Gold Fields Ltd (GFI) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields fourth quarter fiscal year-end 2006 conference call. My name is Anthony, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-session towards the end of today's conference.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your host for today's call, Mr. Ian Cockerill, Chief Executive of Gold Fields. Please proceed, sir.

Thanks, Anthony, and good afternoon, everybody, and welcome to this call. With me here today, I have Nick Holland, Chief Financial Officer; I have Brendan Walker, in charge of the South African Operations; as well as Terence Goodlace, who will be talking later on about our international operations.

And it is a good afternoon today, because this is the fourth quarter fiscal year 2006 feedback, and it's also the final of the fiscal year 2006. So, another year is over. And I think it is fair to say that in the current environment, it's certainly a lot more fun running a gold company than it was a year ago.

As you can see from our results, it has been another pleasing quarter, very much in line with the guidance that we previously gave to the market. For this quarter, we managed to maintain our production level at 1.02 million ounces of gold. We certainly achieved a much better production from the Kloof mine, much more in line with what we expect on a sustainable basis.

With the higher gold prices we received and margins improved from 32% to 38%, our cash cost was essentially flat quarter-on-quarter at $376 an ounce. Our operating profit improved 37% to [$216] million, and net earnings also rose 25% to $95 million for the quarter. And we were able to declare a final year dividend of 110 South African cents per share, which combined with the interim dividend of $0.40 per share means that the total dividend for this year is 150 South African cents.

If one looks at the complete financial year, gold produced was very much in line with last year at 4.1 million ounces of gold. Cash costs were up 8% year-on-year to $358 per ounce, but that's despite incredibly high input cost pressures. And I think bearing in mind the inflationary impact of many of these things, an 8% year-on-year increase is a very creditable performance. Our operating profit rose almost two times to $681 million, and our bottomline earnings were up an impressive 10 times to $217 million.

We also concluded the acquisition of the Cerro Corona project in Northern Peru, Bolivar Gold Choco 10 mine in Venezuela, and we commenced development on the Cerro Corona project in Peru as well. We also increased our interest in Sino Gold to 13.9%, and we also increased our interest in Western Areas to 18.9%.

So I think it's fair to say that all in all, it's been a very successful year and one where the previous efforts to reposition Gold Fields for a tough operating environment has paid off quite handsomely. Clearly, when higher revenues meet strict cost control, this can lead to good margin for investors, and that's something that we're very proud as we deliver. With that brief introduction, let me hand you over to Nick, and he will take you through some of the details on the financials.

Thanks, Ian, and good afternoon. Looking at our income statements results over the last quarter, the increase in our gold price, up to $628 an ounce from $555 an ounce, has enabled us to increase our revenue from $602 million to $683 million. Our costs over the last quarter went up 2% to $426 million, and that's against the background of a 4% increase in volumes in South Africa over that period.

Also the fact that we are resourcing for a step-up in our development that's planned at the South African operations next year, and Brendan will talk more about that, and the fact that our fleet maintenance cost [inaudibe] because of the nature of the contract, and the fact that higher rates are paid as the [inaudible] increases. That's impacted us during the quarter, as well as the fuel price. We've seen the oil price go up over the last quarter, and, in fact, the diesel costs in Ghana have gone up from $0.78 to $0.88 a liter. And bear in mind, we use about 51 million liters a year, you can see the impact of that fairly quickly.

We've also had the first full quarter of Choco 10 in our results. Remember the mining in Venezuela was acquired on the 1st of March. So last quarter, we only showed one month's of results. This quarter, we're showing a full quarter. So, of course, there's going to be a cost and a revenue impact of that. And also, we were impacted by the cost of a fairly extensive plant shut down at St. Ives, which doesn't happen all that often.

So against the background of those kind of factors, as well as the ongoing cost pressure on our inputs that we're feeling all the time, we're very satisfied with the strict control that we've maintained over our costs. And going forward, I think that's going to be critical to ensure that we protect our margins.

Our operating profit for the quarter was up from $190 million to $260 million. And looking at [outlier] items on the income statement, the other notable issue is our exploration expenditure was up from $5 million to $15 million, a significant increase. And most of that relates to stepping up our spend on Essakane, particularly as we try and get that project up to a resource feasibility stage by the end of September and then some reacting is taking place to achieve that. So that's the reason that's being stepped up. And even after that, net earnings for the quarter were up 24% to $95 million. Cash costs, as you heard earlier from Ian, $376 an ounce.

