Gold Fields Ltd (GFI) 2005 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to your Gold Fields 2005 second-quarter earnings conference call. My name is Bernie, and I will be your coordinator today. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded for replay purposes. I would now like to turn the presentation over to our host for today, Mr. Willie Jacobsz of Gold Fields. Please proceed, sir.

Thank you very much, Bernie. Ladies and gentlemen, thank you for joining us for this conference call on the second-quarter results for F 2005 for Gold Fields. The discussion will be led by Ian Cockerill, who will do a brief introduction. After that, Nick Holland, our Chief Financial Officer, will talk us through the finances for the quarter, followed by Mike Prinsloo, who will talk about the South African operations, and John Munro, who will talk about the international operations. Ian will then do a brief wrap-up, where after we will take questions. I hand over to Ian Cockerill.

Willie, thank you very much indeed. And good afternoon or good morning everybody, depending upon where you are in the world, and thank you for joining us here on this conference call. You will all recall that towards the end of 2003 this management team laid out its strategy for turning around the South African operations. To refresh your memory, at that time, our strategy we called the Wal-Mart strategy, and that was the strategy which we instituted at the time of a very weak Rand. And we took advantage of this weaker Rand to mine previously marginal material, the so-called high-volume, low-grade approach. As the Rand started to strengthen, and we believed that this was going to be stronger for longer, we decided to turn the strategy around to a higher grade, low-volume strategy or what we refer to as the Saks Fifth Avenue; that is, mining at values in line with the longer-term ore reserve grades as published in our annual report.

Now at the same time, we initiated Project 500, which was a process whereby we would enhance margins by both improved gold output, as well as other cost-saving initiatives. And today, it's very pleasing to report that these strategies are continuing to deliver tangible results and are showing up in the bottom line, showing improved results quarter after quarter. We've been able to restore our yields to reflect the long-term life of mine grades of all of our operations, while at the same time reducing costs significantly. And, despite some concerns in the marketplace, we are doing this without hydrating those operations as the detailed presentation on our website clearly spells out.

In fact, over the past year, our cash cost expressed in Rand have reduced by 3%, whilst production has remained constant, this in a year during which we saw a 7% wage increase, as well as several other significant inflationary price increases. Nick is going to highlight some of the progress that we've made in achieving those sustainable cost savings later on in the call.

Now this past quarter, we saw all of our operations perform to expectation, and we've been able to achieve the forecast that we gave you last quarter. We saw good improvements from the South African operations, a flat quarter from St. Ives; Damang and Agnew performed well, the Tarkwa is the star performer as benefits from the new mill began to kick in.

Overall, production this quarter was up 4% to 1.048 million ounces, whilst cash costs were down by over 2% to 64,921 Rand per kilogram, or up about 1% in U.S. dollar terms to $330 per ounce. Operating profit of $103 million was 43% higher than the previous quarter, and this is largely as a result of the improved operational performance supported by an improved price received for the product. Core earnings, which excludes all of the impacts of financial instruments, came in at US$0.03 per share, which is up from a breakeven in the previous quarter. And pleasingly, a dividend of SA$0.30 per share has been declared by the Board as an interim dividend which we paid out on Monday, February 28, to all shareholders on the record date of Friday the 25th of February. So all-around, a pleasing performance, bearing in mind the twin issues overhanging the Company from the hostile Harmony bid and the strong Rand operating environment here in South Africa. With those few opening remarks, let me pass you over to Nick to take you through the financials, and then Mike and John will follow up with their respective areas of operation responsibilities.

Thank you, Ian. Revenue for the quarter was up from $425 million in the September quarter to $480 million in the December 2004 quarter. This was due to the combined impact of an improvement in the price achieved of $400 an ounce to $431 an ounce, but also due to about a 4% increase in intrinsical gold production. That increase in revenue we see is split roughly 50-50 between those two quarters.

Operating costs for the quarter increased by 4% from $367 million to $382 million. This is due to the combined impact of the increased gold production, as well as a strengthening in the Rand-dollar exchange rate from 6.36 Rand (ph) in the September quarter to 6.12 Rand (ph) in the December quarter. Operating profit increased from $72 million in September to $104 million in the December quarter, an increase of 44%. Accordingly, operating margin improved from 17% to 22%, and this is the sort of level that we need to maintain going forward to sustain this Company into the longer-term. Net operating profit after amortization increased from $13 million to just under $42 million for the quarter. During the quarter, the company brought to account the costs in relation to the failed IAMGold transaction. That amounted to around $10 million U.S., and also the costs incurred to date as well as the accrual of certain noncosts in respect to the Harmony hostile bid amounting to $13 million. This was partially offset by profit on the sale of investments of around $6 million, which resulted from the sale of some non-core offshore investments.

Net earnings for the period was at $13 million compared to $16 million in the previous year. With the exceptional cost items stripped out relating to the cost of the IAMGold transaction, as well as the costs in relation to the Harmony bid to date, and adjusted earnings on a like-for-like basis for the period would have been $37 million compared to the $16 million in the previous period. And this reflects the substantial improvement in the operational results for the period.

