointing performance by the surface mining operations. This was caused by poor in pit flexibility severely compounded by equipment availability. The latter being caused by the ramp down of the contractor and recognizing that the equipment was in the latter stages of its life.

Pleasingly by the end of the quarter and into July we'd resolved the mining volume issues with the ramp up of the [other] mining fleet, which I'll talk briefly about next. In terms of outlook, we're looking for Tarkwa to return its gold production to levels seen more typically in the December quarter and do expect to see total cash cost pulled down in the September quarter, possibly not as significantly as one might expect with the conversion to owner mining as we will be keeping the contract fleet running for a short period in this quarter to provide us backup volumes given the risks association with the transition.

Looking very briefly at the expansion in Ghana, there are two legs to that, that first of which is the conversion to owner mining at a cost of some US $74m, and to date we've spent some US $59m. The bulk of the transition actually occurred at the end of the June month and all aspects of that have gone extremely satisfactorily whether it's the human resource transfer of people from the contractor to our employment, the mobilization of the contractors who are providing the maintenance and repair outsourcing service, to more importantly the mobilization of the new equipment. During the month of July the bulk of the fleet performed well in excess of 90% of all expected KPIs in terms of availability and efficiency so we're very pleased with the progress that's been made in that transition and certainly ahead of our expectations.

The second leg of the expansion in Ghana is the construction of a new mill at a cost of US $85m, this continues to advance very well and we remain on track for commissioning in the December quarter of this plant. The bulk of the work has been completed and we're rapidly moving into section by section commissioning of that plant, so US $78m of the total budget of US $85m has been spent to date. So both of those projects are on schedule and on budget, which is very pleasing giving the location of that aspect. Staying in Ghana with the Damang mine, it had an excellent performance producing some 83,000 oz with total cash costs just over US $200/oz, for an exceptional contribution to operating profit. Importantly apart from a good operational performance in this quarter its worth looking a Damang's contribution for the year. We have contributed some US $43m of free cash flow just from the one year's operation, and that should be seen against a background of GoldFields having paid some US $54m to acquire this asset, so an excellent performance from this acquisition.

Looking to the future we do expect to see a decline in gold production out of the Damang mine in the coming quarter with the declining availability of high grade ores from the Damang pits. We do have plans in place on the back of the expiration program that we completed over the last few quarters to ameliorate the reduction in ounces available in this open pit. Those will only start to be seen in the second half of the year as we bring the Amoanda, Rex and Tomento deposits to production. Beyond 2005 we have identified the possibility of a further cutback in the Damang pit, and that taken together with the other opportunities I mentioned should increase Damang's life in excess of two years from where it is today. So good progress being made there in terms of increasing longevity of that asset.

Looking to Australia the St. Ives mine had a much better quarter, as anticipated, with gold production up to 144,000 oz from 142,000 oz in the previous quarter. Total cash costs were slightly down at AU $422/oz and continued to move in the right direction recognizing our target for this asset is below AU $300/oz levels. The increase in gold production reflects two things primarily. The resolution of the open pit grade control issues that we discussed in the previous quarter, but also the continued ramp-up of the higher grade underground mines, and in particular the new Argo mine continues to make fairly good progress on volumes. Interestingly the Junction mine which has previously been difficult to operate had a very good performance in this quarter, so a good all around performance from St. Ives in this period. We did complete the tolling program in the June month in this quarter, it contributed some 33,000 oz to St. Ives' gold production. We have stopped that tolling program and there are two reasons behind this. The first is that from a value point of view it did not make sense to continue the tolling program. We expect to be commissioning the new St. Ives mill in the middle of the '05 financial year, that's around December 2004, and with the cost of that mill being half of the cost of toll treatment, it does not make financial sense to continue the tolling program beyond what we have done. So we did some acceleration of cash flow in '04 making use of additional volumes available from the open pit fleet but those volumes are no longer available to us, with an additional cutback in the Mars open pit occurring in the first half of 2005 financial year. So both financial and operational reasons for not continuing that tolling.