I just want to emphasize again that the policy that we follow on development is not the same as the other South African companies with regard to their underground mines, in that we tend to write-off all of the waste development and associated shaft, direct overheads, whereas Harmony and AngloGold capitalize those costs. We generally stop development capitalization once we [inaudible], but for your purposes we've provided a like-to-like comparison, and that would have dropped the costs for the quarter for $376 an ounce to $345 an ounce. So on a like-to-like basis, that's the figure you should look at, the $345 an ounce.

Summarizing the main cash flow for the quarter. Our cash flow from operations went up from $176 million to $234 million; that really reflects the increase in the operating profits for the quarter. Our CapEx was up significantly from $76 million to $104 million. That's partly due to an increase at Cerro Corona, where we're stepping up our expenditure on that project, getting that project really going on and gaining momentum. Last quarter, we only spend $7 million. This quarter we spent $19 million, and Ian will talk about that again later.

There has also been a catch-up of some backlog capital at the South African operations. Also during the quarter, you'll note from the cash flow that hedge of investments have increased from $24 million to $133 million. During the quarter, $130 million was spent on increasing our interest in Western areas at 3% to 19% during the quarter.

Now, I think it's significant to note that over the last two quarters, we've spent almost $600 million on growth activities, what I would call growth, not just on the existing operations -- in other words, purchasing the interest in Venezuela, purchasing the Cerro Corona project and commencing with the expenditure -- and we've managed to fund around about $400 million of that from internal sources. And despite that, we still have over $200 million in the bank at the end of the quarter compared to $239 million in the previous quarter and have only drawn down a $150 million of debt.

So I think the cash generating machine is very strong, and, in fact, at the moment, if you look at the current spot prices of around $650 an ounce and also taken into account all expenditure, not just operating cost but capital expenditure, taxation, corporate costs, exploration, really at the bottomline, but before growth projects, this group is generating over $30 million per month.

Our cash at the end of the quarter, as I said, was $218 million, [pro-state] of $315 million giving us the net debt of $97 million. I think if you look at that in relation to the cash flow generating, [as I've] mentioned, essentially that's only three months of cash flow. So we have a very, very strong balance sheet. We're very comfortable with the financial position we're in. And more importantly, we have the fire power and the ability to do a lot more then this.

If I look briefly at the 2006 year, Ian has summarized a lot of that full year – production, as you've heard, 3% down to $4.1 million ounces, a marginal decline manages to plug. And the price achieved, up $102 from $422 to $524, and that was the main driver behind the significant increase in operating profit from $368 million to $681 million. That's an increase of 85%.

And our net earnings, as you heard, increased 10-fold from $21 million to $217 million. Ian mentioned the cash [was] going up 8% to $358 million, and I think one of the reasons why that is a creditable performance is if you look at the background of some of the cost inputs we've had to deal with -- labor cost in South Africa went up 6.5%, diesel in Ghana has gone up 28% over the year, and 16% up in Australia, cyanide has gone up 20% in both Ghana and Australia, and our fleet maintenance costs have doubled at Tarkwa because of the nature of the contract. And despite all of that and a reduction of other 100,000 ounces at Kloof, I think the 8% increase in cash [costs] is a good performance.

Looking forward, the key on costs is to ensure that we continue with our cost management initiatives. I'm not going to dwell on these now, but you've heard about Project Beyond. There's a lot of information in our quarterly booklet on that. You've heard about Project-100, it's going to be key that we keep the initiative going on those projects. But notwithstanding that, we are concerned about the impact of the commodity boom and whether, in fact, we've fully seen the impact of that being absorbed into our costs.

And so I think going forward, if we can track cost along with inflation, that would be a good performance. Obviously, we'll try and beat that. But I think we need to mindful of some of these external cost pressures and not to mention labor as well.

Now in going forward, a company that manages its costs in this current commodity cycle, and ensure that the improved gold price flows through to the bottom line will be the one that generates the most value. And with that, I'm going to hand you over to the Brendan Walker.

