Gold Fields Ltd (GFI) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields first-quarter fiscal 2007 conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Nerina Bodasing, Head of Investor Relations for Gold Fields. Please proceed.

Ladies and gentlemen, thank you for joining us for this Gold Fields first-quarter F2007 results conference call. Ian Cockerill will provide you with a few introductory remarks, after which, Nick Holland will go through the financials. Brendan Walker will review the South African operational performance, followed by Terence Goodlace on the international operations. Ian will then wrap up, after which we will open the floor for questions.

I'll hand you over to Ian.

Nerina, thank you very much indeed, and good afternoon or good morning, everybody. In line with the guidance that we provided last quarter, Gold Fields has again delivered a strong performance for this first quarter of fiscal 2007, Despite a slight decline in gold production and a marginal drop in the price received, from $628 US per ounce to $622 US per ounce. Operating profit was up by 4% to $280 US. Expressed in rand terms, this was close to ZAR2 billion, which is the best-ever operating profit that's ever been achieved by Gold Fields. Net earnings increased slightly from $97 million to $98 million at the same time, and this is the fifth consecutive quarter of increases in our earnings.

However, cost pressures continue to remain a challenge in the current commodity cycle. We're going to have to be vigilant to ensure that the current gold price, as far as possible, will report through to the bottom line, meaning we've got to make sure that we control our costs. Certainly, Nick will spend some time and elaborate on the cost situation that we currently find ourselves in.

I think of particular importance this quarter is the fact that we have decided to bite the bullet and to change our accounting practices, such that we're going to be in line with those of our peers around the world. Ore reserve development costs, which were previously expensed at the South African operations, will now be capitalized and amortized. So you can now compare apples with apples when looking at Gold Fields' costs compared with those of both Harmony and AngloGold.

As a rule of thumb, this means that in comparison with the previous quarter, expressed in rand per kilogram terms, our costs will have declined by approximately ZAR9,000 per kilogram. If you look in the quarterly booklet that we produced, all of the historic figures have been restated using this new accounting practice. Importantly, this past quarter was very important from a growth perspective. We announced investments of just over $3 billion into South Africa, on the depth extension projects at Kloof and Driefontein, as well as the proposed acquisition of the South Deep gold mine through Western Areas, as well as Barrick's 50% share.

These investments into South Africa are going to provide Gold Fields with a very solid foundation from which it will continue its commitment to international growth. As you are all aware, of the 1.5 million ounce commitment, we're still short of about 600,000 ounces that must be delivered before the end of 2009. We feel that this investment in South Deep certainly now allows us to focus primarily on the international expansion.

I think with those few introductory remarks, let me hand you over to Nick, who will give you a breakdown on the financials. Over to you, Nick.

Thank you, Ian, and good afternoon or good morning, depending on where you are. If we look at our income statements over the last quarter, our revenue is slightly down to $666 million, and that is mainly because of the 1% drop in gold production that you heard about from Ian, and also a marginal drop in our achieved gold price from $628 an ounces to $622 per ounce.

Before I move into a discussion on the costs in dollar terms, I would like to go through the costs first in local currency or rand terms, and explain to you some of the drivers behind that, and then we can circle back and explain to you what they are in dollars and how that compares to the previous quarter. If we look at our costs in rand terms, our costs were in fact up 10% quarter on quarter to ZAR2.7 billion. That's an increase of ZAR245 million, which on one quarter is a fairly substantial increase on the face of it.

I think we need to break out some of the main factors behind that increase, so that you can better understand that. First of all, the rand exchange rate has appreciated from ZAR6.39 in the previous quarter -- that was the average for the June quarter -- to an average of ZAR7.10 in the current quarter. In addition, the Australian dollar has also shown a 13% move, going from ZAR4.77 to ZAR5.38.

Why that is important is that, when you actually translate your costs of those operations from their local currencies into South African rands, the impact of the weaker rand against those currencies has a direct impact on our rand costs. In fact, that translation adjustment translates to ZAR109 million for the quarter, and that's almost half of the total cost movement.

In addition, in South Africa during the last quarter, we've seen the annual wage increase take place with effect from the 1st of July that relates to the bulk of our workers, and that was an increase of some 6%. That roughly adds a further ZAR45 million. So, already, that's much more than half of the total cost increase.

In addition, we have had an increase in underground tons of about 6% quarter on quarter. This is June 2006 to September. Reef development has been increased by 4%, and we've had a number of cost increases in certain commodities. I think if we look at the overall resources boon we're seeing around the world, it's clear that Gold Fields is still being impacted by that, are as our other mining companies.

In particular, we've seen fairly significant increases, particularly in this country, in steel and in timber, as well as food, which obviously impacts our feeding costs. Also, there is a delayed impact of the previous oil price increases that we can we have been experiencing. In particular, there's been quite an acute shortage of steel in South Africa, and the major steel producers now are virtually exporting nothing to supply the requirements of the local industry. As you can imagine, the supply/demand fundamentals have certainly worked against us. Steel prices alone have ranged in terms of increases between 20% and 35% over the last quarter. Steel components in our total cost make up a significant proportion of our total costs.