In terms of outlook we expect to see costs continue to decline on St. Ives and through the first half of the financial year, fairly modestly, and as we bring the new mill in, in the middle of the financial year, along with the stabilization of the new underground mine, we're looking for a substantial move below AU $400/oz on total cash costs.

Briefly on the expansion at St. Ives, this project continues to run very well, along with the Ghanang [ph] expansions here we are spending some AU $125m to construct the new 4.5m ton [inaudible] mill and CIP pit. During the quarter construction activities moved ahead very satisfactorily with the installation of a large [inaudible] mill as well as largely completion being reached on most of the civil and earth works. Importantly, the crusher which is being fabricated in Europe is now being transported by sea so some of the critical part items are largely in hand now which is substantially reducing the risk on this project. We have spent about 50% of the capital and committed more than three quarters of the AU $125m budget. Again this project is on schedule and on budget, and commissioning is expected in December 2004.

Finally on to the Agnew mine, also in Australia. It had an excellent performance producing some 53,000 oz. stable quarter on quarter, and total cash costs remaining just about AU $300/oz, with an exceptional margin producing an operating profit of some AU $13m. This performance reflects an up performance from the Waroonga underground mine, offsetting the ongoing and expected decline of the Crusader Deliverer mine which will continue into the new financial year.

Importantly though during the quarter a decision was taken to proceed with the development of the Songvang open pit project and this lowish grade pit will provide an important source of base load feed to the Agnew mill towards the middle of the new financial year and allow us to keep that mill full making the money out of the higher margin underground ores out of the Waroonga complex. We are looking for a modest decline in gold production out of Agnew in the next quarter and hoping to pick it up in the year's second quarter of 2005.

Finally, then on to the two development projects, firstly the Cerro Corona project. Following the completion of the due diligence in the March quarter the project activities and project resources were ramped up substantially in this period and did two critical focus areas. The first is dealing with the environmental permitting and social issues and a big focus is currently establishing community relationships as a basis for establishing a license to operate into the future. The other leg is the review and update of a feasibility study and we expect this process to converge with the permitting at the end of September when we actually submit the environment permit application. That's the point at with we will lock down the final development scenario for Cerro Corona and then advance with a detailed engineering of the project. At this stage the permitting is the critical part and will take us through to the fourth quarter of 2005 and we look for a development decision around that point in time.

Finally the Arctic Platinum Project in Finland continues to make good progress. Three major activities during the quarter, the first being the submission of the environmental permit application to the national authority so that process is well under way now. Secondly, the completion of the trial mine and pilot plant floatation project. That was done for two reasons, one is to confirm the continuity and performance of the floatation circuit which was successfully done, as well to produce a bulk concentrate for detailed downstream test work on various realization options. So, having produced that concentrate now that test work is now getting under way at the various smelters around the world. Following the completion of the winter drilling program the resource update is now underway providing a platform for the final leg of the feasibility through to the end of this calendar year. The big focus at the moment and over the next quarter will obviously be the resolution on downstream treatment options. As we have previously indicated this is the most important issue that has to be resolved in reaching a satisfactory decision point on this object. Thank you.

Thanks very much John. Before I conclude I'd just like to pick up on a few key points which I would just like to emphasize. Firstly this company is in a sound financial state. It has a solid balance sheet and certainly has the funds available to be able to self-finance the development projects that John has mentioned to you just previously. Secondly, our current total cash costs in our South African operations are just about R 70,000 kg, with plans in hand to reduce this further. We are certainly capable of handling additional declines in the locally received price, however the ability of these local operations to generate a margin adequate to accommodate our current long term capital plans will be constrained at these prices, so at current levels a sell-off in capital expenditures must necessarily be judiciously trimmed back, and you certainly heard Mike emphasizing that that has to take place.

