Gold Fields Ltd (GFI) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields third quarter fiscal 2006 conference call. My name is Gregory and I will be your coordinator for today. [OPERATOR INSTRUCTIONS]. I would now like to turn the call over to Mr. Willie Jacobsz. Please proceed, sir.

Thank you very much, Gregory. Ladies and gentlemen, thank you for joining us for this third quarter results teleconference call.

Ian Cockerill is going to give some introductory remarks, after which Nick Holland will take us through the finances. And then the rest of the line up will be Brendan Walker, who joins us today for the first time to talk about the South African operations, after which Terence Goodlace will talk about the International Operations. Ian Cockerill will then wrap up again.

I hand over to Ian now.

Willie, thank you very much indeed. And let me also welcome Brendan here to his first teleconference call. I think it’s fair to say that if his previous performance in Ghana is anything to go by, I think we can all look forward to some positive local results in the not-too-distant future.

Now, it’s said that the gold industry is never a dull place to be in, and certainly I think that was characterized at this past quarter. We saw the gold price rise to some of the highest dollar levels seen in years and, despite a strengthening rand, we saw rand-denominated gold prices also reaching new recent highs.

Naturally, these all assisted with the results we’re going to be presenting here today. But I think it would also be fair to say that that would mask what has been a very good overall performance for the Group as we build up the platform that we’ve established these past few years.

Certainly, we’re currently benefiting from a confluence of positive factors - a high dollar price, a good rand price, a diversifying and growing production base and a business model that has the make up to benefit from those features.

So what were the highlights for the quarter? Well, net earnings were up 90% in U.S. dollar terms to $76m. Gold production was down marginally, 2%, to 1.023m ounces, on the back of good performances from the international operations and Driefontein and Beatrix.

Along with the previous guidance that we gave last quarter, Kloof did have a poor quarter but showed signs of improvement in the last month of the March quarter.

Once again, our cash costs or our total cash expenditure was well contained. And this certainly helped, on the back of slightly lower production, limit the cost rises to $372 per ounce. And pleasingly, our operating margin is up from 28 to 32%.

We also concluded the Bolivar transaction in the last quarter, and we are now commencing the bedding down period of this acquisition. Terence will go into a little bit more detail on that later on in this call.

Finally, and probably the most significant event in the quarter, was the sale by Norilsk of their 20% stake in Gold Fields. This was a record-setting sale of over $2b, the largest ever placement of a gold stock, and all completed within 48 hours into a fairly restricted market. Proof, I’m sure that you’ll all agree, that Gold Fields is a highly sought after counter in what is a very, very exciting gold market that we have at the moment.

And with those brief introductory remarks, let me hand you over to Nick, who will go through the financials.

Thank you, Ian. As Ian has mentioned, operating profit has increased substantially over the previous quarter, and this quarter we had operating profit of $190m, as against $146m in the previous quarter. And, as mentioned, that’s on the back of the high prices achieved for the quarter, $555 an ounce compared to $482 an ounce.

Interestingly enough, if you look at where we are today, we are roughly $100 an ounce higher than the average price achieved during the last quarter. And I’m sure you can rework the numbers yourself on the basis of today’s price, assuming that all other parameters, production stats and costs are the same. And no doubt you will see there’s substantial up-side potential in these earnings for the forthcoming quarter.

Net earnings for the quarter then, $76m. And in terms of cost initiatives, I think it’s fair to say that we continue to deliver on those cost initiatives. The main cost initiative is the supply chain project, so-called Project Beyond, the [inaudible] operations. And, pleasingly, I think that by the middle of next financial year we will have largely achieved our objectives at the local operations.

And also we are rolling out these initiatives to the international operations, and we are looking for synergies where possible across our operations to take this forward.

I think the one thing, though, that is becoming clear in this industry as well as other industries, however, is that the costs and inputs are going up all over the place. We’re seeing oil going up. We’re seeing steel going up. We’re seeing things like cement and timber going up locally. And also the cost of labor is going up. Scarce resources are becoming more expensive.

So certainly these initiatives are important just to make sure that we can maintain these operations where they are, and they’re very helpful in mitigating some of these increases.

Turning to the cash flow of the Group, cash flow from operations more than doubled in the quarter to $190m. And again, if you rework the cash flow based on $100 an ounce higher price, you can work out yourself that that will result in much higher cash flow.

Over the last quarter, as Ian mentioned, we have spent $400m on acquisitions. We bought the Cerro Corona project in Peru for $40m. That gave us an 80% economic interest in that project. And we also bought the Bolivar company, which has the Choco 10 mine, for $360m. But also the surrounding land package of about 25,000 hectares now exclusively belongs to Gold Fields.

And Terence will talk more about the plans going forward to take this operation to the next level.

