Gold Fields Ltd (GFI) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields second quarter fiscal 2007 results conference call. My name is Jeremy and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of the conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host, Ms. Nerina Bodasing, head of Investor Relations. Please proceed, ma'am.

Thanks, Jeremy. Good afternoon, everyone, and welcome to today's conference call. Ian Cockerill, our Chief Executive Officer, will kick off with an introduction followed by Nick Holland, our Chief Financial Officer, on the finances. Terence Goodlace, the head of South African Operations, will review the operational performance for the Group. And John Munro, the head of New Business Development, will provide an update on our new projects. Ian will conclude and then we will open for questions and I will now hand over to Ian.

Good afternoon or good morning, everybody, and thank you for joining us here today. Firstly, I'd just like to open with a special tribute to Brendan Walker, our previous head of South African operations, who, as you know, tragically died in a car accident over the new year period. At this time I think it is appropriate to remember Brendan's contribution to the old Gold Fields of South Africa which he joined as a fresh graduate from university as well as the more recent contribution that he made to Gold Fields as we know it today.

Whilst obviously we're going to miss him terribly, as well as his family will, I think it says something about the strength within Gold Fields that today we're pleased to welcome Terence Goodlace as the new head of South African Operations from his previous role on the international scene. And I'm sure you'll all join me in wishing him well in his new position.

Moving on to the quarter at hand, and I think probably at some stage in the future when we look back at this specific December quarter, I do believe that we'll come to view this as a [Seminole] time in the history of Gold Fields. We did have a very, very busy quarter indeed. Attributable gold production was up 1% to 1,015,000 ounces; cash costs were flat quarter on quarter at R$353 per ounce, mainly as a result of very good cost control. And this is despite the fact that we had to take on board the South Deep operation which currently is a much higher cost operation, albeit just for one month in the quarter.

The operating profit was marginally down to R$267 million. But that was very much on the back of a weaker dollar gold price. Net earnings were up slightly to R$104 million or US$0.20 per share. And yesterday the Board of Gold Fields did declare that on the 19th of February this year we will be paying a dividend of R$0.90 per share.

Further for this last quarter we also successfully achieved conversion of our mining licenses to new order mining rights and that I think was a very welcome achievement. Also the buyout of the South Deep Mine was concluded after we had purchased Barrick's 50% stake in that mine as well as an achieving an effective -- and this is a number that we speak as of right now, we're now at 97.7% ownership in Western Areas. And bear in mind, Western Areas held the other 50% of the South Deep asset. And the results that you're seeing today also include, as I said, one month of attributable production from the South Deep asset.

Now it is our intention to move towards a 440,000 closeout which will result in 100% ownership of this world-class asset which should probably be completed within six to eight weeks. Obviously buying Western Areas meant that we took on board the toxic Western Areas hedge book, but as you will see from the presentation, this hedge book has now been terminated with the accumulation of a 1,005,000 ounce delta position which accumulated in a very speedy and cost-effective manner. And Nick will give you the details of that in the later part of this presentation.

And finally, today we announced earlier at 10 o'clock South African time this morning that we have initiated a $1.2 billion global capital raising in Gold Fields to ensure that we have an optimal capital structure for the Company going forward. I'm sure you'll agree this has been a very, very busy quarter indeed. I think just with that brief introduction let me hand over to Nick who will take you through the finances.

Thanks and good afternoon. As you heard earlier, we decided to retire the Western Areas hedge book and that was closed out yesterday. To put it in perspective, what the hedge book looked like, there was a whole series of put options bought, call options sold, coming up with a net delta of just over 1 million ounces plus a deferred premium about R$187 million which related to options which were previously taken out by Western Areas but not paid for and the payment of those options was deferred.

In addition the call options kept gold prices somewhere between 300 and R$400 per ounce and you all know today where spot is trading at, at the order of about 650 today. So our view on this is that this represented a significant liability for the Company. We didn't even look at this as a derivative addition, but we looked at this as a liability, and an uncapped liability at that, and we decided to settle it.

If you look at the numbers that we had when we took over Western Areas, we established control on the 8th of December and the mark to market value at that time was R$539 million. At the end of December the figure was very close to that; it would be a mark to market gold price around about R$634 per ounce. What we've managed to achieve is to closeout the hedge book at an average spot price of R$622 per ounce and the full closeout cost, including all costs and charges, is R$527.8 million.

So we're extremely pleased that we've been able to exit this hedge position and achieve a lower effective price for gold than existed at the end of the previous quarter. And indeed I think if you had to mark to market the book today as seen on the screen before I came in here, we're at R$652 per ounce. If we had to mark to market that today then we'd be looking at a liability that is well north of R$560 million. So already I think we've saved the Company substantial sums of money by taking out this action.