The net cash outlook for the quarter was $26 million, and this is mainly due to the continued significant capital expenditure incurred on the (indiscernible) projects in Tarkwa and Australia, with roughly the same amount invested in these projects during the quarter. These projects, which have now been fully funded and fully paid for, resulted in a total cost of around $160 million in Ghana and A$125 million in Australia. And we're pleased to report that we've been able to fund this internally without any recourse to debt and also having funded these projects, the benefits we're starting to see coming through in our production increases, cash at end of the period was $522 million. If one adds on near cash in the form of the Australian dollar, hedges with the (indiscernible) a year ago, we can add on other $80 million for that, and we can also add on a further $60 or $70 million in the form of liquid listed investments. So the balance sheet of the Company remains very, very strong, which we think is appropriate, particularly given the strong Rand environment that continues to prevail in South Africa. We don't foresee that this is going to change in the short to near-term, and the Company is being positioned to deal with this, and we're very well pleased with the balance sheet we've put together and the cash position we have to fend off this tough Rand.

I want to talk briefly about cost control. We've had some tremendous successes in reducing our costs over the last couple of quarters. And just to recap for those of you not familiar with this, Project 500 was born about a year ago -- in fact, more than a year ago, about 15 months ago -- and that's made up of two projects. Project 400, which was slated to provide an additional 400 million Rand a year in extra revenue, my apologies for talking in Rands after we've gone into dollars, but we don't have these figures in dollars at the moment. An additional 400 million Rand of revenue was slated to come from improved production from the local operations. Mike will talk about that in more detail under his presentation.

Project 100 was made up of 100 million Rand of savings, principally on stores issues which made up close to 30% of our total costs, and that was due to improved controls over consumption, improved standards and norms, which is like the bill of material and savings of 100 million Rand a year, which used to be delivered on that. We then created what we called Project Beyond, which was an improved supply chain management project whereby we would get our procurement in line with international best practice. And on a total universe spend of about 3 billion Rand, we were wanting to save between 200 and 300 million Rand per annum.

So those were the main projects that we focused on over the last year. I'm going to give you a brief update as to where we are. First of all on Project 100, the good news is that by the end of December, we essentially finished the project. When we say finished, we’ve achieved the objectives, but obviously, these initiatives never really cease, and the operation is still running with us. But we've achieved on an annualized basis up to December 140 million Rands worth of savings. So we've actually exceeded the target that we've set out for ourselves. That really is to improve standards and norms, improve logistics, and enhance production planning.

If you look Project Beyond, which is the project to improve the whole procurement drive, the critical success factors we've focused on over the period is understanding our commodities better, doing more expansive research into supply markets, standardizing commodities where possible, looking at electronic auctions and getting a larger number of suppliers into the bid process, thereby improving the price tensions. And over the period up until December, we focused on the first section of that project, which looked at baseline spend of 345 million Rand. And so far, we've generated contractual savings against the 41 million Rand. That doesn't look like a lot in isolation, but bear in mind that's only the first phase of the project, and we've only analyzed about 12 or 13% of the total spend. The next two blocks will be finished by the end of June, and that analyzes another 900 million Rands worth of expenditure. And we're hoping to generate further savings of about 90 million Rand against that.

None of these savings are currently in our costs. In other words, you're not seeing the benefit of these simply because it takes time to realize the savings in terms of the drawdowns against contracts, and you'll see that over the next three or four quarters. So you'll see further cost reductions over that period.

If you look at what we've achieved through all of these projects, if we look a year ago, at the South African operations, we've dropped our costs in unit terms by 4% year-on-year. If we compare the second quarter of fiscal 2004 against the second quarter of fiscal 2005, we've dropped our costs by 4%. But against that background, we've also increased our production by 4%. So we've done more for less.

And if you look at our total cost in Rand millions, and bear in mind that we've had to absorb significant wage increases in this country, but the basket of this (ph) that we purchased has an annualized inflation rate of about 6 or 7%. You know the wage increase as we mentioned before, that was 7%. We reduced our overall total costs by 1%. That's our total cost in Rand millions have come down from 1.7 billion to 1.68 billion Rands over that same period. So if you superimpose the inflation we've had to absorb on top of that, and clearly you can see that we've generated around about 80 to 100 million Rand a quarter of savings, and that translates into around about 400 million Rand a year -- bring that back to dollars, that's worth around about $70 million in cost savings a year. And if you look at where we are in terms of delivery against those projects, we've only generated so far around about 20 to 25% of these total benefits that we've set out for ourselves. So I think the exciting news for Gold Fields is that we've got much more to come, we've built up the momentum on these cost initiatives, and you'll certainly see our costs continue to come down if we can keep these projects going. I think with that, I'm going to hand over to Mike Prinsloo.

Good afternoon, everybody. As Ian mentioned, the South African operations delivered a strong quarter with gold production up 3.6% to 22.5 tons of gold, or 726,000 ounces for the quarter. Total cash costs were down 2% to below 72,000 Rand a kilogram, or at this exchange, $366 an ounce. Operating profit was up nicely to $36.2 million U.S., and our operating margins improved from 7% the previous quarter to 12% this quarter, in spite of the strong Rand.