Thirdly, our international growth strategy of the additional 1.5m oz of production within the five year time period is well on track to begin delivery of higher output from both the Ghanaian and the Australia mines starting with second half of this fiscal year. We continue to produce posted exploration successes, particularly from the St. Ives camp and with the soon to be commission new milling facility we should at long last reap the benefits of a simpler yet more cost effective operation in Australia. We are well-positioned to submit our application for mineral rights conversion as per the Mining Charter, and certainly this should be happening in the near future.

Contrary to misrepresentations that were made in the media recently, I would like to point out that with regard to the ongoing relationship with our new shareholder [inaudible] Nickel, no firm proposal as to how we could cooperate with respect to our mutual gold assets has either been received or offered. As stated in our quarterly book, we have sent a team over to Russia to look at the Russian assets of Norilsk. We gained a better understanding of them and what we has seen has certainly been sufficiently encouraging for us to continue discussions with Norilsk as to how we could possibly cooperate going forward. I would like to re-emphasize we have no specific proposals which we have either received or given and we are simply at the preliminary stages of evaluating a number of options and seeing what may or may not be possible.

And so, to conclude, we have expended a lot of effort in getting our South African operations positioned to deal with a received price in the mid R$80,000/kg price locally. This process has gone well, certainly by improving the quality of mining, the better mix of materials and a ruthless approach to the cost control, we've seen that coming through in the local cost structure. However, we now find ourselves in an economic environment that demands even more effort to deal with a lower received price as in this current quarter we are getting prices which are lower than that which we received in the June quarter.

While GoldFields certainly has robust ore bodies and has demonstrated an ability to reposition itself to deal with these challenging times, despite some skepticism previously that we were able to do that, I think it is fair to say that the elastic can only stretch so far before it breaks. We do have plans in place as Mike suggested to deal with a sub R$80,000 kg price, and that includes increased quality volume, an upward tweak in our mining grades, more cost reductions across the board as well as the trimming back of capital expenditure, i.e. making sure that we drive the revenue line of this business as well as reducing expenses. And, these have already been put in to play. The difficulty is not so much can we live with these levels, because we can, but more importantly how long will we have to do so, because a long term sub R$80,000 kg local price will inevitably lead to major permanent structural changes in the South African gold mining industry, and on the belief that no market goes up or down forever, in GoldFields we feel if we're not at the bottom of this market then we think that we must be extremely close. If so, the efforts that we have put in place already are certainly going to serve us well in a stronger price environment and the inherent leverage within GoldFields will certainly come to the fore. With that, that concludes the presentation and I'll now hand over the conference call to any questions that you may have.

Ladies and gentlemen if you would like to ask a question, please press star followed by (1) on your touchtone phone. If your question has been answered, or you wish to withdraw, please press start (2). Please press star (1) to begin. Your first question comes from George Joaquim [ph] from RBC Capital.

Good afternoon gentlemen, well done in pretty tough quarter for you in South Africa. Just a couple of questions. The first one, Ian, I'd just like to go back on what you are talking about this R80,000/kg environment. At what stage do you start looking at the capital, because the way I look at it at the moment, the CAPEX on the operations is pretty much a sustainable CAPEX level, there's probably a bit of room to cut CAPEX a little bit further, but at some time you have to make a big structural change. What are the ramifications as far as production levels and retrenchment cost, and can you discuss the flexibility that you think you have to reposition your operations?

George, we've already started to trim back on our capital expenditure level. Clearly a large chunk of the capital in South Africa is geared towards opening up of development, particularly for the new shafts. But what we're certainly looking at, the plan for fiscal 2005 was around about R800m of capital expenditure, and we have in place plans, and we've started to execute those plans that will drop that by around about R200m, so a cutback to about R600m, which is about a 25% overall reduction. Now that reduction is not even across the 3 mines. Obviously there will a greater reduction at the more vulnerable operation which is Beatrix. Now, while some of that is in development and there's some cutback in working cost development, the longer life mines certainly are sitting with around about anywhere between a 20-26 month ore reserve position. In fact, on average the, all the mines in the group have around about 20 months of reserves.