Also, we have seen an increase in labor costs outside the Company that impact on us. We spend approximately ZAR0.5 billion a year on sourcing work from contractors that do various things for us. We've also seen a big increase in labor costs there. So, it's not just on our own labor we've experienced these increases.

You will also hear later on from Terence on the international operations that there have been increases in other areas like power in both the Australian and the Ghanaian operations. Certainly, we may see further cost increases on that front.

So, in rand terms, that explains more or less the increases. When you convert this back into US dollar terms, you will see that our costs, in fact, are virtually flat quarter on quarter. They've gone from $393 million to $389 million. But I think the issue that you need to appreciate is that those operating costs have been masked by the weaker rand, which has moved, as I said, from ZAR6.39 to ZAR7.10. That's why I think you need to appreciate the impact of the cost increase in rand terms.

Net operating profit after amortization for the quarter -- $184 million compared to $196 million in the previous quarter -- not much difference there. Again, you're seeing the impact of the slightly lower production and slightly weaker prices.

If we look at what we are doing further on costs, we have further initiatives that are ongoing throughout the organization, and our strategy of investment in cost reduction will continue. What we're really trying to do here is to make sure that we can counter the impacts of some of these above-inflation increases by reducing our costs in other areas.

Examples of this are conversion from diesel to battery locos in our local operations, and the replacement of rail tracks to reduce maintenance. If we can achieve these kinds of savings, then I think this group will do reasonably well to track inflation going forward, at least for the short to medium term.

As Ian has mentioned, bottom-line earnings for the quarter were $98 million, compared to $96 million in the previous quarter and, important to reiterate our policy of capitalization of waste development at the [South African] operations has changed with effect from the 1st of July. Previously, we used to fully expense all waste development. Now we have taken the policy that we're going to capitalize that waste development, because we get an enduring benefit from it, and certainly it is in line with what the peer group certainly does in this country.

The prior-period figures that you see in this quarter have all been restated to take account of that change in basis. In terms of generally accepted accounting practice, when you change an accounting policy, it is necessary to restate all of the prior periods, so in the report that you see on the website, you will see that all of the columns for the previous quarters show restated. The impact of that is that we have reduced working costs and increased capital expenditure but at the same time, we've also increased our amortization. The policy we are adopting is we're going to amortize this ore reserve development cost or this waste development cost over the life of the developed reserves per shaft.

To give you an indication as to what this policy change means, if you look at the last quarter, in rand terms, the impact of the change was about ZAR50 million on our net earnings, and in US dollar terms, the impact was only $7 million. So, on net earnings overall, the impact is very small, and that's not the reason this is being done. The reason this is being done is to ensure comparability of treatment of unit costs.

Looking at the cash flow for the quarter, our operating cash flow was strong at $226 million for the quarter, and that was even after making final year-end tax payments of $44 million. If this tax is added back, then our operating cash flow is similar to the previous quarter. With the Cerro Corona project ramping up, CapEx increased from $137 million to $167 million, with almost one-third of this amount attributable to the Cerro Corona project during the quarter.

Net debt at the Gold Fields Group level is $130 million, and that provides significant debt capacity, particularly if you look at operating cash flow less nondiscretionary capital, including the project CapEx, on an annualized basis, nearly two times this figure. That indicates to you the strength of our balance sheet.

Lastly, just to reiterate that as we mentioned to you at the time of announcing the South Deep transaction, we intend to fund $1.2 billion of the purchase of the 50% stake from Barrick with an external loan. That loan is in the process of being documented, and should be ready for us to draw that down when the transaction closes.

With that, I'm going to hand you over to Brendan.

Thank you, Nick. Ladies and gentlemen, at the South African operations, gold production decreased by 3% or 19,500 ounces quarter on quarter. The increase in gold production at Kloof and Beatrix was offset by a 10% decrease at Driefontein, due to lower underground grades being mined and a revision of the high-grade 4 shaft pillar extraction plant, which has been necessitated through a deterioration of ground conditions around the shaft. Meters developed increased by approximately 5% to 26,600 meters, in line with our strategy of reinvesting some of the increased margin in our ore bodies to create more mining flexibility.

Operating costs decreased by 5% from $244 million to $232 million. There was a 5% increase in rand operating costs. Approximately half was due to the 6% annual wage increase. Increased stoping at Beatrix and inflationary increases, the largest being timber, contributed to the risk. While [bar] gold production was lower than the previous quarter, total cash cost in US dollars per ounce reduced by 3% to $340 per ounce, as a result of an 11% depreciation of the rand against the US dollar.

Operating profit decreased by 2% to 173 million. The margin increased from 42% to 43%. The South African operations contributed 62% of Gold Fields' operating profit. Capital expenditure amounted to 61 million, which for the first time, as Ian and Nick reported, includes the capitalization of ore reserve development.