Of course with the closing out of the hedge book it has had a major impact on our debt situation and our net debt at the end of the quarter after taking into account cash of R$200 million was R$1.36 million. The hedge is going to be settled on the 30th of January. We will draw down on existing funding facilities to settle the hedge and that will add another R$527 million, as I mentioned, which will take our net debt up to a level of R$1.9 billion which we believe is too high a debt for this company. It's full well within our financial covenants, but we believe that that is too high for this company.

And the hedge closeout which resulted in us accelerating our liability which stretched all the way from 2007 through to 2014, we accelerated that whole liability right back -- obviously on a discounted cash flow basis -- right back to today and that means that liability now has to be funded today as opposed to over the next eight years. That view has led us to the belief that we need to recapitalize the balance sheet and hence that was why the capital raising was launched this morning. And that capital raising, as Ian mentioned to you, is for R$1.2 billion, that's going to be a global private placement and we're hoping that pricing can be concluded by no later than 30 January, 2007.

If we are successful in that capital raising, that is going to reduce the debt levels on a pro forma basis using the R$0.31 figures down to around about R$700 million. And those of you who have attended our presentations before when we've been in Europe and also in Johannesburg as well as previous quarterly presentations will know that I've indicated consistently that we would not be adverse to debt to fund growth. Very clearly the debt that we're establishing here and have established is to fund growth and R$700 million is well within the range of a comfortable debt figure for us.

The important thing to mention is that we still have substantial firepower to borrow way beyond that, that retaining that debt does not limit us in any way, and should the need arise for us to access funding for any kind of attractive growth opportunity we would not be stymied in doing that. We would certainly have the ability to do that. So the capital that's coming in will be used to pay off the bridge facility that was used to finance the South Deep acquisition.

That's all I want to say on the hedge book and the capital raising. I think suffice it to say that our no hedge policy meant that we should make this decision as quickly as possible. And the only other thing I would say is it's certainly going to simplify our accounts and in particular the Western Areas accounts that we take over.

Moving on to the numbers for the quarter -- you heard Ian say that our production is slightly up if you look at our dollar income statement for the quarter. Our revenue, however, is slightly down from R$666 million to R$657 million. And despite the higher production the gold price reduced slightly from R$622 an ounce to R$609 per ounce. Our operating costs increased from R$389 the previous quarter to R$403 million in the current quarter. And that small increase is due to the inclusion of South Deep for one month of the quarter.

Bearing in mind that South Deep is not at the level of production that makes its costs effective and in fact its cost are around R$560 an ounce per quarter, that means that those costs have gone up. Clearly once South Deep gets up to the level of production that we should see over the next six to 12 months we expect a significant decline in those costs.

As you heard earlier, operating profit slightly down to R$266 million. And if we look at finance income, finance income up significantly from R$2 million to R$33 million and that's on the back of an unrealized exchange difference on the R$1.2 billion loan that we took out to buy Barrick's 50% share of South Deep.

Net earnings then for the quarter R$104 million compared to R$98 million in the previous quarter. And if you strip out all of these unrealized gains, foreign exchange gains and also movements on the hedge which is reflected under our financial instruments line, and the core earnings of the business were $76 million, that's down from R$98 million in the previous quarter. And that reduction is simply due to three main factors -- the lower operating profit that I mentioned earlier, which is price related; slightly higher amortization, which is linked to the mining mix during the quarter, certain assets carry a higher amortization charges and other assets; and we also incurred $6 million of finance charges related to the debt established during the quarter.

Turning to cash flow, if we look at our cash flow from operating activity -- that declined from R$226 million to R$190 million. The main decrease there is due to temporary working capital buildups that we anticipate will reverse during the following quarter. Capital expenditures up R$20 million to R$187 million. Most of that is at Tarkwa and that relates to some secondary machinery that we've brought in, secondary trucks to assist in the mining process. And also some additional capital stripping and also an increase in South Africa due to additional development which is an investment for the future.

We're also starting to start on the drop-down projects at least in (indiscernible) and that expenditure is starting to come through. And of course we shouldn't forget the inclusion of the South Deep capital for the quarter. The cash flow also reflects the outflow relating to the payment to Barrick but also reflects the inflow of the loan facility that we established in relation there too. So those two are virtually (indiscernible) and that leaves net cash at the end of the quarter of R$200 million and, as I mentioned earlier, net debt then at R$1.3 billion. But obviously all of that will change once we know the results of the capital raising. With that I'm going to hand you over to Terence Goodlace.