Thanks, Nick. Good afternoon, ladies and gentlemen. The South African operational strategy remains the [sect] for revenue strategy, as previously reported. We continue to mine to the average reserve value to maintain quality and profitable ounces. The oil reserve grade has is [92,000 grams] per kilogram with 7.6 grams per ton. In this quarter, we achieved 7.5 grams per ton. The increase from last quarter is thanks to Driefontein, which I will elaborate on later.

Gold production increased about 4%, or 22,000 ounces, quarter-on-quarter. Driefontein managed to maintain its gold production, despite the clean-up of gold from the number one plant we completed in the previous quarter. Gold production at Kloof increased significantly. And in Beatrix, there was a slight reduction. Meters developed increased by approximately 9% to 25 kilometers, in line with our strategy of reinvesting some of the increased margin in our ore bodies.

Operating costs increased marginally, mainly as a result of the increased stoping and development volumes at Kloof. The increase in operating costs was offset by the increasing gold production. And total cash cost decreased from $415 an ounce to $400 an ounce. Operating profit increased by 88% to $142 million, resulting in the operating margin increasing from 22% to 34%. Capital expenditure on the South African operations for the quarter amounted to $55 million.

Turning to Driefontein, Driefontein's gold production of 285,000 ounces was in line with the previous quarter's production. This was achieved, as I previously stated, despite the fact that we no longer had about 25,000 ounces from the number one final clean-up, which was declared in last quarter and resulted from higher-than-expected grades at the number 5 and number 4 shafts, as we were mining in those areas. But that will be unsustainable going forward as we revert back to the average reserve yield.

Operating costs remained constant at $110 million. Total cash costs at Driefontein decreased from $376 per ounce to $372 per ounce, aided by the weakening of the Rand. The operating profit increased by 57% to close to $70 million, giving Driefontein an operating margin of [59%].

Looking forward, gold production for the September quarter at Driefontein is forecasted to be between 5% and 10% lower than the June quarter as a result of the lower anticipated grades at the number 4 and number 5 shafts, as we mine more in large shafts towards the average reserve value. And we also have an issue with the higher-grade panels at number 4 shaft, which have intersected fault and required to be reestablished during this quarter. Costs will be impacted by the wage increase, and we will continue to develop the grades achieved this quarter to improve on our mining flexibility.

The number 9 shaft and feasibility study has been completed and will be presented to the Gold Fields Board later this month. Currently, we have commenced the working of this shaft and exploration drilling, and it has started from a [steady] level.

Turning to Kloof, gold production at Kloof increased by 14% to 236,000 ounces. This was due to a 13% increase in underground tonnages milled and as a result of the concerted efforts to restore volumes that had declined significantly in the previous quarter. Operating costs for the quarter were 104 million and increased slightly due to increased volume, demand, and [niches] developed.

However, the higher gold production and continued focus on cost control resulted in the cash cost decreasing by 9% to $427 per ounce. The operating profits improved from $14 million in the previous quarter to $44 million this quarter due to the increased gold production and higher gold costs. Gross margin increased to 30%.

Looking forward, production at Kloof is expected to average at about 240,000 ounces in the next quarter, and we'll remain at these levels going forward. Costs will be impacted by the wage increase and planned 7% increase on the already 8% increase that we experienced this quarter. The KEA's feasibility study at Kloof has also been completed and will be represented to the Gold Fields Board later this month.

Turning to Beatrix, gold production at Beatrix decreased 5% quarter-on-quarter to 148,000 ounces. The decrease in gold production was as a result of lower volumes being mined in the higher grades [part] at the west section as a result of restricted access to the higher grades part resulting from -- and some of the [other things] being affected by the [snake trots] in the area. We are currently in the process of redeveloping excesses into that area, and the west section will return back to normal in the next quarter. Total cash cost remained flat, and Beatrix posted an operating profit of 29 million, compared to $18 million in the March quarter and resulted in a margin of 32%.

Looking forward, gold production at Beatrix is forecasted to remain steady in the September quarter, with the July wage increase and increases in development impacting slightly on cost. The Vlakpan feasibility study is currently being revised; and we hope that towards the end of the current quarter, it will be completed and we will be in a position to present it to the Gold Fields Board.