As a consequence of these acquisitions, though, our cash has reduced from $461m last quarter to $239m this quarter. And for the first time we are now showing a net debt figure of $105m, and gross debt of $344m.

We do have other commitments going forward that we need to fund. The Cerro Corona project has commenced in Peru, and it’s $277m of capital expenditure to be spent over the next 15 or 16 months or so. That’s the commitment. We stepped up the exploration at Choco 10 mine in Venezuela, and we’re probably going to be spending about $20m over the next six to eight months.

And there’s likely further coming requirements in terms of a potential expansion of Bolivar. There’s a type of mill expansion which Terence will tell you more about and the Essakan pre-feasibility study which is moving into full feasibility and is expected to be completed during the course of 2007. So certainly more substantial funding is going to be required to fulfill the growth strategy of the Company.

And with that synopsis, I will hand you over to Brendan Walker.

Thanks, Nick. Good afternoon, ladies and gentlemen. At the South African operations, both Driefontein and Beatrix’s gold production was similar to the previous quarter, the Christmas break having had real impact in both these operations. At Kloof gold production decreased, resulting in an overall decrease of 7% and a total production of 646,000 ounces for the South African operations for the quarter.

Operating costs increased by $10m to $276m, as a result of the rand strengthening during the quarter.

Total cash costs increased by 13%, to $415 per ounce, as a result of the 7% lower gold production and a 6% increase in the strength of the rand.

Operating margins increased from 21 to 22%. Capital expenditure for the quarter was at $27m, and forecast to go to $33m in the next quarter.

Driefontein’s gold production of 284,000 ounces was basically in line with the previous quarter. The reduced underground gold production as a result of the Christmas break was supplemented by 25,500 ounces from the final gold clean up of the number one gold plant, and additional surface tonnages milled.

Operating costs increased by 6% to $110m, and total cash costs increased by 10% to $376 per ounce. The operating margin was at 29%.

Gold production at Driefontein for the June quarter is forecast to be between 5 to 10% lower than the March quarter as a result of lower anticipated underground grades of number 1 and number 4 shafts, while surface gold production was also reduced as the final clean up at the number 1 gold plant was essentially completed during the March quarter. Additional focus will be placed on the underground clean up and old gold to reduce the impact of the lower grade.

Gold production at Kloof decreased by 18%, to 207,000 ounces. Underground tonnages milled reduced by 17% quarter on quarter, with a small reduction in the underground yield. The drop-off in tonnages was as a result of Kloof having no stockpiled ore going into the Christmas break and a slow start-up in January after the break as a result of a labor dispute which has subsequently been settled.

Although operating costs for the quarter were flat at $100m, as a result of the reduced gold output the total cash costs increased by 24% to $467 per ounce. The operating margin was [40%] lower at 12%.

Gold production is expected to increase at Kloof by 10% in the next quarter, and will remain at approximately 235,000 ounces going forward until Kloof develops additional mining flexibility to enable it to better manage the reef’s [inaudible].

Gold production at Beatrix was constant quarter on quarter at 155,000 ounces. A 4% [sic - see release] increase in average value mined, coupled with improved sweepings and having a reef stockpile going into the Christmas break, ensured a constant gold output.

Total cash costs increased by 6% to $416 an ounce, in line with strengthening of the rand. Beatrix’s operating margin increased by 47% to 22%. Gold production and costs for the June quarter at Beatrix are forecast to be similar to those of the March quarter.

In conclusion, the outlook for the June quarter’s gold production will be similar to March quarter, with the increased output at Kloof making up for the forecasted decrease at Driefontein as a result of the strong clean-up gold coming to an end. Development meters are expected to increase by 7% to 28,000 meters.

To summarize then, going into the future, Driefontein is expected to be a much lower 8.5 ton per quarter producer, mainly as a result of the depletion of the surface clean-up gold, and we expect Kloof to be a 7.5 ton per quarter mine, reaching these levels in the September quarter.

Unfortunately, in the current quarter, we had a fire which started in the middle of last week in our low-grade main reef area. And at this stage the extent of that fire -- or the effect of the extent of that fire is difficult to determine, but could be between 100 and 200 kilograms of gold.

We anticipate Beatrix to remain at the current level of 4.8 tons per quarter.

Thank you. I now hand over to Terence.

Thank you, Brendan, and good afternoon all. The International Operations improved for the quarter, with attributable gold production at 376,000 ounces, up from the 342,000 ounces of the previous quarter. Managed gold production across the operations increased to 450,000 ounces from 407,000 ounces.

Costs for the quarter were $11 per ounce higher, at $310 an ounce. And the primary drivers for these cost increases were increased volumes at Tarkwa and St Ives, and the inclusion of the newly acquired Choco 10 mine in Venezuela.