Our capital spend was 26.6 million. That was on the back of acceleration of some key refrigeration and ventilation projects, and all the long life shafts which we consciously did to give us more flexibility as we go forward over the next few quarters.

So in summary, South African Ops, we've stabilized the yields at these levels. We are currently pushing to improve the volumes, having moved from the Wal-Mart to the Saks Fifth, as Ian had mentioned. We've gone about the process of debottlenecking all the shafts through a process of (indiscernible) constraints, and that's working very well. These are all delivering results in terms of Project 500 with productivity improving 3% in terms of square meters (indiscernible) quarter-on-quarter and our operating profit improving by 87%.

Our long life shaft projects, that is Driefontein 5 and Driefontein 1, Kloof 4 Beatrix 3 and Beatrix 4 are all progressing well. The production borders (ph) are progressing well, and all associated work and projects are on track to stay on line with the production borders (ph). Extending through the Christmas break, we had a successful Christmas break this year where we completed many of the key projects that were planned over this period in the time frame that was allowed. We depleted all the stockpiles which we referred to in the quarterly write-up (ph). They were successfully treated, and we've managed to restore the volumes, the production volumes a lot quicker this year following the Christmas break than what has been done in previous years. So all in all, a strong quarter from the South African Ops.

If you turn to Beatrix Mine, Beatrix had an improved performance with gold production up at 4.9 tons, or 158,000 ounces. The federal (ph) cash costs at $413 an ounce, a lot of work still to be done there. Given that the nice operating -- for a nice turnaround on the operating profit, we're actually getting it positive to the extent of 1 million Rand, or $1 million U.S., compared to a 20 million Rand loss, or $4 million U.S. loss last quarter.

On the capital front, we spent 58 million Rand, or $9.5 million U.S. on the Number 3 Shaft and 4 Shaft, preparing them for the production (indiscernible). If we look at the outlook for the March quarter, production of gold at Beatrix should be slightly down, and cost flat quarter on quarter as we are in the process of closing down some of the marginal shaft areas at 2 Shaft and moving those crews to 4, 3 and 1 shaft. So this is a temporary measure of loss of about 250 kilograms over the next quarter, but we'll make that up as we build (ph) production back at 4, 3 and 1.

We will also stop being the surface rugby (ph) treatment at 2 Plant on the back of -- it's not making money at these price levels. An improvement that showed a lot of pleasure at Beatrix was the grade improvement from 4.4 grams a ton to 4.7 grams a ton quarter-on-quarter, and the objective is to get that to about 5 as soon as possible and then to stabilize the volumes at those levels. The project work on the logistics project at 4 Shaft has been completed, or virtually completed. We've done 5 months of good work there, and that project has a head-up plan and ready for zone 5 to start boosting the volumes at number 4.

Turning to Driefontein, Driefontein had a consistent quarter with gold production up 2% at 8.9 tons, or 288,000 ounces for the quarter, with federal (ph) cash costs slightly down at 67,000 Rand (ph) a kilogram, or $341 an ounce. This gave us an operating profit of 21.9 million U.S., with capital spend of 6.8 million U.S. And if you look at the gold production for the coming quarter, gold end costs should be very similar to the December quarter as we go forward.

On the grade side, Driefontein is mining currently to its life of mine grades of 8.1 grams a ton and the big challenge for Driefontein is to now build (ph) volumes at that first level.

Turning to Kloof, Kloof had an excellent quarter with gold production up 5%, or 500 kilograms up to 8.7 tons of gold, or 280,000 ounces. The cash costs down at 3% to 71.5 thousand Rand a kilogram, or $364 an ounce. Operating profit doubled to 14.3 million U.S. and capital spend was hit at 10.3 million units, most of that being spent on the new Number 4 shaft in it’s border (ph). Looking forward for Kloof, gold production end cost should be similar to the March quarter.

In this quarter, we will make the decision to close down number 3 Plant, which is an old gold (indiscernible) treating surface rock plant. It's not contributing at this stage, and we will be looking at closing that plant and rationalizing across the property on gold plants. Also the surface rock plant treatment will be stopped and will be left in abeyance for when price recovers, if it does, in the longer-term.

On the underground grades and yield side, Kloof still has head room, although the slight improvement quarter-on-quarter from 9.1 to 9.2 grams a ton, and we are targeting 10 grams a ton to get Kloof into a steady-state at those levels. This all depends on the mix of the amount of slope and terrace mining that we're all doing in the next quarter, but 10 is the target and then to build (ph) volumes at those level.

In conclusion, the challenge of mines for South African Ops to drive our margins at these current prices and our response remains to continue with increased quality volumes in the areas that we are currently mining in, to further push productivity improvements, to continue with our aggressive cost management that we've put in place, and to reinforce over the next two quarters all the principles that we've put in place on Project 500 and the Saks strategy across all the shafts, a total bottom-line focus for the SA Ops. I will now hand over to John on the International Ops expense (ph).