Turning to Driefontein, Driefontein gold production of 257,000 ounces was 10% down on the previous quarter's 285,000 ounces. The drop in production is attributable to the underground grade, which decreased from 8.7 to 7.5 grams per ton for the quarter. This decrease in grade is due to the depletion of high-grade panels at 4 shaft, as forecasted, and a reduction quarter on quarter in the mining of the high-grade shaft pillar, where mining was stopped due to ground instability at 4 shaft and lower grade mines at 6, 7 and 8 shaft.

Looking forward, the instability experienced around the 4 shaft pillar during the quarter has necessitated a redesign of the shaft pillar extraction schedule, which will enable Driefontein to extract the pillar from other shafts should the integrity of the shaft's infrastructure be compromised. This will require the development of additional footwall infrastructure, and whilst this is taking place, the pillar extraction will be delayed. This will result in gold production for the next two quarters reducing to approximately 240,000 ounces per quarter, and then increasing slightly in the following quarter.

Turning to Kloof, gold production at Kloof increased by 3% from 236,000 ounces to 243,000 ounces. This was due to an increase in underground tonnages milled compared with the previous quarter, as a result of additional emphasis being placed on the removal of underground accumulation. Looking forward, we expect the gold production at Kloof in the December quarter to be similar to that of the September quarter.

Beatrix -- gold production at Beatrix increased slightly to [149,000] ounces. This was as a result of the increase in tons milled from 884,000 tons to 984,000 tons, which was partially offset by the lower grades from Beatrix North and South shaft, which contributed to the increased volume. Looking forward, we expect gold production at Beatrix to be marginally higher in the December quarter, as production increases at the West section.

The overall outlook for the South African operations for the next quarter, and we'll see in gold production lower, and as mentioned as a result of the rescheduling of the 4 shaft pillar extraction at Driefontein. The 9 shaft depth extension project team is in place, and preparatory work to commencing in early financial 2008 is in progress. At Kloof on the KEI depth extension project, development will continue in the next quarter towards the [voice] chamber.

Thank you. I will now hand over to Terance.

Good day, everybody. At the international operations, we had an overall increase in production, with increased gold output from the Australian operations, offset by lower gold outputs at the Ghana and the Venezuelan operations. The total gold production for the international operations was 420,000 ounces. Total volume processed was 9 million tons.

Gold production at Tarkwa was marginally lower than the June quarter, due to lower grades, offset by additional volumes treated.

Damang gold production reduced on the quarter on the back of lower grades, due to having depleted the high-grade Amoanda pit, as forecast previously. Production at this mine will climb back up again in about six months' time as we [exit ore from the Damang pit cutback and the Juno 2SW pit.

Choco 10 had a disappointing quarter, primarily due to the failure of the ball mill clutch, which affected 29 days of mill throughput.

At St. Ives, the increase in increase in gold production came from increased throughput through the Lefroy mill.

At Agnew, gold production increased by 20%, due to increased underground grades and tonnages from the Waroonga complex.

As far as costs are concerned, in US dollar terms, costs increased by 6% from $146 million to $155. The prime reason for this, if I go through on an operation by operation basis, are really at Tarkwa and Damang, where we had additional costs due to on-mine power generation, in line with the national load shedding requirements that were required in the country. Costs at Tarkwa were also impacted by an increase in fleet maintenance costs, as well as explosives cost.

Operating costs at Choco 10 increased as a result of higher processing to fix the mill and general and administration costs. Processing costs also included the purchase of water, in line with our water shortages that we actually have at the mine.

At St. Ives, operating costs increased by 9%, but the prime reason for this was really an acceleration of waste normalization charges of $6.8 million. This was as a result of the shortening of the lives of the Mars and the West Revenge open pits.

Agnew had a reduction in costs of $4 million or 20%, and the reason for this was a change in estimates relating to the waste normalization of the Songvang open pit. Overall, with a 1% reduction in the gold price, the margins at the international operations were 41%.

Moving onto capital expenditure, we had a $10 million increase from $44 million to $54 million for the quarter. Tarkwa was steady at $13 million.

There was a slight reduction at Damang, which ostensibly spent $7 million, with $6 million of that on the Damang pit cutback.

Choco 10 had an increase from $4.2 million to $10.9 million, and that's on the back of the increased exploration efforts, the acquisition of two dump trucks as well as the upgrading and recapitalization of the process plant.

As far as St. Ives is concerned, we had an increase from $14 million to $16 million, and that is driven primarily by the increase in development at Argo, the increased stripping at the Thunderer open pit, as well as the commencement of the expansion of the heap leach pad, which is phase three [of that] heap leach pad.

Agnew had an increase from $5 million to $8 million. The primary driver for that was the transfer of some of the costs out of the Songvang pit to capital, as I explained a little bit earlier.