The increased gold production, along with the increase in the gold price to $555 an ounce, reflected in an operating profit increase of 48% to $112m. Operating margins increased to 45% from 39% reported previously. Capital for the quarter across the operations was $41m, as against the $34m reported in the December quarter.

Tarkwa delivered record throughput at the CIL plant and the heap leach facilities, and this ensured an increase in gold production of 15%, to 192,000 ounces, and operating profit of $51m, and an operating margin of 48%. Operating costs increased to $55m, and total cash costs increased to $290 an ounce. The cost increases reflect increased mining and stripping volumes.

Capital amounted to $16m, with spend primarily on the Teberebi pre strip, heap leach pad construction, and the purchase of various bits of mining equipment.

Tarkwa has commenced with a full feasibility study to totally optimize the life of mine plan at a gold price of now $450 an ounce, and this includes increasing throughput at the CIL plant. This study is expected to be completed by calendar year end. The prime focus of the study is to maintain production levels at Tarkwa at 700,000 ounces per year.

For the June quarter, Tarkwa will reflect a marginal decrease in gold production, along with slightly higher unit costs as compared to that achieved in the current reporting period.

Damang again performed ahead of expectation, as seen, with a 3% increase in gold production to 62,000 ounces. This gold production improved through consistent open-pit and stockpile grades, along with a slight increase in mill throughput. Operating costs increased by 6% to $20m, and the net effect of increased gold and increased costs was the 4% increase in total cash costs to $344 an ounce.

The operating profit of $13m -- and was $13m and the margin 40%. The primary cost increase came about through increased re-handling of stockpiles. Good progress continues to be made on the Damang pit cutback, and this project comprises 75% of the $8.1m in capital spend for the quarter.

During the coming quarter, it is expected that gold production levels will reduce by some 10%, while costs remain at current levels.

St Ives improved quarter on quarter, and the gold production was 7% higher through a 40% improvement in gold mined from the open pit and similar underground production. Each performance was consistent at 8,500 ounces.

Operating costs increased by 16% to $63m before non-cash items, and these costs reflect a 12% increase in open-pit ore volumes mined, increased waste normalization charges of $3.7m, and a price participation royalty of $1.8m paid to Morgan Stanley.

Total cash costs increased by 4% and are currently at $334 an ounce. The operating margin at the mine is currently 42%. Capital expenditure was AUD17.4m, and this was driven largely by the pre-stripping of the new Thunderer open pit, which constituted 65% of the spend.

A five-day planned mill relining shutdown has affected production during the current quarter, or the month of April, but gold production and costs are planned to similar levels as that obtained in the current quarter.

Agnew continues to perform in line with plan, with gold production at 55,900 ounces. And that came along the back of underground grades which improved to 12.2 grams per ton, albeit that the open-pit grades decreased to 1.86 from 1.96 in the previous quarter. The Songvang open pit, which is the primary source of surface material, continues to struggle with lower volumes and grades than planned, driven by hard ground conditions and complex ore structures.

Operating costs overall are well-controlled at AUD20.5m, and the higher gold price has ensured an improved operating profit of AUD20.9m. The margin at this mine is 50%.

Total cash costs for the quarter are $281 an ounce. Capital expenditure for the quarter was $5.3m, and this driven largely by the development of the Kim and Main Lode underground mines.

We are forecasting similar gold production levels for the June quarter, but an increase in unit costs as a result of changes to the mining mix, with more lower-grade Main Lode ore being mined.

The Choco 10 mine in Venezuela was added to the fold with effect March 1, 2006. And it’s important to note that in our quarterly results we only have a month of results. There’s not a quarter’s results. The mine has been acquired on the basis of prospectivity and I must say that every hole we drill in this ore body is testimony to that.

Our prime focus in the medium term is to build and position this mine for the future. Our approach as far as Choco 10 mine is concerned has been one of a deliberate and systematic approach to safety, health, environmental community affairs, mining and the processing plant. And we’ve started at the front end and worked our way through it with a measure of specialists that come out of the corporate office here in Johannesburg, as well as other people.

To this end, we have also commenced with a detailed exploration program, with the express aim of increasing the resource and reserve base such that we can determine an optimum mine site. A study in parallel, due for completion by the calendar year end, has been commissioned to examine plant and tail-end expansion opportunities.

We are also currently busy with a two-year plan, and we will be in a much better position to report on future cost and production levels during the June quarter. In the short term, we are setting up and investing in the processing and mining facilities to deliver on current design.

The primary focus is related to ensuring that the CIP plant can consistently deliver 5,400 tons per day. And I must say at this point that our metallurgist, our Group metallurgist, has just returned from Venezuela and in his last two visits has said that there has been a dramatic improvement in the improvement at the plant. It’s not that we didn’t know about it during the due diligence, but we wanted to get it to the standard spread Gold Fields operates at. For the upcoming quarter, we have planned to deliver 20,000 ounces.