Thank you, Nick, and good afternoon, everybody. Looking at the operations I think it's important to say that safety remains very important for us and we were particularly pleased with the performance that we had in terms of our totality rate for the quarter which was at 0.08. If we look at the actual gold production, and I'll talk through the South African operations first, that was broadly in line with forecasts and it amounted to some 654,000 ounces including 27,000 ounces from South Deep.

Production at (indiscernible) was in line at forecast at 270,000 ounces at the mine and this was on the back of a replanning exercise at Four Shaft where we had to cater for (indiscernible). Gold production at Kloof did decrease to 231,000 ounces and that reduction is primarily as a result of (indiscernible) factor. Beatrix was steady for the quarter at 150,000 ounces with lower volumes offset by higher yields and better quality mining. We also had to stop panels at Two Shaft to curtail under planned mining.

Development remains a key driver for our business and we have provided quite a lot of detail in terms of development at the back of the quarterly books. I don't plan on going through that other than saying that we will continue to accelerate development as it's such an important part of our business.

In terms of operating cost for the South African operations, the combined (indiscernible), Kloof and Beatrix operations had an increase of 2% quarter-on-quarter and their total cash costs were R$354 per ounce. The margin at the South African operations is robust at 39%. Nick has expanded a little bit about the capital expenditure for the South African mines which increased to 565 million for the quarter and the main areas of expenditure were the all reserve developments which was 211 million of that 565. Expenditure included in our 565 or 41 million was that attributable to South Deep for the December months.

As far as the upcoming quarter is concerned, we are forecasting that Kloof and South Deep should increase gold production while Driefontein and Beatrix should produce marginally less. The seasonal break will have a disruptive influence on our performance, but we have (indiscernible) mitigating effect and actions in place. Unit costs are expected to increase due to the full inclusion of South Deep which will have relatively high unit costs during their ramp up to full production. Capital will also be affected by the inclusion of South Deep as well as the ramping up of activity at (indiscernible) the Driefontein mine shaft project.

Moving on to South Deep in particular. I think we should be excited about this project. It has a very significant reserve position of 30 million ounces, it's a modern mechanized operation and we believe there is significant optimization potential with our adjacent and Kloof operation.

Looking at South Deep and looking at its quarterly results and what's actually happened at the mine, during the past quarter the mine has focused on the rehab work of the twin shaft complex and associated winders and it is pleasing to note that the South main shaft has now recommenced hoisting. The underground fire which they had reported in August has also been extinguished and we are moving back into those areas. Work has also commenced on the deepening of the ventilation shaft which is part of the phase one project to increase the mine throughput to 4 million tons per annum by 2012.

In terms of where we are going and what it looks like for South Deep, we hope to attain something like 150,000 tons per month by the end of the current quarter and thereafter buildout to a consistent 220,000 tons per month by quarter two financial 2008. The expected yield will be on the order of 6 grams per ton. We do expect to produce something like 80,000 ounces for the coming quarter.

The way forward and what we're looking at in terms of South Deep, we'd like a smooth and safe renter of the twin shaft system; we don't want to make any mistakes and we will make sure that we get it right. We're going to be focusing on integration into the greater Gold Fields and we're also going to focus on an evaluation of the big picture which includes synergy studies with Kloof as at both of the lease areas, in other words all 45 million ounces.

We've also commenced with a review of the phase one expansions study which gets the mine to 4 million tons per annum producing 800,000 ounces per annum at a cost of R$65,000 per kilogram by 2012 at a capital cost of R$3.5 million.

Moving on to the international operations, it was a good quarter for the international operations and a total of 431,000 ounces was produced. Choco did pretty well as far as we're concerned and produced 179,000 ounces on the back of good throughput through the CIL and higher yields through the CIL plans. Damang surprised us with their 52,000 ounces and that was on the back of a concerted effort to find and deliver increased fresh ore tonnages from the Damang and Juno 2SW open pits.

Choco 10 did deliver increased production, but strike action early in December, a (indiscernible) shutdown and water shortages all adversely affected production. Just on this note, we are pleased at what we've done as far as the plant is concerned; it performed exceptionally well in October and November of the quarter, but the water shortages have put pay to this. At the moment water shortages will end our continuing into the quarter and the strategy to reduce reliance on rainwater is being advanced through a dedicated team of consultants.

At St. Ives we produced something like just on 124,000 ounces which is a marginal improvement and that was on the back of increased throughput and yields through (indiscernible). Agnew gold production decreased by 10% as a result of a 15% reduction in underground volumes from the Waroonga complex where the Kim Lode is still delivering plus 16 grams per ton. Underground volumes were affected by restricted access due to poor ground conditions where time-dependent (indiscernible) has been experienced in haulages. Costs at the international operations, including GIP, decreased by 3% to US$151 million for the quarter. The total cash cost at the international operations were R$351 per ounce and the margin was 33%.