If one looks at what is what is coming at us in the coming quarter, from a production perspective, we expect that Tarkwa will probably be at about the same levels at 174,000 ounces; damang the same, at around about 50,000 ounces. As far as Choco 10 is concerned, we have had a very good start to the quarter, and we certainly expect to produce a whole lot more than 16,000 ounces. St. Ives will be very similar, at 123,000. As far as Agnew is concerned, we expect that we will be able to maintain some of the grades coming out of the underground, as well as get an uplift from some of the Songvang open pit underground grade. So, all in all, I would expect that the international operations should have on or about the same production for the coming quarter.

I would now like to hand over to John to talk to you about Cerro Corona.

Thank you, and good afternoon and good morning, everyone. Just briefly on Cerro Corona, two of the [usual dimensions] on the project, from a product project development and construction point of view, we made very good progress in the September quarter. Engineering and procurement is almost entirely complete, and on the procurement side, the construction of the [mills], crushers and other large equipment continues to track very nicely. So no schedule impact from those sorts of equipment, which often tend to be problematic in projects like this.

In terms of on-site activity, this ramped up very substantially in the September quarter. We now have over 600 people working on the site.

In terms of operations, we've actually ramped up the mining operations. In fact, by the end of the quarter, we were almost at full-scale tonnage of around 1 million tons being moved per month. The bulk of the mining is waste stripping at this stage, although we have started [seeing counter] some sulfide and oxide ores, and the whole grade control process is working nicely. So, that aspect of the operation has ramped up quite well.

In terms actual construction activities, the book of the work was really bulk earthworks on the plant site, the various roads, run-up control facilities and the man-camp which will house the entire workforce, once the mine is operating.

At the moment, in the September quarter, we spent around $51 million on the project, and that will be a fairly typical burn rate through the next few quarters. So, that's from a construction point of view -- things went very well.

During the quarter, community relationships [evolved] very nicely. Employment levels are higher, as I indicated, and the bulk of these people obviously being sourced from local communities. An issue that we've raised before which was problematic earlier in this year but is now being handled quite nicely is the involvement of community contractors in the construction of the project. So good progress was made on those two fronts during the quarter.

So against that background, it was disappointing to report that around the middle of the month of October, a protest action started against the Cerro Corona project. I think it is important to see this action against the broader dimensions of what's happening in Peru at the moment. You had presidential elections earlier in this year, which went off very smoothly, but we do have in all the regions Mayoral elections occurring in the month of November. Throughout the country, we've seen disruptions occurring around mine sites, with mining projects being used as the platforms for various political agendas. This, we think, is to a degree behind what we are seeing at the moment at Cerro Corona.

So we do have a group protesting against various employment issues at the project, and during last week, they commenced obstructing access to the site on the main highway that accesses the Cerro Corona project. So with this obstruction in place, we in fact decided to suspend operations on the site in the interests of the health and safety of our workers. I think just to give you a context of what that means, it would appear that the protesters are not from the immediate communities, and as such, are not really our workers. So these are people that are protesting against the operation. The problem is that the people that work for us and the people that earn their living by either working directly for us or providing contracting activities to our projects are not out of work while this suspension remains in place.

We were in fact concerned about conflict developing between our workers and the protesters. As a result, we have tried to defuse the situation by suspending operations there.

Obviously for us and for the authorities, peaceful resolution of the situation is the priority. At the moment, we are working with the community groups and with the national government in an attempt to get this resolved. But, as you are aware, we are taking it very carefully, given the volatile nature of the Peruvian mining environment.

In terms of schedule, for the project and assuming we get this community issue resolved in the relatively near future, we do remain on track for commissioning of the project at the end of calendar 2007. The construction of the [mill] and the associated facilities is going very well. The critical part remains around the tailings dam, as we have previously indicated to you, and we have various workstreams on the go in an attempt to take that off the critical path to make it [as simple as part] of the project.

Thank you and back to you Ian.

Thanks very much, John. With that feedback from my colleagues, I would just like to end off with a few of these following comments. I think it's fair to say that the basic engine of Gold Fields is in good shape, despite the short-term impacts of the Driefontein issues that has highlighted.

We're generating strong internal cash flows that are very important to funding growth and development plans. We continue with an active exploration program across some very favorable terrain in various parts of the world, and certainly we've got some projects that we're very optimistic will have the potential of developing into Gold Fields-sized projects.

On the M&A front, we will be posting the offer documents to the Western Areas shareholders in the next few days, and concurrent with that, the competition process will begin, being the final regulatory hurdle to the planned acquisition of the South Deep mine. As things stand, it certainly looks as if we should be on schedule to get closure on this acquisition, probably towards the end of 2006 if not early into 2007.

Finally, as you know, both from Brendan and Terence, overall, next quarter, the group will be looking at a similar production output from our mines, albeit with the caveat of the slightly lower output from the Driefontein mine. However, cost pressures will continue to plague us, as they do everyone else in this industry. But I'm confident that the cost-saving initiatives that we have put in place will stand us in good stead to effectively tackle this cost monster.

With those closing remarks, let me open this call to any questions that any of you may have.

(Operator Instructions). Victor Flores, HSBC.

I assume that the change in accounting procedures isn't going to have any tax impact. So, the question is, why do it? Why not just take the high ground and continue with the policies that you were currently using?