Overall, the International Operations should deliver a similar performance to that achieved in the March quarter. Margins and cash flow will continue to be robust with the current production levels, the current high U.S. dollar gold price and Australian dollar gold price, as well as what we are doing as far as costs are concerned.

Thank you, and I’ll hand over to Ian.

Thanks, Terence. Now, normally at this stage in the conference call, John will give you some feedback on the projects. But John is currently on leave. So I will just give you a brief update as to where we are on Cerro Corona.

During the quarter, we received all the remaining permits that were required for this mine. That’s the environmental permit, the mining permit, as well as the construction permit. And the construction of this project is now underway.

Certain of the projects -- or certain of the contracts have been awarded already, several to local operators as well as international operators. And, as things stand at the moment, and bearing in mind any unforeseen mishaps, we are still on line to be producing concentrate from this operation before the end of calendar 2007.

Back home in South Africa, we continue to evaluate the drop-down projects, both for Driefontein and Kloof, and we will be presenting our latest findings to the Board later this month. So far, the reviews show that prospects look good for a positive decision, which will be made over the next four to five months once final design and costings have been completed.

Terence mentioned that we were looking at further expansion of the new Tarkwa mill. This would be to facilitate the treatment of greater quantities of ore, particular from the southern end of the lease. This area, the heap leach pads, will be reaching their final capacity in a few years’ time. And when one bears in mind the higher prices we’re currently receiving, we’re now forecasting -- the higher prices that we’re forecasting, this makes mill treatment of this ore, together with the better recoveries through the mill process rather than heap leaching, albeit at higher unit costs, a much more attractive option.

It’s unlikely, as Terence said, to lead to any significant increase in output from Tarkwa, but certainly will prolong the period of maximum output for many years into the future.

On our corporate development activities side, these continue. But, as you’ll appreciate, the ability for Gold Fields to discover value in these markets, whilst not impossible, is becoming increasingly difficult. And several opportunities have been identified across the globe. And when we are in a position to discuss these more fully, then obviously we will do so.

You will also see from the quarterly report we go into a lot of detail about current exploration activity. And we are certainly focusing our exploration activities on those parts of the world that we have identified as being quite positive for the discovery of gold, and we are making good progress in several of those areas. You’ll see we have published a resource statement -- an updated resource statement for Essakan as well.

So I think one thing about this quarter that needs to be spoken about is clearly the gold market itself. For some time, I believe that we’re experiencing something that some of the older listeners on this call may remember happened last in the late 70s.

For several years, Gold Fields has espoused the opinion that the price of gold will rise for a variety of sound economic as well as emotional reasons, be they the realization that simple supply and demand can play a part in the sector, increasing concerns about the stability of the U.S. dollar, the subtle reemergence of inflation, the surplus of petro dollars sloshing around in the Middle East, ever escalating energy costs which have resulted in those petro dollar surplus, and last but by no means least, a factor that is relatively new today and that situation is the gold EPS. I think that many observers have failed to recognize the significance of this event.

And bearing in mind today that just under 500 tons of gold have been absorbed into this EPS in a very, very short period of time, and it’s quite clear to me that the growth in global gold EPS has played a significant role in the recent run up in gold price. Yes, jewelry demand has dropped in the December quarter, and that decline in demand of gold jewelry spilled over into this March quarter. But the demand for gold as an investment medium has never been better.

You may recall that several years ago some people were saying that, as the gold price went through $325 an ounce, then the jewelry market would dry up. It did surpass that price and jewelry demand actually increased, particularly in those areas where the World Gold Council actively promoted the product. Bottom line, if you show faith in your product, then so will others.

Now, I’m not going to attempt to predict the price of gold into the future. All I will say is that Gold Fields feel very positive on the upward secular trend. We see higher prices over the next 12 to 24 months, driven as much by positive investor sentiment. But to regain the jewelry demand side of this business, which is very fundamental to underpinning the price of gold, I do believe that we will have to see some price stability and then, wherever the price decides to settle, I feel reasonably confident that jewelry demand will return.

Jewelry demand appears to be affected as much by severe price volatility, and you see buyers standing in the sidelines waiting for stability. And I feel that once that stability comes back, then we will see some increased jewelry demand. After all, gold is a very precious metal. It’s been prized for thousands of years and I don’t see that sentiment changing too soon.

Thank you. And with that, Willie, let me hand over to you for any questions that people may have.

Greg, we are ready for questions now.

[OPERATOR INSTRUCTIONS]. And your first question comes from the line of Alan Cook with Nedcor Securities. Please proceed.