Moving on to capital, the main driver this quarter for capital expenditure at the international operations was Tarkwa which doubled to R$26 million and that was on the back of, as Nick had said, secondary mining fleet, capital waste mining and initial expenditure on the CIL expansion project. All of Damang was similar to previous quarter, we had a tapering at Choco 10 and we had some late expenditure at St. Ives and Agnew for the quarter.

Looking forward, for the forthcoming quarter we are forecasting a marginal increase in gold production, taking cognizance of the situation at Choco which is expected to produce around 9000 ounces only. Gold production at the [Gonan] operations is expected to be similar while improvements are expected out of Australia. Regarding capital, this is expected to increase on the back of the mobilization for the Tarkwa projects.

Just a brief summary of the main capital projects in the operations at the moment. The Driefontein project which we announced in September of 2006, we are on track as far as the shaft sinking and the commencement of shaft sinking is concerned. As far as the Kloof AA project is concerned, that is also on track and we do expect to commenced sinking of the deep line as we laid out during our announcement in September. Exploration activity or expenditure at Choco 10 is ongoing with an annualized rate of some $10 million per annum, and that is looking to the expansion that we hope to get to 300,000 ounces per annum, as we've said, by 2009. And the preliminary numbers indicate upside at the VBK area.

There were two projects that had been advanced in the quarter in Ghana as part of our mitigation strategy. One is to put in a supplementary power unit along with a consortium of the other mining companies and we've given approval for that to go ahead. That will cost us 10 million -- in other words, that's our share. We've also put in a retread facility -- we've approved a retread facility and that should be commissioned by quarter four of financial 2007. And this is to mitigate the effect of the global tire shortages.

We did announce on the 28th of November, 2006 the expansions at the CIL plant at Tarkwa and the heap leach phase five for a total of R$175 million and those should be commissioned in 2008. The other main project which we are advancing is the St. Ives Leviathan project. It's in feasibility phase right now. The project will cost something like AUD$25 million to access 650,000 ounces and this project will go to the Board in February. Thank you. And I'd now like to hand over to John.

Good day. I'll just talk very briefly about the new development options that we have ongoing around the world. It's useful to overlay these on the list of capital projects that Terence as just spoken about, the emphasis of which was on (indiscernible) expansion at existing operations. Now in terms of new development, our most significant project remains the Cerro Corona copper gold project in Peru. During the December quarter the community blockade that we spoke about previously was resolved peacefully and operations as well as the project construction got underway again through the latter part of November of 2006.

Mining operations are back above the planned level of 1 million tons per month so that's back to normal. And towards the end of last calendar year the bulk of the surface earthworks were also completed. As a result the main construction contractor was mobilized to the site in January and the actual erection of the process plant is now underway.

Engineering is largely complete. We have got three large orders left to make, that's the (indiscernible), the electrical facilities, and the permanent man camp. But all ordering of other equipment has gone very well and in fact some of the large equipment such as the grinding mills is already under transport from the construction facilities around the world by ship across to Peru.

In terms of the capital outlook for this project, we remain at our previous guidance of some US$340 million to complete this project having spent around US$120 million to date. In terms of schedule, this remains under pressure with the loss of time due to the blockade that we spoke about previously; that cost us just in excess of a month of actual construction time. And although we are targeting to get this project to completion and into production in calendar 2007, that is at risk at the moment, but obviously the project team continues to work at ways of maintaining that schedule.

Our next most important project is the gold project in Burkina Faso known as Essakane. The bulk of the reassay work that we've spoken about previously was completed during the quarter and the resource estimate completed, that is being reviewed and checked at the moment and results on that should be available shortly. On the back of that, the feasibility team has been assembled and commissioned and will commence detailed feasibility work when some of the commercial operating agreements have been resolved with our partner, Orezone Resources.

Another important deal announced during the December quarter was the alliance of the Shino Gold. This focuses on the search for giant gold deposits in China. There are various elements to it, the first part being the placement of some R$28 million that we took down in Shino, increasing our stake to some 17.4%. Then we had the exploration dimension where we combined our technical capability and exploration front with Shino's proven capability on the ground to search for giant deposits in China. And it clearly reflects a growing focus in that country for us as well as a focus on large ore deposits, not small to medium scale ones.