Good afternoon and good morning. If we start with a brief overview on the International Operations Group, it certainly was a good quarter for portfolio as a whole. Total gold production was up from 5% to 322,000 ounces and total cash costs for the International Group was stable at $263 U.S. an ounce. The combination of these two led to a significant increase in operating profit to some $67 million U.S. for the quarter. That's some 26% up on the quarter through September, and represents around 70% of Gold Fields' operating profit. It also represents a very healthy operating margin of some 40%.

In the quarter, total capital expenditure for the operations declined from $90 to $56 million U.S., and as Nick said earlier, that reflects the ongoing decline in expenditure as we've brought the various expansion projects to completion. And the international development project really had been a highlight for the quarter, with the early completion and ramp-up of the Tarkwa expansion or the Tarkwa mill, and then also the commissioning and the initial ramp-up of the St. Ives mill, and I will talk more about those two later.

So overall, the International Operations had a good quarter and in very good condition going forward. We are looking for a decent improvement in gold production again in the March quarter. That's on the back of the full benefits of the expansion at St. Ives and Tarkwa coming to account and we're looking for total cash costs to move down.

Looking at the individual operations and starting with the Tarkwa mine in Ghana, gold production up very substantially to 168,000 ounces in the quarter, versus 125 in the September quarter. Of this increase 15,000 ounces was attributable to the heap-leach plant, and that really represents a reduction in gold and process for gold being released from the heap-leach pad. And that reflects ongoing management of the heaps, but also the good volumes of gold that we stacked (ph) there in previous periods. Gold production from the mill contributed 28,000 ounces for the December quarter.

Total cash costs declined about 10% to $224 U.S. an ounce, and that really reflects the full benefit of the owner mining conversion now coming to account and other (indiscernible) not yet (ph) the full benefits of the mill expansion, which we'll see in coming quarters. As a result of the higher gold production and lower costs, operating profit increased 84% at Tarkwa to some $35 million U.S., an excellent operating result for this mine. Total capital expenditure down to $22 million U.S. as we've come to the end of the expansion projects. Mining operations performed well during the period and continue to do so going forward.

In terms of outlook, we're looking for a further 10% increase in gold production in the March quarter, and this really reflects the full benefit of having the mill operating for that entire period. Total cash costs should fastly (ph) approach $200 U.S. an ounce in the March quarter.

Just to talk a bit about the Tarkwa expansion, which is now effectively complete, it has been a very satisfying project for us and the team there has done an excellent job delivering that project on time and on expectation. You will recall in previous quarters we reported on the successful conversion to owner mining, which came in on budget, and the feat of achieving and exceeding productivities in almost every single measure. So that has worked out very well. During the December quarter, the Commission, the new CIL plant two months ahead of schedule. We'd expected to do that in December and in fact commissioned that during October and had the first full month of operations in the month of November. In fact in that month, the mill achieved about 5% ahead of its design capacity of 350,000 tons per month. So that mill really is achieving in excess of expectation. Unit costs are where they should be and we're exceeding our process specifications whether that's measured in terms of grind, recovery, tails (ph) grades, the plant is performing very well.

So the entire (indiscernible) expansion really in place and performing beyond expectation and that means that Tarkwa's annualized gold production should now move to in excess of 700,000 ounces per annum. And (indiscernible) just putting that in perspective against the background of the ore reserves that we announced for this mine earlier this year, or excuse me last calendar year, where we said that Tarkwa had now some 15 million ounces of ore reserves at $350 an ounce gold price. We told the market this morning that in fact if you were to look at those reserves at $450 U.S. an ounce gold price, Tarkwa is now 20 million an ounce ore reserve mine. So really a fantastic asset emerged there. And going forth, we've got a very strong focus on optimizing existing operations there having come out of this tremendous period of growth.

Staying in Ghana, the Damang Mine also had an excellent quarter. Gold production effectively flat at 67,000 ounces, and total cash costs declined slightly to $226 U.S. an ounce. That decline in cash cost reflecting slightly lower mining volumes both in terms of ore and waste as we are largely focused on treating of stockpiles at the moment as we move to some of the newer clips (ph) at that mine. Operating profit increased from 27% at Damang, up to $14 million U.S. And a fairly nominal capital expenditure on this mine, Damang continues to produce very nice cash flows for our company, on the order of some $10 million U.S. per quarter on a pre-tax basis.

Looking to the future, Damang's gold production will decline slightly as we get slightly lower grades out of the stockpiles, also moving to mine some of the lower-grade clips (ph) and we will see a concomitant increase in total cash flows going forward, also because we're going to see return mining to more normal levels in the coming quarter.

Moving across to Australia, St. Ives certainly was the poorest performer in the portfolio, in fact across the group, with gold production down to 107,000 ounces in the quarter versus 123 in the September period. This only reflects a very poor performance out of the old mill. So be aware that we're currently replacing that mill with a new plant that was commissioned during the quarter, and it's been a difficult balancing act not exceed the investments in the old plant and also to keep it running. Typically, this plant treats about 780,000 tons per quarter through the old mill and in this period, only treated some 662. So that's a reduction in tonnage through the mill is what accounts for the significant drop in gold production. (indiscernible) affect to total cash costs, which moved contrary to our original outlook. And again, that's purely as a result of the reduced volumes. If you were to adjust to the lower volume, you'll see that there's nothing else behind that increase in total cash flows.