So we do have some flexibility to be able to have a slight slowdown in ore reserve development for what is effectively a cash conservation program. But there's no doubt that if we have to prolong this, say, for more than 2-3 quarters, then down the road you will see some impact and some production hiatus. But not immediately. It will be down the road where perhaps new areas don't come on line as quickly as they should have done. So, we are cutting back on that scene. When it comes to labor reductions, I think the sort of number that we are looking at is well within the limits of natural attrition, and what we'd rather focus on is not so much getting rid of labor and just cutting costs. I think as Mike emphasized, we believe that the leverage that exists in our operations, it's a lot easier to ramp up production in the better quality areas, get the old gold up and running, that gives you far more of a benefit and drives the margin a lot more quickly and a lot more effectively than just cutting costs, because you sometimes can get into danger trying to save yourself into bankruptcy. So we believe that at this stage, and within the current price regime, that we can get by with natural attrition, voluntary separations, and the such like. We certainly, while we do stop certain areas, reallocate some people into gold winning exercises rather than cost consumption. We believe in the short term, those initiatives, should we call it job loss evasion measures, are going to serve us well. So I hope that answers your question.

I'm still a little puzzled about Beatrix and especially with Oryx, as to why you keep it going quarter after quarter. If you look at the splits or the contribution of Oryx to the profitability or the loss now that you report on Beatrix, I'm a little puzzled why the delay in actually taking that decision at that particular shaft. Especially with the CAPEX that you're spending at that shaft.

Well, we spent very little CAPEX at Beatrix 4 Shaft. So, it's not a CAPEX issue there. Beatrix 4 Shaft is simply a question, is it a good grade ore body, but the guys, there have been some environmental constraints. There are two fundamental issues that we need to sort out there. One, was dropping the working temperature so that they guys have a decent working environment. Two, was getting the support logistics, in other words the ability to get men and material in efficiently, and get rock out efficiently. The underground working temperatures on that mine have dropped by almost 5 degrees with the ventilation changeover that we've made. That's certainly helping to drive the operational side. And then also, if one looks at what has been opened up in the ore reserves there over the last 12 months, the ability to increase the volume, to get up to around about the 500kgs a month, certainly with a reduced cost structure, 500kgs a month, or just over 500kgs a month, would mean that that mine would be back at a breakeven basis, making a slight profit or stop chewing the contribution made from Beatrix 1, 2 and 3 shafts. It's a question, George, it's a good ore body, the guys are almost there, they need to be given a reasonable chance to make it work. If it doesn't work we will have no hesitation in stopping it. But I guess the answer to your question is you stop a shaft if you think there's no feasible way in which you'll make money there. And we don't actually believe that at this stage with Beatrix 4 Shaft. And we're giving the guys a chance to prove that they can make money there.

Ian, one last question, for John really. Can you just go over the guidance on the gold industry change over the next couple of quarters, what can we look for?

On which mine, George specifically?

How about Australia and Ghana. It tends to swing around from quarter to quarter quite a bit.

The Australian one will continue to go backwards and forwards, primarily because of the nature of those open pits. You tend to be either in ore or in a bench of, or sorry a bench of ore or stripping away. So the flows will continue to go backwards and forwards. But because they don't-they're in and out of the income statement, that should make the income statement more consistent. In Ghana, we've had a bit of a buildup at the end of the June quarter, and we have moved on to slightly higher [lifts], I'm not sure that that's all going to come out in the September quarter. So I would look for Tarkwa to be flat quarter on quarter, I'm sorry, in terms of GRP in the coming quarter. But it is very difficult to predict.

Thanks, gentlemen.

Your next question comes from Jeff Garibaldi [ph] from Royal Capital.

Hi, congratulations on a good quarter. My question is on Norilsk, and I was wondering if you could give us the gold reserves and resources that they have?

I can't because under Russian law reserves are state secrets. I wish I could tell you. Sorry I can't.