Then the third dimension of the alliance is significant technical and managerial cooperation in both directions for the benefit of both the companies. We also in the quarter and just subsequent to the quarter undertook two sales of equity positions from our exploration portfolio. The first (indiscernible) is also in the second, a stake in (indiscernible). Those two deals netting out some US$42 million in a mixture of cash and shares from the various acquirers. Now these disposals do not just represent just a harvesting of funds from the exploration portfolio, but rather a redeployment to other venture capital opportunities in that area of business development.

Finally, just to complete the picture on the major activities happening in terms of new development worldwide, our exploration spend remains at previous levels, greenfield spend under Craig Nelson's group out of Denver remains around US$45 million on an annualized basis while our brownfield spent on existing mines is some US$40 million per year, the vast majority of that going into the international operations.

So I think the picture I'd like to leave you with is a company that is very active around the world and by no stretch of the imagination has the focus of the South Deep deal taken away either our human or financial resources away from development of the international opportunities. Thank you and back to Ian Cockrell.

Thanks, John. I think firstly a little guidance on the upcoming quarter. (indiscernible) begins to recover from the effects of the (indiscernible) accident and we absorb the impact of the post Christmas euphoria down here in South Africa -- and you heard Terence say that our international operations certainly continue to perform at or above levels that we've seen previously with the exception of Choco 10 that sadly will fall short of last quarter's production. We should experience a growth in output for the Group as a whole in the next quarter, but somewhere between 2 and 4%, which if you annualized it would mean the Gold Fields would be producing at or around 4.3 million ounces per annum.

Certainly so far we're anticipating costs will be at a similar level to those that we experienced in this past quarter. I've already so that we are now at just under 98% of Western Areas and our offer is going to close tomorrow. And then we will commence with the 440,000 closeout process which should take six to eight weeks to complete.

So to conclude then I think it is fair to say this indeed has been a very, very busy quarter. I believe we started on the next phase of firmly positioning Gold Fields as a unhedged, globally diversified top tier gold producer. Based upon the unique franchise which is Gold Fields of a few large high-quality assets, comprising a solid South African foundation, a rapid expansion of our international asset base with a simple corporate structure and an optimal financial structure.

And I also believe that this company is incredibly well-positioned both operationally and financially now to take advantage of what we believe is going to be a strongly rising gold market. I think a compelling story indeed. I think with that I'd like to thank you all for listening and let me hand you back to Nerina and we'll open up the lines for any questions you might have.

Jeremy, you can go ahead with the questions.

(OPERATOR INSTRUCTIONS). Jacques Garibaldi, Royal Management.

Good morning, everyone. I'm thinking back to the fall and when you first did the Western Areas deal, my understanding was that you all were not going to raise equity, that you knew the hedge book was around 500 to R$550 million and if you closed it out you would close it out with debt and that you were comfortable with debt. And in fact this pro forma 1.7 times debt to EBITDA that you'll have on January 30th is within your comfort parameters. So given all of that can you just explain what changed since the fall and why you're raising 12% of your equity base?

I think there's a misinterpretation on your part. When we took out the -- or when we made the acquisition in -- when we were going to make the acquisition as you call it in the fall, we at that stage knew that we would have R$1.2 billion worth of debt and that was the debt level that we had. There was a mark to market position on the hedge book, but it had not been crystallized.

So it wasn't that we said that we were going to take out the hedge book; we didn't know what the hedge book was like at that stage. We had a rough idea of the level of the mark to market, but certainly had not at that stage had any intention of crystallizing it. Once we'd taken over the company and once we actually had a good look at this, it became quite clear that to get the support of the banks in this transaction, the hedge counterparties, that it was important that we actually looked to doing something constructive with this hedge.

Now the best solution that we came up with was in fact we should actually close the hedge out as and when an opportune time came, take the pain in the short-term and then move on in a purely unhedged fashion. That meant that we actually had to, as you heard me say, we had to increase our debt level to another R$530 million. That took us up to by the end of the quarter somewhere in the order of R$1.9 billion.

Now whilst banking covenants and banks will probably loan you on something like two times EBITDA, and we have an EBITDA of plus or minus R$1 billion a year, clearly R$1.9 billion would be within normal banking general authorities. However, we said in the past that we wouldn't want to go too high and we certainly would not want to leverage the balance sheet entirely on one transaction and close off other potential opportunities. And we felt that having crystallized the hedge, moving from what we had before the hedge crystallization of about $1.2 billion and going up to $1.9 billion, we felt was just a move too far.

And on the basis of that we said we believe it is prudent to reduce the debt level back to a point where we are comfortable, we've retained debt in this company, we're not unhappy with debt and we're happy to live with that debt. But we feel it should be done at a level that means that we don't close off further opportunities for this company going forward. That's why we've decided to reduce the debt level.