Operating profit obviously declined on the back of this and capital expenditures now down to $32 million Australian for the quarter, reflecting largely completion of the mill. During the quarter, the St. Ives mill was commissioned as we had promised. It produced some gold during the month of December and had come in inside of the $125 million Australian budget that we had set out originally. We've been very pleased with the speed at which the mill has been commissioned. We are using some fairly tricky technology, or demanding technology on these very large single-stage SAG mills with the integrated wraparound drive where the motor is effectively integrated into the north shelf (ph). That’s a technology that has long-term operating benefits but can be quite tough to commission, so the speed at which it has come up has been very pleasing for us. So the mill was commissioned in the month of November -- sorry, the month of December -- and we expect the ramp-up to happen through the month of January and that's happening as we speak at the moment.

Looking to the future, we're going to expect a decent increase in gold production from St. Ives for the March quarter and this reflects a period when we will operate the old mill and the new mill in parallel until we're satisfied that the new mill is completely commissioned and operating reliably. So a significant increase in gold production coming there.

Now unit costs will not decline significantly in the coming period. That's because our total cash costs will include some significant non-cash charges as we treat some fairly high-cost stockpiles, which are built up ahead of the St. Ives mill ahead of the commissioning. Just along with some of the residual costs from the old mill will be around in the March quarter, and we look for a much better improvement going into the June quarter at the end of this year.

Finally, the Agnew Mine in Australia, again a very good story. Gold production up about 6% to 49,000 ounces, total cash costs largely flat from the previous quarter. This is a result of 10% increase in operating profit to some 10 million Australian dollars for the period to December. Capital remains fairly high at Agnew as we continue the stripping of the new Songvang open pit and the development of the new Main Lode underground mine. Those are important projects for the future and we've got very interesting things in the pipeline at Agnew going forward.

In terms of outlook, we expect Damang -- excuse me, Agnew -- to maintain this level of production and profitability and continue to be an important source of profits into the future. So that's the operating mines.

Moving across to our development projects in Finland and Peru; firstly, the Arctic Platinum Project. The focus there remains on the Suhanko open pit project, which is the project to develop some large open pits with the production of concentrate on-site for toll treatment off-site. During the quarter, the bulk of the work focused on the permitting of the project, as well as the extent of interaction with stakeholders and continue to move on the land acquisition for the project. You'll recall in the previous quarter, we referred to a mid feasibility study review we had commissioned in about the month of October. This was to review some of the parameters that were going to the feasibility study and the scale of the project being completed there. This review is due to be completed in early February, and we expect to take a decision on the way forward for Arctic during the third quarter of F 2005 or the period ending March.

Then of course in Peru at the Cerro Corona project, you again will recall that in the previous quarter, Peru experienced some severe civil disturbances associated with gold mining, and in particular in the Cajamarca district, which is where the Cerro Corona project is located. And that had direct impact on our sites as well as more broadly in the mining industry. During the December quarter however, we managed to restore access to the site as well as resolving some title issues, in terms of ownership of the project area. And as a result, we were able to restore activities on the site and start to move forward on the permitting and the balance of the feasibility study work. We expect to submit the environmental permits in the third quarter of this year and expect it to come back late in the first quarter or second quarter of F 2006. That's about a 6 to 9 month permitting window, which is not typical for that environment taking (ph) a heightened level of vigilance around these permitting exercises in Peru.

The final leg of Corona is in the feasibility study and we have now committed to a final phase of that, having appointed a new contractor to move forward with that. And that work has commenced and will be completed by the end of this fiscal year, or the end of June of 2005. We're moving forward on a slightly bigger case than we had previously spoken to the market about, where the base ore production and concentrated treatment rate will be some 6.2 million tons per annum.

That's the development projects. In summary, the international operations are in very good shape, looking for an increased production coming out in the coming periods. That's an improvement in margin and really to end with greater mix points (ph) at the development project on our delivering, but also fully funded. So from a financial point of view, in excellent condition. Thank you, and back to Ian.

Thanks, John. Before I move on to the concluding remarks, I just want to touch briefly on exploration. You're aware that for many years, Gold Fields has maintained a very well funded and resourced global exploration program. In fact, last year alone we turned over 16 projects that didn't match the Gold Fields franchise, and we replaced them with fresh opportunities. However, one of our more promising programs that I really would like to bring to your attention is that of the Essakane project in Burkina Faso, where in conjunction with our joint venture partners Orezone, we currently defined an indicated and inferred resource of over 2 million ounces with very exciting potential to develop world-class at this point. Certainly we're confident enough to further expand the drill program here, and over the next quarter or so, we will be commencing with an initial scoping study to evaluate this camp's potential for possible development.

Certainly, the work that we've done to date there leads us to believe that this is a very significant find. Whilst it's not one particular ore body, we have -- the Essakane main zone is one central ore body surrounded by several satellite opportunities, all within a 10 kilometer radius of the main open pit. And it's looking extremely exciting. Certainly a lot of the work we have done leads us to believe that as I said before that we will be able to significantly increase the amount of ounces that we get here. So we're looking very forward to some positive outcome on this project.