Okay. What does cooperation mean? I mean, it seems sufficiently vague. Are there any synergies between assets, and can you be more specific on cooperation?

Cooperation is used because it is deliberately vague. There is no synergy between assets. But there are certainly, I think, areas where GoldFields could add some value through some of our technologies that we have. As far as the type of cooperation that we're seeking, there's a variety of opportunities. We're looking at all of these. There's no one particular approach to working together, or working with each other, that at this stage we think is more or less attractive. It has not been fully evaluated. Really, we simply are at the early stages of sitting down, getting to know each other, and seeing what is the best way where we could mutually make value for both our assets and shareholders. And that's [inaudible] back to operations.

Can you disclose their annual production, and cash costs?

I think they have actually disclosed that in total, the gold coming out of Norilsk, which is both from existing mines, gold mines as well as some by-product coming out from Norilsk, is just over 1m ounces a year. Cash costs are sub US$200 oz.

Okay. Then finally, are there any-what are the kind of, are there any restrictions either in Russia for you to buy their assets, or in South Africa for them to buy GoldFields.

I think you've answered your first question. That's some of the issues that we have to work through. Clearly both from the South African side as well as from the Russian side. There are regulatory issues and hurdles that we'd need to sort of work our way through.

Okay. Thanks so much and good luck with the next quarter.

Thank you.

Next question comes from Victor Flores [ph] from HSBC.

Thank you, and good afternoon. I don't want to beat this Beatrix horse to death, but you achieved one of the goals during the quarter which was to get the grades up. And yet we didn't see it on the cost side of things. Is this really just an issue with logistics and working temperatures as Ian, you just mentioned, or is there something else going on there?

Victor, no, what it is, it's simply a question-the grade was up, but the number of ounces was down. So what it was, it was simply a question of slightly lower volumes. There's, as you know, in these mines down here, there's a fairly high fixed cost structure. So we didn't quite get to the level of total gold output that we were looking for. Hence that's why the unit cost was up. But certainly on a go-forward basis, Mike and the team down there are telling us that they're reasonably confident that the unit costs will improve in the quarters ahead.

Thanks. Second question has to do with outlook for, say, the second half of calendar 2004. And you've outlined a number of savings initiatives that you're working on. Do you sense, or have a feeling that those savings initiatives will be enough to overcome the labor increase that is coming into effect?

I'll let Nick answer that question, he's closer to that.

Hi Victor.

Hi Nick.

The savings initiatives that we've outlined specifically on supply chain management have targeted savings of around about R200m-R300m a year. Those savings are going to take time to come through. And probably around about 24-36 months. Nonetheless, the guys have forecasted initial savings in this period, and I wouldn't be surprised if we could achieve around about 20-30% of those savings by the end of fiscal 2005. The overall wage increase, if you factor in the total affect on costs is about 2.5%. So, it wouldn't take a lot for us to actually pull that back. And bearing in mind what Ian said earlier, that there's ongoing natural attrition of around about 250 a month, plus/minus net. There's ongoing cost reductions anyway, in terms labor. So if we can achieve that, plus we can achieve around about 20-30% of the benefits that we're going to achieve in our procurement project over the next 9 months or so, those two costs together make up 75% of our total costs, will go a long way to neutralizing that increase. And I think certainly that's a target that we'd be disappointed if we couldn't achieve that.

Excellent. A final question on the Cerro Corona project. It sounds like you're moving ahead quite aggressively with this. Have you finalized the acquisition of the minority interest, and are you in a position at some point in time to give us the acquisition cost of this asset.

The short answer is no and yes. No, because the deal with [menageshell] is not resolved yet and so we're not in a position to disclose the price, and it's also related to the ongoing sensitivity of on the ground issues in terms of acquisition of land from local landowners that that's actually the bigger drive on the sensitivity of the price. But we do expect that to be resolvable in the next 3 odd months. We would be targeting to be releasing that before the end of the calendar year, but haven't set a deadline.