And how did you determine 1.2 billion? Why not just raise 550 or 600 to recover the Western Areas hedge book?

Well, we'll see what comes in. Maybe that's all that we get in is 550. But we're hopeful that we'll get to actual around R$1.2 billion. We'll see. We don't know what the appetite in the market is like. This is going to be a very quick process, but we do believe that what it will do, it will leave us in a situation where we will ultimately end up with a much more optimal financial structure and a much sounder balance sheet.

Okay. Thank you. I appreciate you taking the questions.

Victor Flores, HSBC.

Thank you, good morning, Ian. I'd like to ask you three hopefully pretty brief questions. First regarding Cerro Corona, could you tell us when the mill foundations were actually poured or if they have been poured?

John will answer that question.

Victor, why don't you finish your list and then while I'm talking other guys can make sure they come up with answers.

Sure. Second question goes to Kloof and perhaps some explanation for why it seems that the grades continue to drop even though we were hoping that they would stabilize. And then the final question is just a bit more detail on what you expect in terms of costs and capital for South Deep as you get it back up to where you want it to be a 220,000 tons per month?

In terms of Cerro Corona, what was completed at the end of last year was the bulk earth work. So that means that the moving of earth and the creating of the flat surfaces -- the conduit flat surfaces was complete. Then the construction contract at [Grand Montera] was mobilized (indiscernible) in January. So moving forward from here is we know we'll be moving into mill foundations which is I think specifically your question. So they have not been poured yet, that would be the process we're moving into now.

Okay, thank you.

Looking at the Kloof (indiscernible) factor and grades -- the delivered grades are below expectation and it is on the back of a low mine core factor. There were a couple of things that affected us in the quarter. One is that a lot of the higher grades that we did attain in the quarter, the overall mine grade was equal between the two previous quarters, that occurred in the December measuring month. A lot of that gold didn't come out from underground and that resulted in the lower mine [call] factor. There's only one way to solve that and that is to go and take that blasted ore out and bring it to surface.

As far as the cost and capital are concerned at South Deep, first off we have given some guidance in the quarterly book in terms of what the capital expenditure should be like over the next six months. I wouldn't like to go beyond that because I haven't had full sight of the numbers, but that number is R$264 million. As far as the costs are concerned, we currently have a cost of R$133,000 per kilogram. We're looking by the end of this quarter to be something like R$120,000 and by June at about R$100,000 per kilogram.

Just one follow-up. Where do you expect to see cost for South Deep once you're at that 220,000 ton a month level?

Once we do get to that level it certainly will be below 100,000 and I would be hoping that it would be below 90,000. If you look at where this mine was operating at historically before the shaft accident, it was operating with a throughput of something like 460,000 ounces and it had cash costs of R$93,000 per kilogram. So we would certainly be at full production at 220,000 tons per month which we would equate to something like 1.3 tons of gold at 6 grams per ton a month you would be looking below R$90,000 a kilogram.

Thank you very much.

Victor, it's John here. I'd like to clarify the bigger picture on South Deep because it's a question we keep getting and it's worth putting Terence's comments in context. Your to reiterate, prior to the shaft accident the mine was doing about 450,000 ounces a year at R$93,000 per kilogram. So priority one is to get it back to that level and then to bolt off there to the ultimate production levels.

Now in the due diligence we focused on the best case plan and that best case plan is to get this mine to full production by 2012 and that means that we get to 800,000 ounces a year from the Twin Shaft system and the capital to get from now to there is about R$3.5 billion. The other dimension of that is that at full production of 800,000 ounces a year from the Twin Shaft system the cash costs are estimated at around R$65,000 per kilogram. So quite a substantial buildup from here to that point in time.

Now that's based on the public domain information that had previously been put out by the joint venture and in fact in the Western Areas circular and that was the basis of our due diligence and what we regard as the base plan for the Twin Shaft system.

Thank you very much.

Oscar Cabrera, Goldman Sachs.

Good afternoon, guys; good morning for us. Just a couple of quick questions and follow-up. In terms of just following up on the South Deep, thank you for all of the detail that you provided, but at what point or at what level is the comfort level with the debt? Is it two times EBITDA, Ian, or can you kind of stretch that?

This presentation that we've given over the last year or two which we've put on the Web where we've gone into a lot of detail about the level of debt that we're comfortable with. And as I mentioned earlier in the presentation, around 700 million, R$750 million of debt would be a comfortable level of debt for us to maintain. And our EBITDA, as you also heard earlier, is at $1 billion a year at current prices. So that's about 0.7 of the EBITDA.