We gave a lot of thought to this. As you probably know, we showed pro forma disclosure over the last number of quarters. We're with you on this that it would be much simpler to continue with what we're doing. Unfortunately, we get compared against our peer group, in terms of things like cash costs and production costs, and people say, "Well, your costs are much higher than other entities. What are you doing wrong?" We try and point out that hang on a minute, the policies aren't the same. I don't think a lot of people really grasp that.

So, I'm afraid that if you're going to report in this industry, you have to report on a uniform basis, to ensure that analysts like yourself can get information that you can compare on an apples-to-apples basis with other companies. To answer your earlier question, no, there is no tax implication of this. The cash flow impact obviously is zero as well. So it's just a question of presentation of figures between the balance sheet and the income statement.

Thanks, although I suspect that you may have just initiated an arms race, so to speak, to work the numbers down amongst the industry. But I appreciate your answer, thanks.

(Operator Instructions). Heather Douglas, BMO Capital Markets.

I have I guess two questions. First, can you give us an update on the power situation in Ghana?

As far as the water level in the Volta is concerned, it has risen some 9 foot from where it actually was towards the end of the quarter. It is currently at 245 feet. It got to the critical level of 236 feet.

At this stage, there are still heavy rolling blackouts, and they haven't [turned up the tap] there. We do expect that once the level possibly reaches 250 feet, there might be change of view in terms of the Volta River Authority, and they will generate full power again.

As far as the other generating units are concerned, the Takoradi power station, the mining industry has facilitated the return of the rotor [two sites] which was being repaired in the United Kingdom. That rotor should be up and running in two weeks' time, and that will supply another 160 megawatts of power.

The other thing that's come out of this is that the supply of power from the Ivory Coast, which was down at around about 50 megawatts, has been increased to more than 200 megawatts, and that has declined at present. As far as the industry is concerned, they have got together. We are looking at supplying alternative means of power into the grids on our own basis. But at this stage, it's early days and we'll keep you informed of any progress in that regard.

Q1 didn't have the full impact of the powering. Can you talk about what your cost estimates for Tarkwa and Damang will be with the full quarter?

What we had, we really had an impact over the last month, and that month of the quarter increased our cost by some $1.4 million. So, one can simply multiply that by 3, because we are generating at about the same rate at present. That's on the premise that they don't increase or lift the load shedding arrangements.

My second question has to do with Cerro Corona. I noticed in your quarterly, you mentioned that CapEx was going to be $340 million. I think our previous guidance was $277 million. Can you tell us where the overruns have been?

Yes, the 340 was in some previous disclosure. But to give you a sense of it, there are about three or four big drivers. One is the biggest single item is the tailings dam, where it's really the cost of getting the rock moved into place, as well as all the other construction activities around that. So that, to a degree, reflects the availability and cost of services for very large construction activity.

So, tailings dam is number one. Number two, you could include the broader services aspect, including EPCM and various other aspects of providing professional services to a project like this.

The third item, then, is really all the commodities in terms of steel and plastic. To give you a sense of that, plastic piping that is used extensively on projects like this has gone up 300% since the feasibility study. So, you've seen some very large moves in some of these commodities. That actually reflects substitution as some of the other commodities get used into other industries.

The fourth item is just some changes in scope, particularly around some environmental, social and community issues, particularly in terms of road locations. So, those four items really contributed to the move to around $340 million.

I want to slip in a third question. Just overall, can you give us the specific guidance for the [2000] fiscal year for production, total cash costs and CapEx? Especially with this change of accounting policies, I'll have to recalibrate all our models.

We can't give you guidance on that at this stage, Heather.

But maybe at another stage?

Maybe at a later stage, but not today.

Peter Townshend, BJM.

Two questions for Nick. Firstly, on the tax rate, you're paying an effective tax rate a little bit above 40%. Can you just explain to me why that has increased substantially over the last six months?

When you say an effective tax rate of 40%, are you including or excluding the government royalties which are shown as part of taxation?

Yes, including those.

You're including those?

Yes.

You should actually strip those out, because what you found is with the gold price having gone up significantly, and with government royalties being based on revenue, you will find that the tax also goes up quite a lot, and it can push up your effective rate relative to your pretax profit. So, what I would do is strip out the royalties. You and I can have a discussion off-line if you like and take you through the calculations.

Then, just in terms of the debt that you will be taking on, with acquiring Barrick, 50% of South Deep, is that $1 billion still something that you're comfortable with? Because it certainly appears to me that some of the relative weakness in the Gold Fields share price is probably because the market expects you to do a share placing. Can you put us all out of your misery? Are you comfortable with the $1 billion and [you'll take that debt on] in services?

What we have said to you earlier, in strategic presentations and quarterly presentations, is that prior to the South Deep deal, we were comfortable with debt up to around about $750 million. I think we've gone public on that. Clearly, taking on this will take us to a high level of debt, but at this stage, that is our funding plan. We're very comfortable with the underlying cash flows of the business. As I said earlier, if you look at the cash flows we're generating after capital expenditure, even including the Cerro Corona project, the current debt levels in the Company can be doubled over a period of 12 months, in terms of the operating cash flow we can generate relative to that.