Then on to the concluding remarks. I think as Nick previously stated, whilst our cost management initiatives are already showing bottom-line benefits, the whole process is gaining momentum, and we're going to start reaping the benefits of recent contract renewal initiatives over the coming year as we draw down on those improved contracts prices.

In addition, you've heard from both Nick -- from both Mike and John -- that our operations are doing well, and despite the distractions of the Harmony bid, and our operation start is remained focused on getting the job done and we're looking forward to improved performance, operational performance, in the March quarter. In fact I think it's great credit to the operation start that they have been able to improve their performance, not just in terms of output and cost, but also in terms of safety during this very trying time.

Our outlook for the next quarter is positive. We believe there will be a further increase in gold output, somewhere in the order of 1.09 million ounces, and at similar cash cost per ounce as this quarter. That's all subject to the Rand-dollar exchange rate, not fluctuating within too wide a range of where it currently sits. In fact, I think it's fair to say that the people of Gold Fields need to be thanked for the exceptional performance under the trying circumstances, not only at the Harmony hostile, but also the tough Rand environment that they find themselves in. Clearly, this is a demonstration of the inherent quality and determination that resides within the Company and shows that Gold Fields can and has delivered on its promises. I think this is truly a hidden and hugely undervalued asset within the Company.

Finally, where are we with respect to the Harmony bid? Our position remains unchanged. We maintain the view that the Harmony offer seriously undervalues Gold Fields. Contrary to statements in the media, there is no controlled premium being paid in the current offer, and there's no cash component in this offer. It simply comprises of Harmony paper. The offer is a ratio of 1.275 Harmony's to one Gold Fields. And when the early bird offer was closed off, that only procured a grand total of the 11.5% of Gold Fields' stock. Since then, the peak spread in the market has further ballooned and ranges anywhere -- tends to fluctuate -- anywhere between 1.36 and it did in fact close at 1.39 in New York at the close of business last Friday. I think this is the market telling us that they do not believe that the bid will be successful at these levels, or indeed if it will be consummated at all.

The offer remains underwater, seeing as (ph) (indiscernible) Harmony are (indiscernible) approaching us saying (ph) they're opposed to a higher bid. So frankly, I'm unclear as to where this leaves Harmony. The moves to unconditionally also tells us that Harmony is doubtful they would be able achieve greater than 50% ownership of Gold Fields; hence, the removal of all pre-existing conditions in a last-ditch bid to keep this whole bid alive. In the history of corporate M&A activity, there has never been a hostile bid that has been successful whilst it remained underwater.

As things stand, there's been no exchange of information between ourselves and Harmony that would have enabled us to change our current views on the relative valuations. There's been no discussions that would have led to any agreement, and there is certainly no "done deal." Consequently, we stand by our view that the current Harmony offer seriously undervalues Gold Fields, and shareholders are strongly advised not to turn to their stock. In any event, stock should not be tendered until certainty is reached on the composition tribunal hearings, as until that tribunal has handed down a judgment, all conditions precedent to the transaction is not being met, and anyone tendering in may find themselves in a minority state within Gold Fields; i.e., in a No Man’s Land.

In the meantime, the management team at Gold Fields is devoting their attentions to our operations, improving where we can and delivering on our promises as we've done in the past because we believe that this is the best way that we can repay the support that you've given us not over the past few months, but also over the previous years as well. With that, I thank you, and I will now open up the call to questions.

(OPERATOR INSTRUCTIONS) James Copland, Goldman Sachs.

Good afternoon, everybody. Just on St. Ives, given that the mill's now constructed, do you have any sense of the configuration of operations going forward in terms of phasing out of the old mill, what percentage perhaps of production coming from heap leach etc., or any guidance in that regard please?

We do expect around the old mill for about 6 to 8 weeks of the March quarter and we will definitely shut it thereafter. The biggest reason for that is that it's very expensive to run and we had always planned to do that. There's no sense in keeping it running in parallel with the new Lefroy mill. That's from a purchasing point of view. Current plans are to maintain the heap leach at around the 2 million ton per annum mark, which produces about 40 to 50,000 ounces a year of gold. And that's of the total target that we expect out of St. Ives, once we have the new mill running of around 600,000 ounces per year in total.

In terms of the operational configuration, on the mine side, we – St. Ives -- Junction mine ramping down through the remainder of the financial year. We've got some very good remnants recovery going on there. And as a result, it could be replaced with ore largely from either underground and in the Leviathan complex, most important of which is currently East Repulse, but we looked at Contra (ph) coming in late in the third financial year. So those will be important sources of underground ores, and then we've got mining spread right through the revenge (ph) complex where the biggest source at the moment is Mars, but we're moving mining also into the Agamemnon West area.

Thanks very much for the detail. And maybe one for Mike. There's a sentence in the press release which says that seismic activity at 5 shaft complex remains a concern at Driefontein. Do you have any color on that one, please, Mike?