Also to put it into context, when we did the South Deep deal we also said as a consequence of that purchase or as a consequence of that acquisition we could stretch that 750 a bit higher. And in the worst-case scenario had we had to live with the R$1.2 billion of debt we could have done so and that's what we indicated at the time. But clearly adding a hedge on to that changes the whole situation. Because what you've done by closing out the hedge, you've accelerated a liability by 6 to 8 years which puts a whole different complexion on it. So if we get the equity eroding away at the level that we've targeted we will be at comfortable levels of debt going forward.

But do you mean to say that the indication that you have given is that two times EBITDA would be something that you guys are comfortable with? I guess I'm just asking the question because as you go through the other expansion projects you have in mind you develop South Deep, is there going to be a need to -- would you rather have another equity financing or are you going to use debt for that?

Sorry, I just want to clarify or correct you if I may with respect -- we've never said we'd be comfortable with debt at two times EBITDA, that's never ever been said by this Company.

Okay, fair enough.

That's a misconception. Each acquisition that we look at or each internal project that we look at we make a decision on its merit how best to fund that project. But I think the important thing is if we get the debt levels down to the level I've indicated to you it doesn't limit us in terms of our ability to take on additional debt should we need to for further projects.

Oscar, I think the other point that you mentioned, what about the financing for the capital at South Deep. One of the advantages is taking out this hedge position is instead of applying the revenue that we're getting now as 140 odd thousand kilogram, instead of applying that to working out this hedge book, we can now use it to internally fund the capital program. And certainly the work that we have done to date leads us to the believe that at current prices and at current levels of performance and where we're moving towards over the next quarter or so that South Deep will be in a position that it is able to almost breakeven after its working cost and its capital.

So that's one of the other reasons for wanting to take this hedge out. And do not underestimate the psychological advantage to the guys on the mines where now all of a sudden they're actually seeing themselves making profits. There's nothing more demoralized to people quarter after quarter not making money despite their best efforts. So another shall we call it softer reason for wanting to take out this hedge and turn this into a proper mine, not just something that's making the banks rich -- we want to make our shareholders rich, not the banks.

That's a great answer. Thank you very much, guys.

David [Lethol], Deutsche Bank.

Good job. I think you've answered a few of my questions already. I guess on Cerro Corona, I just wanted to revisit capital projects -- the capital project continues to seem to be going up. Did I hear 340 million? And I guess is that the center prediction of the capital costs and where are we with I guess the selection of the tailings dam in that location?

Right. Just to be clear, the number is US$340 million and that's the number I think we've been reporting for the last two quarters and that follows once the really advanced procurement was done quite a few months ago as well as some of the more detailed engineering. So that number has been stable now for quite some time and we're starting to see numbers actually moving into contingency. So although there's a lot of construction to be done in the coming 12 months and it's a tough environment, weather and terrain, we feel reasonably happy with that number which is why we've maintained it there in terms of guidance.

In terms of the talings dam which is the biggest single driver of the capital end schedule, although it's not completely in the bag the revised design has not met any black hole so far and is in the very final stages of sign off including an independent review board of external experts which really came back with a number of recommendations that are being worked through.

So at this stage we do expect to go with the simpler dam and as a result relook at all of the capital and schedule, but it's really one evolving equation, but overall we feel that the R$340 million capital guidance is the appropriate number at the moment. And as I say, we have got some numbers moving back into contingency which gives us a bit of room.

My second set of questions especially in South Africa is will you look at a higher capital program. Was sort of capital cost escalation might we be experiencing right now? And also on the operating side, should we still use [PPI] type inflationary numbers for your working cost estimates over the next three or four years?

If you look at published year-on-year PPI over the last 12 months, that's been bordering on double-digit. And if you look at the last five or six months it's around about 7%. Now against that background at our South African operations we've achieved an overall increase -- weighted average increase in our contract prices of about 4%. So that's what we've achieved.

So we've beaten inflation. And we manage our capital contracts in the same way that we manage our working cost contracts; they're all managed under a coordinated supply chain program because we don't really take the view that's capital so we're not going to have the same controls as operating costs, not the case. You're spending money and when you're spending money you need to have controls.

That's what we've managed to achieve so far. Whether we can achieve that going forward obviously is difficult to say, but we'll certainly be attempting to outperform the general inflation in the country. We've managed to do that consistently over the last four years and certainly we hope to achieve that going forward. I don't think inflation is the biggest risk on these projects. The biggest risk on these projects is actually making sure that you get them done on time and that they don't actually get delayed. I think we can manage the inflation aspects. The scheduling and making sure we do things on time and a proper sequence is a much bigger risk for me.

Nick, just one last follow-up. So are you talking about CPI inflation or PPI inflation as a target to be below?