Good afternoon. Hi. Just a quick question. In the booklet that we received today, you mentioned that maintenance costs at Tarkwa will increase as the mine moves to higher maintenance rates based on increased [inaudible]. You’ve given us some increases this quarter. Your mining costs went from US$0.96 to $1.03. Could you indicate what kind of increase in your mining costs at Tarkwa you’re anticipating there?

Yes. Hi, Alan. It’s Terence. I think unfortunately the fleet is now reaching the 12,000 hour mark, and that is the time when we most need maintenance. And, based upon that, we thought it was apt to reflect that in the book.

As far as what’s going to happen with the unit costs, as far as the unit costs are concerned, our aim is to try to keep them at $1.03 and not increase them. And the way to do that is to increase productivity and to increase volumes mined. And that’s what we are aiming to do.

Thanks. Perhaps just a last one, something I also picked up in the booklet. You mentioned that you guys have withdrawn from the Shandong JV in China. Any more detail on that? [Inaudible] still there or is China some -- essentially an area that you’ve gone cool on?

No, not at all, Alan. You’ll see that we actually increased our stake in Sino Gold. The Shandong joint venture was really one of a pure exploration play. But we’ve increased exposure to Sino, certainly with the forthcoming commissioning of the [Jintung] mine. We think that’s very interesting.

And also you will note that exploration activity has increased in the Fujian province, along with Zijin Mining. So we are certainly not cool on China. I think the withdrawal from the Shandong JV reflects the inevitable consequence of not coming up with some of the positive results from that area that we hoped there would be. And it’s simply a question that we set walk away criteria for our exploration crews. If they don’t match up to those, that criteria, then we stop and we move on to somewhere else.

Thanks, Ian.

And your next question comes from the line of Victor Flores with HSBC. Please proceed.

Thanks. Good morning. I was hoping that, for some of the costs at the South African operations, you -- could you give us a sense of how much of the increase from the December quarter to the March quarter is due to lower production as a result of the holiday season?

How much of that is due to ongoing cost pressures, inflation that is outside South Africa? How much of it is due to South African inflation? And how much of it is a positive impact of whatever cost-cutting initiatives are ongoing?

Hi, Victor. It’s Brendan here. In rand terms, our total costs for the quarter actually decreased by ZAR27m. So -- and that was largely offset by Kloof’s drop in production. So in absolute terms -- rand terms, that did drop. But with the rand strengthening to dollar of about 6%, that put pressure on the dollar side. And then, with our production being down 7%, if you add those two, that basically gives you the effect. But in absolute terms we kept the costs level with [inaudible] production.

I think the other thing, Victor, Nick mentioned it this morning on our discussion with journalists down here, if you look at consumables in South Africa over the past three years, taking our consumable expenditure and measuring that against area broken, our costs have actually remained flat for three years.

So what you are seeing is a higher unit cost expressed in gold produced. Bearing in mind that the expenditure for area broken is constant, I think that’s simply a reflection of the natural declining grades in our ore volume.

Great. Thanks. Second question goes to Choco. You mentioned that the production you reported was only for one quarter. Could you give us a sense of what the assets produced for the entire quarter and what the cash costs were?

Yes. It was just for the one month. I don’t have what it was for the full quarter but it was probably something like 20,000 ounces. And that probably [saved] some of the cash costs.

Great. And can you give us a sense of what the ramp up is going to be throughout the year? Because I saw a -- what I thought was a quote, attributed to Ian, saying that the production this year at Choco would be 120,000 ounces.

Yes. The ramp up, once we have everything in place and once we are happy with the safety in and about the processing plant, and once we are happy with the actual plant itself, I don’t foresee any problem with getting to that figure that Ian has actually mentioned.

We’ve -- as I said a little earlier, we are currently busy with the two-year plan. And that is only being presented to me next week. So it’s a bit premature for me to actually say what’s happening. But I do expect that we should easily be able to get to those 120,000 ounces.

Okay. And just a final --

Victor, sorry, just before Terence goes off that point, I think what is important is to clarify. There seems to be some confusion in the marketplace. Some commentators have been saying that there was supposed to 190,000 ounces this year. You have quite correctly picked up that I had flagged that it wouldn’t be 190,000. 190,000 was the number that we published on the back of information that was in the public domain by the previous owners. And until such time as we had done the review, we felt it inappropriate to put out any other number until we’d had a chance to review the process.

When we first -- when we had our first full review on the mine, post the due diligence, management at the mine indicated that 190,000 was not possible, 120,000 was closer, and we concurred with that. Also important to remember that we never factored in 190,000 ounces in the first year of production. So, unlike some people have suggested, well, have you not overpaid for this asset, far from it. We didn’t even assume that we would get those levels of production in the first year.