Great, thank you very much.

Your next question comes from Adrian Day [ph] from Global Asset Management.

Yes, and good afternoon. I had three questions really, on your international growth strategy. I know you've got plenty on your plate. But I'm wondering whether going ahead you're looking perhaps more at continuing these Greenfields projects that you're doing, putting money into juniors, or whether you're perhaps thinking of a major acquisition somewhere. And then the specific question, if you could comment on any progress or development in China.

Adrian, really, I'll answer the first two questions almost simultaneously. We are some biased as to whether it would be the Greenfield approach or acquisition. It simply depends upon where we see the best value. And I think at this stage in the price cycle, there's no doubt that the Greenfield's approach is probably more value accretive to GoldFields' shareholders, and I think we have shown a fairly successful track record being able to find good opportunities and in conjunction with junior partners, of being able to add value. This doesn't mean to say that we're not prepared to do acquisitions, but I think it will probably surprise you that there have been few acquisitions in the market, because valuations are challenging across the board. Whether it's from a GoldFields perspective or from anyone else. As far as China is concerned, we continue to make progress there. It is very much a long-term strategy in that part of the world. We have increased our exploration exposure, particularly in the Shandong province. We've identified one or two other opportunities where we feel we could increase our presence and exposure in that part of the world. But we knew this was going to be a long haul. As many people know, it's not the easiest place in the world to do business. But we do think it's attractive, and we're making good progress there. We've got our own people on the ground, there's an excellent team, and they're starting to pick up opportunities. So, progress is slow, steady, but it's headed in the right direction.

Okay, great. Thank you.

Your next question comes from Jim Copeland [ph] from Goldman Sachs.

Good afternoon. Just a couple of questions. One, I wonder if you can please give us a flavor of some of the discussions down there in South Africa, it is a strong Rand environment, and you guys have certainly positioned yourselves to deal with that. But just given mining is a much smaller part of the economy than it used to be, but then again it's still a very significant employer. Do you have a sense of what policy initiatives might be taking place which may or may not affect the Rand going forward?

Jim, I think what is interesting, until about almost a month ago, there was a lot of noise coming out from both exporters and the commodity producers that the strong Rand was hurting everyone, but there was a historical silence or one policy coming out from the government. There's not much we can do about the strong Rand. It's as much a consequence of the commodity currencies being strong in a weak dollar environment. You've got to get your own house in order. What's been interesting in the last month, we've seen comments coming out from Treasury, highlighting the fact that they're beginning to be concerned about the long-term impact of the strong Rand on the wealth generating side of this business, or this country. But I think it's fair to say that, certainly from GoldField's perspective, that we respect, we understand and we actually support the initiatives to get South Africa's core inflation down to a low, yet stable level, so it's much closer with its trading partners. We also recognize that that comes with some short-term pain. And as much as a Rand of 13 Rand to the dollar in 2001 was probably oversold, there's no doubt that in 2004 a Rand around 6 is equally too strong in the other direction. In terms of competitiveness, this country-not just for the mining sector, but for a broad range of industries. And certainly what we would be liking to see is a healthy debate about what is an appropriate level for the Rand, but in an ideal world we would like to see, a macro economic environment in South Africa, that has low inflation, a steady stable, currency, but certainly at a more competitive level than we've currently got. But by no means are we thinking and hoping that the currency weakens substantially. I don't think we need to do that. But certainly, it will be nice to get some relief from the current levels. Where government's head is at the moment I'm not sure, I think you would need to ask them where the main policy direction is headed.

Thank you. Just in terms of when we might expect the reserve statement to come out, could you give us some guidance there? And also, would you be prepared to offer any guidance for full year 2005 at this point?

In terms of production.

Yeah, in terms of production or even Rand costs for the South African operations.