In conclusion, on the South African operations, gold production will be similar-to-slightly-lower than the June quarter, with a forecasted decrease in production at Driefontein. Total cost will increase along with the increase in wages and an increase in development meters and [all through] operations. But we will continue with our aggressive cost management strategy and focus on productive volume. Thank you. I will now hand over to Terence.

Thank you, Brendan, and good afternoon, all. [I'll discuss the] international operations reduced for the quarter with attributable gold production down to 350,000 ounces, and managed production at 417,000 ounces vs. 450 in the previous quarter. The reduction was driven primarily by lower grades with volumes processed and treated at similar levels to the previous quarter.

Total cash costs increased to $335 per ounce and were driven up by the lower gold production. Operating costs increased by 6% to a $149 million, and the drivers were increases at Tarkwa and St Ives and the full quarterly inclusion of the newly acquired Choco 10 mine.

At the gold price of $626 per ounce, we had operating margins for the international operations of 45% and an operating profit of a $117 million. Operating margins at the mines all exceeded 46%, other than St Ives which disappointed at 34.

Capital spend for the quarter was $45 million, the majority of the spend from the bigger mines. Gold production at Tarkwa was below our planned at 185,000 ounces, and last quarter's [Ives] at 176,000 ounces. And we had consistent heap leach performance and lower production through the CIL plants.

Throughput at the CIL plant was affected by the lack of sufficient stocks of competent ore. Increases to the Tarkwa operating costs [at] Tarkwa reflects higher maintenance, as Nick has said earlier, and increased field cost. And these were offset by other reductions in terms of equipment higher and lower contract mining.

Capital for the quarter was spent primarily on pre-stripping of the Teberebi pit, heap leach pad construction, and the purchase of additional mining fleet to buy down on costs. The projects on the feasibility study towards increasing throughput at the CIL plant is on track and is still due for completion by calendar year-end.

For the upcoming quarter, Tarkwa will reflect gold production in line with the quarter and which [measures] annual production rates of between 700,000 and 720,000 ounces per annum. Unit costs are expected to increase marginally. It's also important to note that we are currently in the wage negotiation cycle in Ghana, and there are high expectations.

As far as Damang is concerned, this mine performed in line with expectation and produced 56,000 ounces. Gold production was lower as a result of processing reduced volumes due to plant shutdowns and the processing of a high proportion of harder ores from some of the open pits.

Lower head grades for the quarter were driven through the relatively lower production from the high grade and Amoanda pit as this pit is nearing depletion. Costs were well controlled, and we actually had lower costs due to lower mining cost for blisters and blasts and lower haulage cost with the high proportion of tonnages coming from pits closer to the plants.

The operating profit was $16 million, and the margin at this [plant] will be 6%. Good progress continues to be made on Damang pit cutback, and this mine started producing ore in the quarter. It comprises 70% of our capital spent. During the coming quarter, it is expected that gold production levels will reduce by some 5%, while costs remain at current levels, and this is largely attributable to the depletion of the Amoanda pits.

The Choco 10 mine performed in line with guidance and produced 20,000 ounces at total cash costs to $293 per ounce for the quarter. There was one prime challenge in the quarter, and that was the lack, or the shortage, of process water. And we have really identified and looked at alternate sources of water and water [savvy] measures to reduce our reliance on rainwater. The primary focus on this mine is still concentrated around making sure that we can deliver a consistent 5,400 tons-per-day and an all-out effort is being placed to make sure that we achieve this.

For the upcoming quarter, it is planned to deliver higher gold production, albeit that there has been significant downtime with the vibration on the [Ball mill], which affected most of the July month. This has been rectified as of this morning.

Overall, the recapitalization of the plant is progressing well and there are shutdowns planned for the quarter to tie in new [conveyor] sections designed to increase throughput. Total spin for the recapitalization of the mill, of the plant is $6 million, and we are planning to complete this by the beginning of the December quarter.

This mine is still delivering good values in terms of exploration potentials. And some of the information that was shown on the slide this morning really reflects the values that we're getting at the VBK area.

St. Ives was disappointing for the quarter and produced only 116,000 ounces. There was a five-day shut down in April, and this resulted in the mine producing very low quantity of ounces in that month. Making this up proved very difficult. High cost at the mine reflected an increase in the price participation royalty, higher plant maintenance costs for the shut down and exploration costs that were written off. Capital expenditure is focused around underground development at the Leviathan complex and the pre-stripping of the Thunderer open pit.