But the most important thing about this asset is that it’s a very, very perspective area. We have two choices. We can either push production in the short term and not sort out some of the bottlenecks, some of the issues that need to be sorted at this mine, and create an ever longer unstable performance in the operation, or take a short-term haircut and provide a solid platform to build off in the future.

This is Terence’s desire that he wants to do and I fully support him in doing that. And I suspect that, once he’s had a chance to have that review, we will be able to put out a much fuller statement as to the build up. But the build up will come and I think people, over the next couple of quarters, listeners will be able to see just how well Choco 10 has performed. And, in fact, it was a very good acquisition.

Okay. I think part of the confusion - thanks, Ian - part of the confusion may have stemmed from comments attributed to the Company back in November, where they did quote that 190,000. But I understand that that’s not a number that you put into the market.

That is a number clearly put out for promotional purposes.

Okay. I can’t believe they would do that. Thank you very much.

And your next question comes from the line of Muneer Ismail with Deutsche Securities. Please proceed.

Good afternoon, guys. Two questions. Just sorry to harp on about this Choco 10 thing, but it did kind of catch us by surprise, 5,000 ounces coming through. I fully understand that it’s only one month of production. But just looking forward, it’s 20,000 ounces what you are projecting for June. Now, it’s all good and well saying it’s premature to release what sort of numbers we are going -- or whether this mine can get up to 190,000 ounces, but if you could just give us an idea on timing of that, as we put these numbers into our model we need to predict forward. And we might deny you the value by looking at it as perspective and then stripping the total value of the mine out of the model. Can you not give us some indication of for how long it will run at 20,000 ounces?

Muneer, hi. It’s Terence. I think the key thing for us is that we’ve got 19 projects on the go right now, just looking at the processing plant. All of that is being timed. All of it needs -- we need to procure everything in terms of refitting the plant and recapitalizing the plant to our standard. That is on the go right now. The engineers and company have only just returned from Venezuela. And from that basis it -- as I say, it is premature to give you guidance on something that we haven’t fully timed ourselves yet.

But my expectation is certainly towards the end of the year we are certainly going to be above the 20,000 ounces. But if you look from beyond June I expect, and based upon what I’ve been told so far and what’s actually happening at the plant, I expect that we will quite comfortably be able to beat the low number of 20,000 ounces. All I ask is that you give us a bit of time. We are going through the process. We’ve had the operation for a very short period of time. And we will give you guidance in the June quarter.

Fair enough, fair enough. On the -- on Kloof, if -- I’m not sure if this is for Brendan or for Ian. But looking at 2007, 7.5 tons per quarter, I am okay with that. But just tell us what sort of grades are we looking at, or what sort of volumes? Is the problem with the volumes, or is the problem on the grade side? Can you give us an indication of that?

And then when would we look to benefit from a higher production number going forward, once again for modeling purposes?

Okay. In the shorter term, Muneer, the issue will be grade. We see a slight decrease in grade going forward until we can bring the number one shaft pillar into play, which is between 18 and 24 months away. So that’s really what’s going to make the difference. In a shorter time, there will be a slight drop-off in grade but volumes will be the same.

Thank you very much. Thanks.

And your next question comes from the line of Joachim Berlenbach with Craton Capital. Please proceed.

Good afternoon. Could you give us some guidance regarding the re-hedging at Essakan? Firstly, when will it be finished? And secondly, which direction do you see the grades going at Essakan?

Joachim, I think we said previous quarter that that whole re-assaying probably will be complete, thus that we could publish a final bankable resource statement; I think it was by September. We are still on line to be able to do that. And my sense is that what will eventuate is a number that will give a slightly lower grade overall, but spread over more tons for more ounces in totality, rough guidance.

Okay. Thank you.

And your next question comes from the line of Peter Townshend with Barnard Jacobs. Please proceed.

Good afternoon, gentlemen. Just to follow up on what Joachim was asking, on Essakan, even if you do get a slight increase in your tonnages and overall gold at somewhere between 3m and 4m ounces, if you presume some of that incurred moved into a mineable category, is that enough for Gold Fields at the moment? Your old rule of two is, I am guessing, probably no longer strictly applies. But does this project still look like one that is a Gold Fields size project?

Peter, the rule of two is an aspirational entry level for project size. Clearly we would like to acquire assets which are larger than that. I think the numbers that you are looking at really go around the Essakan main zone. There are other satellite deposits in this district, all within relatively easy tracking distance, that have not been factored into these numbers as of yet. We don’t know what that is going to come out as.