On that, 5 shaft, in its production buildup is mining a very concentrated area on the first three raise lines. And with the commissioning of the refrigeration -- I think (indiscernible) refrigeration in the bulk air coolers which we're in a process of doing at the moment -- that will give us a lot more flexibility to be able to mine more raise lines. So when I say there is a concern about the seismicity (indiscernible) of the seismicity on the production machine, that when we're heating (ph) that concentrated area, it impacts on the volumes. We just found there the flexibility to move those crews to other working areas whilst we open up. So with the new refrigeration and bulk air cooling and the improved inflation (ph) conditions, we will be able to open up more raise lines and thereby have more mining flexibility. But for the short term, that is a concern.

Thanks very much.

Barry Cooper, CIBC World Markets.

One question here relating to I guess your project beyond where you talk about suppliers and whatnot. I guess what we're seeing in North America here is that as much as you'd like to get a whole host of suppliers, they've basically gone out of business because of the downturn in the mining sector there. There's only one supplier of steel balls (ph), there's only two suppliers of explosives. What is the situation in South Africa, and are you able to get a whole host of suppliers there that can actually bid for your consumables?

Barry, there's no doubt that by looking worldwide for suppliers as opposed to focusing only on South Africa, we can certainly increase the price tension. But the one thing we don't want to do out of this project is to put suppliers out of business such that we end up with no price tension at all. And one of the things we're trying to do here is to create risk-reward relationships to suppliers to create a win-win situation. In other words, if they get security of off take (ph) and we get benefits of improved prices. And one of the ways of achieving that is to look at the drivers in each business and work out how best we maximize that for both bodies. So it isn't just about scrounging an extra 10 or 15% each year off suppliers until we force them out of business, very soon you're going to end up with a situation where it rebounds on you (ph). So there's a careful balance here that one has to achieve and we do want to keep competitive tension out there. Pretty general answer I'm giving you without going into specifics, but hopefully you get the gist of what I'm saying.

On your table, with respect to showing the I guess the evidence of non-hydrating there, one of the deposits that stands out obviously is Kloof with the grades that's being mined 10% below what the headline head (ph) grade should be and what not. Just wondering, how does that fit with the Saks Fifth Avenue kind of plan, and how long is it going to take to get the grades up (inaudible)?

I'll just say that it depends on how much slope and terrace mining actually takes place across all the shafts at Kloof, which determines its grade or mix for that quarter. But there's no doubt that with the buildup and the ramp-up at number 4 shaft in the higher grade areas, and the mining of the main shaft pillar that those grades will be achievable going forward. Probably over the next two quarters, we will be able to get it ratcheting up higher than the 9.2, and then we (indiscernible).

I think Barry, just to add to what Mike has said, I think if you look at the global ore reserves, you have some very substantial shaft pillars like the main shaft pillar. And that carries a very high grade, which is obviously currently not available for mining. So although the ore reserve grade is somewhat higher than the current mining, it's because of what is available to the mine. As Mike said, at some stage, that will come out and we're already in the process of evaluating the opening up some of the shaft pillars to make them available for mining in due course.

Thanks. John, could you just outline -- sorry -- could you outline what's the plans then for Cerro Corona? You had indicated 2006 for permitting and what not, so is that pushing actual production now until 2008, or do you still have a 2007 time horizon for production there?

To the extent that we complete permitting in the latter half of this calendar year, we will definitely get going. We should all get going this year. And then there's only about a two-year construction and ramp up time. So we should still be in calendar 2007 for mine production. Obviously, it will take some time for the metal to get through the pipeline with the toll treatment, but that still should be in 2007.

I gather from that part of -- the latter part of 2007?

Yes, that would be, particularly in terms of significant volumes out of metal production.

Maybe you could just walk me through -- when I see your table on page 16 and you take the operating cost per ton, and I'm talking about St. Ives in particular here, at $34, you multiply by the tons treated and then divide it by the ounces produced, so you're coming up with a U.S. dollar cost of around $400 as opposed to the 348 that you post for the quarter. Where am I making an error there of $52? Is that in your hedge position and how you're treating that?

Sorry, (indiscernible) information on what’s the right numbers here. Barry, I think I understand what you're doing. You're taking total expenditure and dividing by ounces produced. There's a big mismatch there because we still were mining more than we were treating, so you need to take account of that GIP charge, which in this quarter was 6.5 million, in the previous 11.9 million. Those will reverse off in the second half of this year as we start to treat more than we're mining.

Thanks a lot, that's all I have.

(OPERATOR INSTRUCTIONS) Heather Douglas, BMO Nesbitt Burns.

Can you give us an update on how -- what the status of your mining license application is, and maybe tie in a little more discussion about the negotiations you've had with Mvelaphanda, about changing their 15% stake in the South African operations into a share holding?

Heather, I will talk to the first question and Nick can talk to the second point. As far as the mining licenses are concerned, there has been an iterative process with the DME over the last three or four months. There was an issue around certain plans that had to be submitted requiring some surface mapping. They have been completed, and we're now virtually at the point where having had these discussions with the DME, that within the next couple of weeks or so, we can submit a fully worked-up submission to the DME. So we're in good shape on all three of our operations.

So you're submitting them all at the same time?

Basically, yes, because we see it as a complete process and it's the most cost-effective way of utilizing our resources.