Gold production for the coming quarter is expected to increase, and costs are planned at similar levels to the current quarter. There were quite a few problems at St Ives this quarter. One of the prime areas was some of our geological models, unplanned dilution which was far too high which affected some of the graves coming into the plant. A lot of these have been rectified, and we are getting better reconciliations through the plant.

Regional exploration at this mine is still critical and very important, and our change in strategy in this year to really look at framework drilling and step out from the drilling in and about the plant, has realized some better targets in terms of Santa Ana, Cave Rocks, West of Junction and the East Argo ore body.

Agnew had a record year and continues to perform well, albeit the gold production for the quarter was 49,000 ounces. Pressure problems did affect us during the quarter, but these were identified and rectified. Operating costs were very well controlled, and again this mine had a strong margin of 49%. Capital expenditure on the mine is focused primarily around development at the Kim and Main Lode underground mines.

Overall, the international operations should deliver a similar performance to that achieved in the June quarter. Margins and cash flow will continue to be robust with the current production levels and the high gold prices. Importantly, cost control remain a common theme, and the emphasis on global and regional procurement is increasing as are mine site initiatives to reduce consumption, and hence, costs.

On the safety, health and environmental side, the targeting of zero injuries and zero incidents is progressing well, and we will continue in this vein. Operational excellence and higher productivity levels remain core themes as are exploration program's focused upon driving organic growth. Thank you. And I'll pass back to Ian.

Thanks, Terence. And before I make my concluding remarks, I'd like to just give you a quick update on two key projects that we have in the pipeline. And firstly, the Cerro Corona project in Northern Peru. Now, we're certainly pleased that the elections are over in that country, and it does appear that the country is settling down and getting back to business.

As far as the project is concerned, we're still on target for the delivery of the initial concentrates at the end of calendar year 2007. Where the project stands at the moment, the contract account is up and running, all key equipment has either been ordered or, in fact, has already been delivered, and some of the earthmoving equipment is being used in the commencement of the bulk earthwork, particularly around the crusher and plant installation. We commenced with the pre-strip of the Cerro Corona and the deposit itself, and a lot of that waste material is being used in the construction of the bulk earthwork.

Certainly, engineering design is now 90% complete and will be 100% complete within the next month or two. Like all capital projects around the world, we are experiencing some cost pressures, but we're actively engaged in managing that situation and making sure that costs do not overrun alarmingly.

On the second project that I'd like to report back on, on our exploration efforts, and that is the Essakan joint venture in Burkina Faso. Our re-sampling program is going well there, and one of the reasons why you may notice in the quarterly income statement a big increase on exploration expenditure, a large chunk of that is attributable to the increased sampling activity that's taking place at Burkina Fasco and as those costs come through.

But certainly as things stand on that project, we're still on target to deliver revised bankable [array of] numbers before the final quarter this year. And then hopefully, we'll be moving into a feasibility study, which we would like to have completed towards the middle of next year.

Now, I think it's clear to all of us that we are, obviously, moving into an era of sustained fire practice for Gold, albeit not just in dollar terms but also, it seems, in other currencies as well. And that's something that Gold Fields has long predicted, and we're very pleased to see that it's coming to fruition.

Now, the question many of you may have is "so, what's Gold Fields' response to this positive market going to be?" Let me state clearly, and let me just reiterate what Brandon said previously, certainly in South Africa, that Gold Fields is going to continue with its policy of mining quality volumes, and we'll not revert to our old strategy; i.e., the Wal-Mart strategy.

We are going to be looking to utilize the better profits to achieve by, firstly, reinvesting into our ore bodies, and in South Africa despite big increases in development, which you've seen in these last few quarters, certainly going forward into fiscal 2007, we're going to increase the development rate even further. And this is all in an attempt to improve our mining flexibility.

Secondly, the second way of reinvesting these extra profits, we will be going to the Board later this month and seeking the final approval for the commencement of the Driefontein and the Kloof drop-down project, and, needless to say, these will be presented to the Board for their final approval, and we are confident that we will be given that approval.

In addition, we certainly see some potential at the Beatrix mine in the Vlakpan project, which is on the western edge of the Beatrix mine. And we are also going to undertake a review of the further potential expansion of Tarkwa at the CIL plant, and the objective here is to see the justifications are doubling the size of the current CIL plant. And there's some interesting work and projects that we are looking at in Australia of the St. Ives mine as well.