To be honest with you, it will be nice to have something which is larger than 4m ounces. However, what is more important to us is the size of the margin on those ounces. Because we could find a 10m ounce deposit, but it’s got $2 an ounce of margin. That’s not of any interest to us. But if it’s a 3m or 2m ounce deposit and it’s got $200, $300 an ounce, I know which one I’d rather go for. So I am not fixated on the size of the deposit. I am more fixated on the size of the margins that that deposit can deliver.

Right. Thanks, Ian. And then, just on one of your other projects, new developing projects, Cerro Corona, is there anything you will or can do in, say, the next 12 months in Peru, as a caution against political changes there? Or are you still comfortable with the political environment, and will just proceed with the mine construction as you’d originally envisaged?

We have some excellent people on the ground in Peru, people who are, I believe, politically very adept. They are very good at reading the political straws in the wind. They interact on a regular basis with the authorities in the country, and they keep us abreast of what’s happening.

We are not hearing anything at this stage that is giving us major cause for concern. Clearly there is a degree of instability. We don’t know what the final outcome of the elections is going to be. We don’t even fully understand which -- what is going to be the political direction of the country. We monitor it. We keep abreast of the situation.

I think possibly the best indicator I can give you is that we’ve raised project finance on this particular project, and the banks didn’t insist on us taking out political risk insurance. And you know what banks -- when they give you an umbrella, they ask for it when it rains. So if they are reasonably comfortable that we didn’t need political risk insurance, I think that speaks volumes.

But that’s not to say that we aren’t keeping a very, very careful eye on the situation. But as things stand at the moment, the project is continuing apace. And, as I said, we still stick by our ability to deliver concentrate by the end of 2007.

Thank you.

And your next question comes from the line of Sam Robbins with Robbins, Flan and Company. Please proceed.

Well, of course, congratulations to a superb job. And the first -- I have a couple of questions, but the first question is, assuming that the gold price increased, say, 20% in that quarter, does that mean that 80% of your earnings improvement came from your own cost controls and management?

Are you talking about the 20% improvement in the revenue in the March quarter, Sam?

Well, I am putting it this way; I guess my question is, how much of the increased earnings is due to the increase in the gold price and how much is due to your increased efficiency, despite the fact that [the decline in production]?

Sam, it’s Nick, just to try and answer the question. Bear in mind that the production for the quarter dropped by 2% overall compared to the previous quarter. And, as we mentioned, that’s mainly because of the seasonal Christmas break in South Africa, which has impacted the operations. In fact, the international operations, as you heard earlier, in fact increased.

Our costs at the local operations in total rand million terms actually reduced quarter-on-quarter. So we’d like to believe that some of the cost initiatives have impacted the bottom line. The unit costs did go up, mainly because of Kloof’s drop in production. You’ve got to remember that 70% roughly of the costs at the South African operations don’t vary with production.

So, if your production comes down, you often still sit with a lot of those costs. And that’s why you are seeing unit costs, in fact, having gone up. But in total cost terms, the costs have been very well controlled over the quarter.

And the price increase, as you heard earlier, has gone from $482 an ounce to $555. So I think a significant part of the earnings increase, we have to accept, is due to the price increase with production having gone down. I hope that’s clarified the situation for you, Sam.

Yes. My next question is [inaudible] mention already of the political risks in Peru. Can you talk about the political risks that are going on perhaps in Venezuela?

Well, Sam, I think it’s fair to say that we went into Venezuela with our eyes open. We knew what we were letting ourselves in for. But when we looked at the type of asset that Choco 10 was, we came to the conclusion that the risks of mining in the country was certainly worth the potential reward.

I think the way that Gold Fields -- we deal with political risk is by following a sound portfolio management approach. Don’t have too much exposure to any one particular area. Spread your eggs. Don’t put them all in one basket. And in the event that something does go wrong in one particular area, then it’s not a -- it’s disappointing, but it’s not a complete train smash and it doesn’t jeopardize the future of the Company. And that’s what we have done.

I do believe that there are challenges about mining in Venezuela. But I do think it’s a very, very positive place to mine gold and to make some money. And I think that once we’ve stabilized the ship at Choco 10, I think people will realize that that’s exactly what we’ve done.

Alright. My final question is you’ve got some kind of an operation that you are going to earn your way into in Mali, and I wonder if you can spell out the potential of that operation?

Are you talking about the joint venture, or the exploration [inaudible]?

Yes. Where you are earning in your ownership as you develop and explore there.

Yes. That’s the one in [Guinea, Sam, it’s in the Suguri Basin]. And certainly -- sorry, in the Sankarani project in South Western Mali. And basically it’s a typical Gold Fields exploration earning, where we partly fund the exploration activity. And for that we get ourselves an interest in the project.

At this stage, all I can say to you is that on our geological rating system that part of the world features very highly. We do know that Mali, over the last decade, has grown in importance as a gold province. And from the real estate and address perspective, this particular area is a very interesting area. But its still very, very early days, and there’s nothing that we can report on substantially. But one’s hopeful that with a good address and with some good crews drilling there, we could come up with something fairly interesting.