So, I'm not unduly concerned about taking on that level of debt. Certainly, if we continue with gold prices where we are today, and certainly the rand exchange rate above ZAR140,000 a kilogram, we would be comfortable with that.

Muneer Ismail, Deutsche Bank.

Just looking at Driefontein, it is a little concerning looking at the guidance that you put through. You're suggesting a reduction in tons per quarter of gold produced to 7.5 over the next two quarters, and then you're increasing to 7.8. My question is beyond June 2007, when you move beyond 7.8, is 7.8 considered a new sort of normalized label in the periods that follow? I mean, given this mine has run at 8.8 tons tons of gold produced per quarter, and I appreciate that you are cutting back on the surface stuff. But it just seems like it is way off its capability in that sense. Am I reading it correct that it should go above 7.8 tons per quarter?

I would agree with you that it should go above that. But we haven't completed all the detailed planning, so I would be hesitant to give you a figure of where we would end up.

Brandon, just to follow through, then, it looks like it's a reduction in grade, not really in volumes mined. Am I correct in making that assumption? Just roughly looking at your reserve grades in the area on the 4 shaft on a weighted basis, proven and probable, about [10.70] against the reserve grade for Driefontein of about 8 grams per ton. So can I assume that it is grade downgrade that's coming through in the following quarters that will take it down to 7.5 tons per quarter?

It's the high grade that comes out of the 4 shaft area that's having that effect. 4 shaft is very high-grade. Without those tons coming through, the grade does drop, yes.

Barry Cooper, CIBC.

A question mostly for Nick, I think, here. I'm going to mix apples and oranges here. If you look at your cash costs, both in the September quarter and the June quarter, with the restatement, they dropped by $31 an ounce. Yet, in terms of the earnings impact, it's quite a bit different, and even when you look at $31 per ounce, roughly 1 million ounces per quarter, there's no correlation between the difference in the cash costs and the impact on the earnings. I am just wondering how this new transparency that you're promoting is really tied to the income statement, in terms of getting us to the bottom line.

If I understand your question correctly, I think what you're saying is, if you compare the restated figures against last quarter and then strip out the impact, you are seeing a dissimilar impact on overall earnings. One of the reasons for that is that we stepped up our development this year. There was a conscious effort to increase development at the South African operations.

Of course, because that's extra development, which is now waste development, which previously would be expensed is now capitalized. As you capitalize more development, it takes longer for that to unwind itself through the income statement in the form of additional amortization.

So, effectively by increasing development, you end up increasing your earnings in the short term. You would have a corresponding impact if you reduced development. In fact, you would show that your earnings went down.

But I think it's important to recognize that over a period of time, the income statement effect will be neutral. It's purely a timing impact between capitalizing that development to capital expenditure and then bringing it back to the income statement through amortization. You are going to have these timing differences as your patent of development versus mining changes. I hope that's a short, clear answer to a process that can be a lot more complicated.

Okay, well, that's fair enough. But given the guidance that we get, I guess this is just one other fudge that we have to make. Thanks.

John Doody, Gold Stock Analyst.

A couple of easy questions, I think. First is, are you going to post a historical cash cost online that we can find for prior periods under the new revised method?

In fact, if you look at the quarterly book, you'll see that we give a reconciliation. In fact, if you look on page 16 of the book, a schedule of total cash costs, we give a reconciliation so that you can work back to the old basis before we did that. That's on cash costs.

Okay, I see that. So, I can work it all the back for a year or two?

We've done it back to the last quarter, but I don't think we'd have any objection to continuing that process. Then we've done on the same on cost per ton. If you look at page 21, we've done the same on cost per ton.

I will see how I do, and if I have any questions I will get in touch with Cheryl.

My second question has to do with two changes that you really made this year. You're bringing your reported cash costs in line with others in the industry, and you have changed your reserve reporting to the year-end calendar year end. Does this mean that we should expect, in the coming period of time, a change from the fiscal year to calendar year?

What we do is we do our reserves at the end of December, and then we apply a new basis of amortization from March. That doesn't mean in any way that we're going to change from June to December. So I think you should assume fiscal year remains June for the moment.

Okay, for the moment, thank you.

Terence Ortslan, TSO & Associates.

Thanks for the details. Just coming back to the balance sheet and the CapEx, what can you do non-recourse in terms of financing?

Non-recourse to what?

To Gold Fields -- like Cerro Corona, for instance.

Well, we are in the process of actually establishing a project finance facility already for Cerro Corona to part finance that construction. We're going to raise $150 million of project financing, which on completion -- which should be toward the end of 2007, once we achieve technical completion and economic completion -- will go non-recourse. So, there is one example of non-recourse debt that is raised in the Gold Fields Group.

Coming back to South Africa -- the acquisition and the investments required, what can you [do non-recourse] on that?