I think together with our exploration activities, we are confident that these initiatives, particularly the international ones -- and if one looks at further underground potential in Venezuela as well as in Ghana -- we are hopeful that these initiatives and other potential acquisitional opportunities are going to allow us to deliver on our objective of getting the additional international 1.5 million ounces by the end of 2009.

Now, as you've heard, the outlook for the group next quarter is very much more or the same, some pluses and minuses across the piece. Certainly, we will be seeing some lower production coming out from Driefontein, but we do think that's going to be counteracted by a stronger shine from the international operation.

Regrettably, like everyone else in this industry, cost pressures continue to [dig] us, and we certainly have to accommodate the second phase of last year's wage agreement here in South Africa that will impact on the South African cost. But I think as we have done in the past, there are a lot of innovative programs in place in our operations that we believe will help us to ameliorate unnecessarily high profit cost increases.

Finally, for the year ahead, we look forward to it with great optimism. Whilst this is and remains an extremely challenging business, I feel very comfortable that Gold Fields with its sound balance sheet, long sensible levels of gearing, a good project pipeline, and an unhedged exposure to gold is well positioned to take advantage of the more positive environment for gold that we see ourselves in. And with that, let me hand you back to Anthony for any questions that you may have. Anthony, it's yours.

[OPERATOR INSTRUCTIONS]

Victor Flores from HSBC. Please proceed.

Thanks. Good morning, Ian. You made a comment that sort of was going towards my question, which is the management of South African assets, given that the rand gold prices now have gone up and perhaps the temptation to go back to the Wal-Mart strategy. And I'm wondering just how do you manage this higher rand price environment with the temptation of mines of lower grade material?

Thanks, Victor. It is a challenge. There is always a temptation for the operational guys to try and mine the easier lower grade stuff. As I say that, Brendan is looking at me and smiling. But it really is a question of, we've made a commitment, we're going to continue mining at our average [ore] reserve grade, and we're looking to capture the additional margin that these higher prices will give us.

And as I said, we're going to reinvest in our ore bodies, we're going to increase our mining, the development that we're putting into these mines to improve the mining flexibility, and we'll also be looking to reinvest some of those profits in projects that will ensure the greater longevity of these mines.

And lastly, we think that shareholders deserve -- they've been very patient and they deserve to also benefit from the better prices, and they should see that reflected in better dividends. We are not changing our dividend policy as yet. But clearly as we get higher prices, there's no doubt that that should flow through into a stronger dividend to shareholders. So that's how we're going to manage it, how we're going to utilize the money.

Thanks. If I could just ask a follow-up? How much flexibility does the mine management team have in terms of managing, relative to the current gold price, relative to a reserve base that is calculated, as you point out, on a trailing gold price?

Yes. I mean, obviously, we look to these guys to produce the base plan at the stated price. And for planning purposes, we've taken a 100,000 rand a kilogram. That is conservative at current prices. But remember a year ago, we were at, I think, 90,000 rand a kilogram. So these things can change, so we don't want to get too carried away. But if the guys come to us with a good motivation as to why going into a specific area is worthwhile, we would look at it and we would see whether or not it added value to that particular mine. But the basic policy is that we're going to mine as per the current ore reserve rates, at the stated reserve price.

Thanks, Ian.

Miles Staude from Royal Bank of Canada.

Hi, thank you. George here. This is a question for Nick. Nick, just with the tax rate for the quarter there's a little bit -- the tax rate that was little bit higher than expected, assuming margins remain at these levels a little bit high and in next year, what should we work on in 2007?

Yeah, well, I think first of all, let's explain the tax because as you're rightly saying it has gone up quite a lot, and there's a number of factors behind that. In our last quarter, we had a big deferred tax credit adjustment at 60 million rand related to a reduction in the tax rate in Ghana. And, obviously, that has had an impact in comparing quarter-on-quarter. You've heard about the big increase in the exploration spend this quarter, which is non-deductible. And also last quarter, we had an exchange gain at 65 million rand relating to the funds that were warehoused for the Bolivar transaction, which is also non-taxable last quarter. So all of these have conspired to push up the overall tax rate for the quarter.