In terms of the second question (technical difficulty) just to be clear, we're not accelerating the interest that Invella (ph) has in terms of the shareholder. I still will get the shares in four years time, because a year is basically elapsed come the end of March. But the format, as you can recall, for determining the number of Gold Fields' shares that they would get if they elected to flip up was that we took the ratio of the value of the South African operations, their share of that of the total group. All we've done now is we've put in a floor and a cap on that. The same formula will apply, and they'll still only get their shares four years down the road. But we've put in a floor and a cap.

The reason we've done that, we've put in the floor because the funding for the transaction has been provided from a number of sources, and the mezzanine finance in particular is secured against the underlying shares. One of the things we don't want to happen here is that if we get into a protracted situation of Rand strength or even more Rand strength, we don't want to find that they trigger covenants in terms of their agreements with the mezzanine lenders. So we decided to put in a floor which also gave them and ourselves certainty as to the final interest they would get if they flipped up. They still get 15% of the South African assets after five years, and then either us or them can require that exchange to take place. And if you did the sort of calculation based on the long-term prices we believe are appropriate, then 45 million shares as a floor is very close anyway to where we think it should be. That compares to around about 50 million shares that they would have got using the prices that prevailed at the time of doing the deal. The quid pro quo, of course, is that the cap is put in place so that if we have a runaway Rand situation, or a Rand returning to levels it was back in 2001, that they don't get an inordinately high share of these top companies that flip up. So they're paying something for getting the floor.

And my second question just has to do with the current Rand environment. I recognize that the below infrastructure projects are likely still on hold, but can you give us an idea of what decision-making or how you're progressing them at all?

We've completed the feasibility study on the KEA (ph) and on the 50-level (ph) drop-down for the D Plant (ph) at Driefontein. We've finished the prefeasibility on the EVI (ph), and those projects are now all on hold because they do have to get prices ranging from between 85,000 Rand/kilogram (ph) to this sort of 95,000 Rand/kilogram (ph). So the work has been done and we will perhaps (indiscernible) those feasibilities if the Rand and kilogram price gets to those levels.

Thank you.

John Doody, Gold Stock.

Two questions. One, I'm not quite sure I understand how the Envella (ph) 15% interest -- which I understand why they get that, for the Black Empowerment Group -- how you still meet the terms of the 15%, if they or you caused the interest converted to Gold Fields' shares.

Are you talking about the test in terms of the charter?

Right.

The test in terms of the charter, is that on a time of doing the deal, or at the time of doing the deal, we have to have the empowerment (technical difficulty) 15%. This deal at the time of doing it product-wise will be Empowerment credit. That was cleared and checked out. The fact that Envella may decide or we may decide to exchange those shares, the 15% shares in the (technical difficulty) compared to Gold Fields in no way detracts from their credit. And that was key to us proceeding with the transaction to make sure that we had all that in place.

It was my understanding, though, that the ongoing interest of the Black Empowerment Group had to be 15%. So presumably, if it's not a 15% ongoing, it could be diluted down to some much smaller interest.

Just to repeat, the test is at the time of doing the transaction. At the time of the transaction, we satisfied the requirements.

The other question relates to the Harmony offer and the Norilsk interest. And I know you have had conversations with Norilsk and I've seen reports in the press that the Harmony-Norilsk deal, the lockup expires in May of this year. Can you comment on that?

John, that's exactly right. I think it is May 5 that the irrevocable expires.

So then there's no relationship or no ongoing commitment by Norilsk to Harmony and something else could happen to their shares if need be at that time?

As the irrevocable is written now, that is the drop-dead date of the irrevocable.

Thank you.

James Copland, Goldman Sachs.

Just further to Heather's question about the 85,000 to 95,000 Rand per kilo gold price necessary for the South African big level projects. One of the issues about the Rand is not as much as strength as volatility, and given these are long-life projects, what are the conditions precedent that you need to execute on the decision -- in order to make the decision to go ahead given that they are very long-life projects?

Jim, good question. Just as a point of clarification, if you look at the annual report and the supplement that went in the annual report, you'll see that all three of those projects were evaluated at prices ranging between 85,000 and 89,000. Sorry for the error there. But if one looks -- it is obviously a question of price. Clearly, one takes a long-term view of a long-term sustainable price. But what we're also doing is we're seeing if there are ways around us being able to further reduce either capital cost or working cost such that we make those projects more viable. So really, it's a combination of the Rand price environment that we would work in, what we see as being the level for the productivity that we could achieve in new areas, of new layouts. Those I think are the most important factors, because ironically enough, these projects are sensitive to working costs. They're also sensitive to grades. And when we spend a lot of time and money firming up on the grades in these areas, and particularly at KEA, we've put a lot of additional holds in place to sum up our geological models. And so far, those models have been holding up quite nicely. So it's the normal variety of issues that would determine the viability of these projects.

Thanks very much.

We will take the last question now.

Sir, you have no further questions at this time.

Thank you very much indeed. Thank you to everybody who has listened in on the call. We appreciate you being here, and we look forward to giving you some very sound results in the March quarter in three months time. Thank you all, goodnight, and cheerio. Bye-bye.

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