Thank you.

Greg, we’ve got time for one more question.

Okay, sir. Your next question comes from the line of Barry Cooper with CIBC World Markets. Please proceed.

Yes. Just to follow up on some of your other commentary and questions that have been laid out so far, the -- one of the key components of the issues at Kloof seems to be the grade variability. Can you just flesh out a little bit more what it is that you are seeing on that grade variability? Is that an interpretation that’s changing? Or how are the reserves behaving? Or just what’s causing this variability?

Hi, Barry. It’s Brendan speaking. Barry, one of the problems with Kloof is that, while we have grade variability, we don’t have a lot of flexibility. And that’s what we need to do, is create more flexibility so that we can better manage the grade.

In other words, when we hit areas where we hit a fault or something, we don’t have the flexibility to move those crews elsewhere while we negotiate the geological fault or whatever we’ve got, or low grade [find]. So that is our focus, is an increased development to improve our mining flexibility. But no, I don’t think, from a grade variability point of view, that it’s any different to what we’ve been talking about in the last year.

Barry, I think it’s also fair to say that one particular shaft that has not delivered the opening up of reserves to the extent that it should have done is the Kloof 4 sub-vertical. And certainly that’s an area -- Brendan mentioned an increase in development meterage in the upcoming quarter. There has been some improvement but we need to increase it even more. That will open up the reserves and, as Brendan says, will give us the flexibility.

But we know that the VCR at Kloof is highly variable. So there’s no real, at this stage, major changes in our interpretation. As Brendan says, it’s simply a question of having the ability to move crews from unpay through to pay, and having that reserve available.

Okay. Thanks. Then, on Choco 10 again, how significant is the fact that you don’t have your blasting permits there? Is that something that we should be overly concerned about?

Hi there, Barry. It’s Terence. Yes, it’s obviously something of concern but we have got our way around it. We do have access to contractors who have blasting certificates or licenses, so we are conducting blasts using their licenses.

So all in all, we do know that the explosive permit is actually sitting in the halls of Caracas and that’s waiting to be signed. It’s gone through all of the hurdles as far as meeting the hurdles with the departments, various departments are concerned. And we are just waiting for it to be signed. But we do have a way around it.

Right. Do I sense, though, that there is any kind of ransom being held here, that they are not signing it for a reason?

No, not that I am aware of, no.

Right. Okay. Good enough then. The final question is one dealing with Essakan. And I am going to read a statement there, maybe you can clarify something for me because I am not sure exactly what it means. On the top of your page nine it says “the resource calculation represents a recoverable resource after applying changes support by uniform conditioning”. Now, I am not sure what the last portion, “applying changes support by uniform conditioning”, what does that exactly mean?

Barry, when you apply geo statistics to the drill results, as you know, you -- the changes support refers to the spacing between values. And if you change -- if you have 100 by 100 and then you go to 50 by 50, that is a change of support. And it gives you a more accurate, or if you went the other way, potentially a less accurate, or less levels of confidence about the numbers.

And what you are seeing there is really just a statement that we have applied uniform conditioning using [proven] methods. We have gone to what we believe is a more appropriate level of support. And don’t ask me what that is, because at the moment for the life of me I can’t remember what it is now. But that’s exactly what it means. So it’s really just giving an indication of the process that we have applied to calculation of the reserves using geo stats.

Okay. From what I -- when I went and took my geo stats course, that may have been summed up in the word precision?

I guess that would -- well, not necessarily precision but increased levels of confidence I think is the correct terminology to use in geo stats.

Right. Okay. Thanks a lot. That clarifies that. Thanks.

Okay. Well, Greg, gentlemen -- ladies and gentlemen, thank you very much indeed for joining us today. I think what you’ve heard is a company that has had in this last quarter, it’s had some ups, it’s had some downs. And certainly in the upcoming quarter we’ve indicated where we think the improvements are coming.

Certainly we are expecting some improvements at Kloof. And we are very pleased with the -- what we are starting to see as the settling down of the Choco 10 mine in Venezuela.

I think, just to summarize, if one looks at the upcoming quarter, Nick did allude to this earlier, we currently sit at a received price which is $100 per ounce higher than we received for the average of the March quarter. And on the assumption that those prices hold, then I think we should be looking forward to a very interesting final quarter in the year.

And we look forward to meeting up with you again after the June quarter, when we can actually talk about the strong finish to the year. With that, I’d like to thank you for listening and cheerio to everybody. Bye-bye.

Ladies and gentlemen, thank you for your participation in today’s event. This does conclude the presentation and you may now disconnect. Have a great day.