But I think going forward, looking at the kind of [practice] we are now, I would use a weighted average tax rate of about 35% -- 34%, 35% at these sorts of prices, bearing in mind that that's the blended tax rate, given that you have the mining formula in South Africa, which has a marginal rate of 45% plus a 5% window on the first participant's revenue. Ghana has a tax rate now of 25%, Australia has 30%, and Venezuela has 34%. So those are the various tax rates, but as I say, a weighted average about 34%, I don't think you'll be too far off.

Again, just another one on the payout ratio. I think you've got it two times covered at the moment, given the fact that you are generating quite a bit of cash. Is there a change that we should look at as far as the payout ratio?

As Ian has said earlier, we're not going to change our dividend policy, it is a two times cover. But remember, there is a caveat in that policy, as it says, it depends on investment opportunities. And I think as you heard Ian say, we think we've got a lot of projects to spend that money on.

Interestingly enough, this question came up this morning when we were doing our presentation to the South African market here. And some one asked, "what is your future capital expenditure budget?" And what we did reveal is that we're planning to spend 4.2 billion rand next year on capital, which includes 1.7 billion rand on the Cerro Corona project, and there are increases at the [inaudible] operations as well. And that is before considering the full impact of the drop-down projects. There is something in there for the KEA project, and I think it was about 90 million rand, and the reason for that is that project was more advanced.

But if the Board approves the two projects this month, then we're going to have to re-look at that budget, bearing in mind that those projects will have to be funded over a 5-year to 10-year period. So I think the capital demands on this business, particularly given the fact that we're trying to grow this business in certain areas, which is, for example, Cerro Corona project, and maintain our current production, which is the objective of the drop-down project, we are going to be spending quite a lot of capital.

So I think if significant cash did build up in the business even after those requirements, we would certainly re-evaluate our payout but certainly not policy at this stage.

And if you do approve those two drop-down projects, what are we looking at next year, 200 million extra CapEx, kind of ballpark?

George, I don't think we want to give too much detail at this stage. Once we've approved these projects, which hopefully will be in the next two and a half weeks or so, the intent would be to give a detailed account of these projects, the full capita profile et cetera. I think, then, we'll give you a better handle so that you can model for these things, so if you could just be patient with us.

Okay, then, will do. Thanks, Nick. I just wondered, coming to with Brendan as well, I didn't quite understand something you mentioned about the maintenance contract at software, the nature of the contract. What do you actually mean by the nature of the contracts, and are we expected to see any more kind of rises because of the maintenance contracts coming through at total, or is this level that we work on?

Hi, George. It's Terence. We have a [marked] contract, in other words a contract, which sets out specified rates for different hours and based upon different machines, and it goes up in 6,000-hour blocks. So once you move from, say, 6,000 to 12,000 ounce, you go into a different rate. So it goes up and down. And right now, 90% of the fleet is in the 12,000 to 18,000 bracket, and that's when we do the major change-ups.

For instance, on the main dump trucks, that rate will come down. Right now, it's at about $65 per hour, but it drops to, I think, roundabout $47 per hour once we move into the 18,000 bracket. But that's just where we are with that fleet. It's all [bought] at once, and all of it has moved into this major change-up area of the marked contract. We didn't do any smoothing as far as this is concerned, so what you see is what you get.

Okay. So we might actually see some relief coming over the next six months?

Yes. Most of the vehicles are at roundabout 15,000 an hour. Bear in mind that we do about 1,800 hours per quarter. We'll soon be into the 18,000-hour bracket, and then we go to some of the lower rates. But again, that's not with all the equipments. Some equipment, it goes up. It just depends on the nature of the equipment. But on the big dump trucks, it will go down once they move into the 18,000 bracket.

Okay. Thanks, John. [Inaudible]

[OPERATOR INSTRUCTIONS]

Mr. Cockerill, we have no further questions, sir. I will turn it back to you for closing remarks.

Anthony, thank you very much, indeed, and thank you to everybody for listening in today. There is a more detailed presentation which is available on our website as a presentation that we gave this morning. Clearly, most of you have actually had a chance to see that. But once again, thank you for listening, and we look forward to talking to you again in three months time. Thank you and good afternoon.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Everyone, have a wonderful day.