I think you should look at what we've achieved. We've achieved around 4 or 5%, as I mentioned, and I'd be hoping that we can achieve that going forward. That's obviously a stiff target, but we certainly do want to outperform inflation, that's our target.

Okay, thanks.

Daniel McConvey, Rossport Investments.

Good morning, everyone. Oscar answered my first question. Just a bit of a gold market question. Nick, when was the hedge book bought back roughly? Because you started that in January and over very recently or when did most of activity take place?

We started the process before Christmas, so that's the process that started and that culminated in a whole series of steps which I don't really want to go into because it is proprietary information. But that culminated in a final closeout position being agreed yesterday afternoon's and the underlying agreements were then signed. I think the positive side that you can take out of this is that a lot of the gold price runout that you've seen over the last week or so we don't believe has got anything to do with what we've been doing because of the fact that the process started a lot earlier. But for obvious reasons I don't want to go into specifics of that (multiple speakers) strategies we deployed in it.

Thank you very much.

Jeremy, we'll take one last question.

Heather Douglas, BMO Capital Markets.

Good afternoon, everyone. I just have two questions. It's kind of a compound one, can you give -- the situation both in Ghana and South Africa, can you give us a little bit more detail about the new powerplant plant in Ghana and when you think it will be on-stream and when we can see costs coming down?

Heather, it's Terence. There's a consortium that forecasts these (indiscernible). We plan on putting a national 100 MW plant into Ghana which will provide us with an offtake of something like 80 MW. And so that's to supplement the growth, it will run on normal fuel in the first instance and then ultimately we will move it on to make it a gas-fired power station.

In terms of the overall position in Ghana right now, the (indiscernible) is still very low, it's at 1998 levels and actual below and the offtake is higher. There's been growth in that country and basically the power grid can't keep up. What does it mean for us the four members of the Consortium? It means that we put into the grid enough power such that if we were ever to be asked to reduce our power by 50% that would be sufficient. In other words, the 80 MW would make up for that 50%. So we would be protected up to a 50% reduction in power which emanated from BRO or the Balta (indiscernible) authority.

In terms of cost, the plant that we put in initially will run at about R$0.15 per kilowatt-hour. Ultimately when we convert it to gas, and that's once the pipeline is through from Nigeria, it will be able to run at below R$0.10 per kilowatt-hour. And that's versus the online power generation costs have run about R$0.26 per kilowatt-hour.

Okay. And how's the situation now in South Africa? I understand that that had some blackouts last week I think.

I think that's just about the result. And we've had line interruptions, we've been cooperating with you and with [Iskin] and we've got a position where we have had minimal interruption as far as that's concerned. A lot of the power generation units that were off-line as a result of maintenance and unplanned maintenance are being brought back on-stream.

And are you concerned about the long-term power situation in Africa at all, because last year you have the same type of thing happen didn't you?

That was probably more of a winter phenomenon. That happened in summer when in actual fact a lot of the power stations are actually being repaired for winter. The power situation in South Africa is going to be a challenge. I think it has been said that over time we're running at just about full capacity with winter and there's quite a lot of measures in place by Iskin -- as a matter of fact, they're coming to see us next Tuesday to give us their full plans going forward. But in essence they're going to recommission some of their power stations and in addition we are advancing quite a few projects which are collectively called DSM projects or demand-side management projects and we are implementing those on the mines.

What actually happens with these projects is if we are managed to reduce power during peak times we actually get a 100% capital subsidy from Iskin to actually put those projects in. If it's off-peak we actually get a 50% subsidy. So we're working hand-in-hand with Iskin to try and reduce our power consumption thus far. And this is happening across the country with many of the other industries.

Okay, thanks. And my second question is for Nick. How does today's capital raising impact (indiscernible) interest in (technical difficulty) South Africa operations?

Sorry, I couldn't hear the question, Heather. Could you repeat that?

Sorry, how does today's capital raising, which you'll be using to repay the debt impact [Envellopanda] interest in the Gold Fields of South Africa?

The agreement with Envellopanda does provide for the ability to undertake share placements at a certain discount. And provided we stay within that discount, then it's business as usual. If we move outside that discount we may have to review the floor and the cap that's in place there. So I can't tell you what the impact is going to be at this stage. I'd be very surprised if the impact was material.

Okay, thanks.

Ladies and gentlemen, thank you all very much for listening in today. We look forward to seeing you in three months time. Thanks very much indeed and thanks for listening. Bye-bye.

Thank you for your participation in today's conference, ladies and gentlemen. This does conclude the presentation. You may now disconnect. Have a wonderful day.