We haven't tested that yet.

To come back to your comfort level which you indicated about the balance sheet, why is that numbers such a magic number, $750 million before the announcement?

What it comes back to use, if you look at our EBITDA over a range of Gold prices, we said that $500 million to $750 million of debt over a range of gold prices would represent around about 50% of annual EBITDA. In other words, the kind of debt levels I've mentioned to you at the higher end of the gold prices that we used would be about 50% of what we produce on an annual basis EBITDA. Typically, that is a very conservative number, too. Because typically, the banks will allow you to borrow up to 2.5 times that number. So we're taking 50% of the benchmark figure, whereas typically, banks will let you go way beyond that.

So it is a prudent level, but it also fits in recognition of the fact that we're not scared to use our balance sheet to fund projects. That's also guided by the fact that if we're generating significant cash flow going forward, then we are in a position to take on that debt because we know we can pay it off. If we were in a situation where we weren't generating significant cash flow and we took on a lot of debt, we would be a lot more worried. So, in arriving at that level, all of those factors have been taken into consideration.

Leon Esterhuizen, Investec Securities.

Just a quick question on the South Deep acquisition. Clearly, that's a very, very large chunk and a big, bite for you guys to take. Has anybody just taken a stab at to see what the impact on earnings would be, assuming 100% of South Deep purchase, given the fact that it's making losses currently? Just an order of magnitude what the impact would be on earnings if it was, say, effective in the last quarter?

I think one has to remember that South Deep, first of all, is a mine in a buildup phase, and we all know that it is currently producing nowhere near where it could produce at full production. I think that is the first point.

I think if you also look at the financing effects of this particular acquisition and you factor in the interest costs against the fact that you're not getting a significant amount of return at the moment from the asset, that also has an impact. So, there's no doubt that this is going to be dilutive on earnings in the short term. But I think the reason we bought this asset isn't because it was going to be dilutive to earnings in the short term. It's because it's a was a long-lived asset, a 50 year operation, and we're taking a very long-term view on this thing.

But until this mine can ramp up to anywhere near the sort of production levels that it should, it is going to be dilutive on earnings. I don't want to give you specific percentages, but it is going to be, at some stage, [to some kind] of information coming to the market on that. But until you see that, I think just assume that it will be dilutive, and you will see more clearer numbers on a pro forma basis pretty soon, I'm sure.

Yes, that's fine. Sort of based on my own numbers, that number comes out in excess of 50%. That's why I sort of kind of wanted to just check with you. But regardless of that, it is a worry for me that yes, clearly, it is a good asset; and yes, it will obviously deliver at some point in the future. But you can compare it to the Ashanti acquisition by AngloGold, which is, I guess, also a good asset. But it really put the brake on AngloGold for quite some time, in terms of share price performance.

Well, look, I think the challenge is to get this asset up as soon as possible. But that's not going to happen in the short term. So, yes, you are right. I'm not going to start quoting numbers on the telephone here and get into that debate, but it will be dilutive in the short term. There's no doubt about that.

Paul Durham, HSBC Securities.

Just actually fleshing out a question that Ismail had earlier about the 4 shaft. Can you tell us how much gold is actually tied up in that extraction pillar, in terms of tons and grades and ounces please?

I can give it to you in tons. It is about 20 tons. But we're not walking away from it.

No no, I didn't suggest you were.

That's about the figure in the pillar. In the total area around that shaft, (indiscernible) about [30] tons. But the pillar itself is about 20.

My understanding of what you said about the ground conditions -- you said you might necessitate coming in from a different shaft or different shafts. Could you just elaborate a tiny bit on that for me as well please?

Normally, when we extract shaft pillars, we actually use the shaft that is in the pillar to (inaudible) the area. What we have found within this particular shaft is that the conditions in the shaft lining are deteriorating, which [might anticipate that we are bending the shaft]. So that possibility we've decided to develop accesses from our 5 shaft and our 1 shaft area, and that's going to take about a year to do. We want to get that, too, before we get into the [needs of] the pillar.

David Leffel, Deutsche Securities.

Nick, just a question I think on Western Areas in the Southeast transaction. Where are we with the regulatory approval process? Then, how does the payments to Barrick occur? Do they occur on the final approval of the [SOV] and the competitions commission? I'm just trying to know when the cash flows might occur this quarter or next.

The approval process is ongoing. We've made all our submissions to the competition authorities. It's in their hands, so we don't know when they are going to opine on that. But that would be the last remaining condition to the satisfied, to go unconditional on the transaction. Once that is in hand, we would have around about five business days to close the deal.

I think as Ian said earlier, we don't know if it's going to be early 2007 or late 2006. It really is in the hands now of the regulators. We've done everything that's been required of us, and now we are waiting for them.

A second question. This might be for Ian. You may have been misquoted in the press this morning. I saw in some press clippings that's Ian, you said you'd have trouble keeping your South African costs below the PPI inflation rate in South Africa -- at least that's what the quote said. Do you mean PPI or CPI?