Yeah. On the reserve story, we're looking at the-the reserves will be published with the annual report. That should be coming out around about, late September, probably actually around the time of the Denver Gold Group. At this stage, I think it's inappropriate to give a guidance, because clearly we're in a very, very dynamic environment, and who knows-clearly our plans are based at slightly higher received prices, and we're going to have to look very carefully at what the impact is. So I would be loathe to give a year-long guidance figure. But certainly, when it comes to reserves, you'll see what the reserve figures are like in the annual report.

Thank you very much.

Our next question comes from Jim Richards [ph] from Bains River Capital [ph].

Hi. Could you clarify what level of cost inflation you've assumed in coming to your R300m cost saving number?

Sorry, Jim, could you repeat your question please.

Could you clarify what level of cost inflation you've assumed in coming to your R200m to R300m cost saving number?

Well, that's the saving in real terms. That's the saving in today's money, we're targeting. Now, obviously, if inflation happens over the next year or two years that we're trying to do this, that will get superimposed on that. But we're targeting to save R200m to R300m in today's money.

So that's out of your current cost base, you're aiming to save R200m - R300m.

Correct.

Okay, that's great. Thank you.

Andrea, if I could ask that-we have time to take one or two more questions only, then we have to shoot off.

Okay. Our next question comes from Russell Fryer [ph] from Deutsche Bank.

Good afternoon, gentlemen. Just wanted to find out if there is a risk that the Kremlin or the Minster of Natural Resources in Russia will veto the equity shareholding that Norilsk has in GoldFields?

Russell, I think if you see our quarterly books, we make a statement there-we have received, we've been informed by Norilsk that they have received all the necessary approvals for that acquisition.

Okay, thank you.

And our last question comes from Sam Robbins [ph] from Robbins Planned Income Company [ph].

I have a couple of questions. And first of all, I want to state that I am very impressed with the enormous competence that you have shown in all this difficult environment. In reading through your numbers and listening to what you're saying, I suspect that, assuming that the price of gold is pretty much the same next year, that a substantial increase in earnings is going to happen over the next year that many of the things that have happened to you this year are kind of non-recurring. Would you say that that's a reasonable interpretation of future potential?

Sam, it's honestly inappropriate to give any indication of earnings. But I think what one would have to say, is that if the price stays where it is at the moment, going forward, absent doing anything drastic in our operations, earnings are going to be very, very tight. And I think it's fair to indicate that to investors. But who knows it's always said that it's darkest before the dawn, and at some stage we do believe that the Rand will have to turn. I wish I knew when. I would not wish to go into a currency forecasting other than to say that when it does turn, we are going to be well positioned and we will reap the benefits. We're going to be incredibly leveraged to any weakening of the South African Rand, and consequently into the Rand per kilo received locally. So on that basis, I think your thesis is entirely correct. But is that going to happen? I wish I had a crystal ball.

My second question is, with reference to China and Russia, it sound to me like one of the secrets of your future success has to be a major increase in volume. And yes you're working on it already in you're regularly producing areas. But I wonder if you should try and push the China and Russia development as fast as you can, rather than simply looking at is as long term insurance. And number two, with reference to increasing production, with the dollar down and the Rand up, why aren't you doing more searching for opportunities in dollar denominated areas?

Sam, I think if you look back on previous comments that we've made, and certainly the strategy that we've put out, international growth strategy, it's all predicated on the growth coming from dollar denominated areas such that we create a natural hedge within the company, away from the exposure towards the commodity currencies, being the South African Rand and the Australian Dollar. We recognize this, that's why Craig has been given his marching orders to go out and find us some more gold in the dollar denominated areas. Clearly Ghana is one of those areas, because it is very much dollar denominated trading conditions out there. But if you look at our spread of exploration assets, if you look at the growth, the projects in Peru, even to a very large extent in Finland, these are all geared towards exactly what you have suggested, so that's exactly what we're doing.

Thank you.

Well, thank you all very much indeed, for listening in. I certainly hope that when we next get on the call, we can announce even further improvements in our operation, and we look forward to being able to do that too. So thank you all very much for listening, and cheerio.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect, good day.