PPI -- that's Peter Peter Peter Peter Peter I. The reason being that PPI is a much more indicative number for [mining] inflation. Really, what we're saying is that we're starting to see the buildup of cost pressures days, particularly with input costs on our mine. We're saying that that is going to be a challenge to keep it there. Clearly, we're going to try and beat it.

But along with everyone else, we're seeing an escalation -- I'm not sure that we see all those costs flow through. As the rand starts to weaken, it's been very interesting. When the rand strengthened, we didn't see the [knock-on] impact of slightly lower cost input. As soon as the rand weakens 5% or 10%, immediately the suppliers cry foul, and they want a big increase in cost. So, that's one of the negative sides to a slightly weaker rand.

Maybe I could just follow up then. With 50% of your costs more or less being wage-related, you still say that PPI is the right number?

That's correct.

Rob Midway, Royal Capital.

Just a quick follow-up question based on some other callers. On the South Deep acquisition, you're going to be financing $1.2 billion of cash to pay. Could you just clarify what you said about debt versus equity, and also what you said the banks would allow you, if you wanted to finance with debt?

What we said is that previously, prior to the South Deep transaction being being announced, we were comfortable with debt up to around $750 million. The way we calculated that was to look at a range of gold prices and work that back and say well, what percentage of EBITDA would $750 million be? It comes to back to around about 50% of forecast EBITDA. In other words, you don't want to take on more debt than would be half a year's operating cash flow, I think.

Did you say 50% as in half?

Yes. The banks will typically allow you to go up to 2.5 times. So it's just the level of prudence we've introduced into that. I think that gives you an indication as to how robust that number was, and why it's not that difficult if we needed to to move a bit higher, particularly as we have another asset in the stable over and above the assets we currently have when we initially calculated that ratio.

Just to clarify, because I just want to make sure I understand, you're saying the banks will let you go to 2.5 times EBITDA?

Absolutely.

So, your current run rate of EBITDA roughly $1 billion give or take. So, you're saying the banks would let you -- not that you would do this, not that you think it is prudent -- have $2.5 billion of debt potentially?

Yes. I'm saying to you I don't think that is prudent. We're saying that's way beyond what we would go, but there are banks that will lend it to you. We're not suggesting for a moment that we would push the envelope out that far.

Okay, but are you suggesting that at $17.34 US for GFI that you're not going to be issuing equity?

What we're saying to you is that we have announced our funding of this transaction. We're saying to you (indiscernible) loan of $1.2 billion and until you hear anything else, that is what you should assume.

We should assume what, that you're going to do equity and debt, or that you're going to do debt?

You should assume that we're going to do debt at this stage.

We will take one last question.

[Sam Robbins], [Robbins Planning Company].

My questions are long-term, worrying about sustainability of reserves, and I remember [Robin Plumridge] years ago telling me that when the price of gold went up, underwater gold mining off the coast of Africa could be a new substantial gold field. Have you looked into this, or are you looking into it on a long-term planning basis?

To be honest with you, at this stage, I'm not aware that our exploration guys are looking at any offshore gold mining activities. To be honest with you, I think the only place in Africa that you would likely find something like that would be off the West Coast of Africa. I am aware of some places where that could take place. There's also some places out in Indonesia.

But, at this stage, we're not currently looking at that. To be honest with you, I'm not convinced that Gold Fields is particularly well-equipped to handle that sort of mining. We'd rather stick with a more conventional sort of mining.

But I think, to take Robin's comment a little bit further, clearly, as the gold price increases, the potential output from the Wits Basin could certainly -- there could be some more potential here. Obviously, it's highly leveraged, the gold price. Particularly the deeper ores and some ores outside of existing mining leases could potentially become viable. So, I think that would probably offer far more opportunity for a company like goldfields than perhaps at this stage offshore mining.

My second question is, in the extension of the mining at East Driefontein and Kloof, did you intend to go deeper or sidewise or both? It seems to me that the deeper you go, the higher your costs. So, I'm wondering if there is a point of depth at which it no longer pays?

Well, it's not a question of the depth, because interestingly enough, I think whilst there is a general decline in grade with increasing depth, it's not necessarily the case. Because you still get areas of very good grades despite the depth, and you have areas that are shallow, that are lower grade, that are not viable. But the main essence of the two projects -- the Kloof extension area and the Driefontein drop-down -- are by definition accessing lower ores, but certainly on the basis of the geological information, the drilling that we've got, we believe that those projects are viable. You see in the quarterly report that we've evaluated these projects at ZAR100,000 a kilogram long-term prices. Despite that much lower price current spot, you can see that these projects give a reasonable return. So, we're reasonably confident that with the grades as we know them, the costs as we know them, and even assuming a much lower planning gold price, these projects are still viable despite their depth.

There are no further questions at this time.

Thank you very much indeed, and thank you everybody for listening in today. We look forward to meeting up with you again early in 2007 when we will do the December quarterly results. With that, thank you all, good afternoon and thanks very much indeed.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.