Gold Fields Ltd (GFI) 2009 Q1 法說會逐字稿

Good afternoon and welcome to the Gold Fields results. (Operator Instructions) I would now like to turn the conference over to Willie Jacobsz. Please go ahead, sir.

Thank you very much, Dillon. Good afternoon, ladies and gentlemen, and thank you very much for joining us for this quarter one F2009 results teleconference call. In the room we've got Nick Holland, the Chief Executive Officer of Gold Fields. We also have Vishnu Pillay, the Head of the South African operations, Glenn Baldwin the Head of the International operations and Paul Schmidt our acting Chief Financial Officer.

Nick will give a brief overview of the results for the quarter, after which Vishnu will speak to the South African operations performance and Glenn to the International operations performance. We will then have an opportunity for questions and answers. Nick, I'll hand over to you.

Thank you, Willie, and good afternoon, ladies and gentlemen. As we guided last quarter, the first quarter of fiscal 2009 was going to be a clean-up quarter, thereby setting Gold Fields up for recovery towards its short-term target of achieving a run rate of 1 million ounces a quarter at an NCE, or notion cash expenditure, of $725 an ounce in the third quarter of fiscal '09, in other words the March quarter of '09. And that's been struck at the exchange rate of 8 to the US dollar.

If I deal firstly with safety, we remain committed to not mining if we cannot mine safely. And I think if we look over the last quarter, despite the fact that we've had two fatalities, our safety performance has significantly improved during the quarter. In fact, this has been the best safety performance ever for Gold Fields in its almost 11-year history and, in fact, in the September quarter I believe we had the best safety stats in the industry.

So, I think it is clear that the interventions are paring off and we accept, of course, it's had a material impact on production in the short term. But our objective is to ensure that we can put all of the safety interventions in place, whilst at the same time restoring our production levels going forward, in other words improving our production but doing that safely.

If we look at our guidance, production for the quarter was 2% below our guidance. We had said previously production would be 5% down, in fact we ended up being 7.8% down. And that's mainly as a result of a slower build up at Cerro Corona as it took longer to get the plant to steady state after the first rock went to the mill towards the back end of July.

We're pleased that the first shipment of concentrate was made on September 30 and that shipment consisted of 4,000 wet tons of concentrate, being around 4,600 ounces of gold and 415 tons of copper. Pleasingly, our total cash cost guidance was on target and our notional cash expenditure was in fact 8% better than our guidance.

Turning then to the key aspects of the results (technical difficulties) --.

Excuse me, Mr. conference operate, we do ask everyone for their patience. We may be experiencing technical difficulties for a moment. Thank you.

-- part of that shaft. And the Kloof main shaft, as some of you will know, is responsible for hoisting about 50% of our gold. And lastly, as I mentioned, we had a slower build up at Cerro Corona, as mentioned above.

The low production has impacted on our revenue and revenue was down from R6.4 million to R5.7 billion in the current quarter. That's on the bank of the lower sales, which are a natural consequence of the lower production. And also, the rand gold price declining by 3% from 223,568 per kilogram to 217,586 per kilogram. The rand exchange rate was fairly stable at R7.74 against R7.77 the previous quarter. And the US dollar gold price down 2% from $895 an ounce to $874 per ounce.

If we look at our operating costs, as I mentioned, our total cash costs increased in line with guidance by 22% up to $617 per ounce. And our total notional cash expenditure, just to remind you that's total operating costs plus capital expenditure, increased to $909 per ounce, which was 8% better than guidance.

If we look at our operating costs in terms of South Africa and International, the key elements impacting our costs are as follows. In South Africa our total costs in rand millions went up 13%, or in dollar terms went up from $282 million to $319 million. And that's really on the back of the 10% wage increase in South Africa that took effect on July 1.

Also there was a 20% increase in electricity costs, which also included two months of what we call the winter tariff that's levied to us over the winter period, which essentially results in the doubling of our cost. And those two elements alone make up around 9% of the total 13% increase. And I think the other increases are obviously in line with normal inflationary increases etcetera across the range of items that we procure.

At the International operations costs went up 10% to $217 million and the power costs increase in Ghana, which was essentially a doubling of the tariff, accounted for $10 million of that $18 million increase. Also more expensive fuel, explosives and cyanide accounted for another $4 million of that increase.

And in addition, the imposition of the production royalty in Australia of St. Ives for the first full quarter came into effect this quarter, which added another $3.6 million. Those were the main items behind the cost increases.

If we look at our operating margin for the quarter, operating margin declined from 42% to 27%. That's really on the back of the lower production combined with the slightly lower revenue per ounce and of course the cost increases that I've just taken you through.

And then, if you look at what I would call the normalized earnings for the quarter, you can see that we've dropped from $123 million to $16 million for the quarter. And I think at this stage it's fair to say that a large proportion of that reduction is because of the production pull backs that we've had to do for safety reasons.

Pleasingly, I can report that a lot of that rehabilitation now is complete, particularly the Driefontein second support that I mentioned. That work was finished at the end of the quarter. The South Deep rehabilitation of the 95 2 West and 3 West ramps has been completed at South Deep and we should see both Driefontein and South Deep doing better as we get back into those areas.

At Kloof we're still [bitty] with the rehabilitation work and that should be finished by the end of December. We still believe that's the case and, that being so, we believe that Kloof can get back to normal operations by the January month of 2009.

If we look at Cerro Corona, pleasingly I think this build up continues. And as we've indicated in the quarterly book, we have given guidance of around 55,000 to 60,000 ounces equivalent for the December quarter and we believe we're on track to achieve that. So, no reason to believe, then, that we won't get to full production at Cerro Corona in the March quarter, as previously advised.

The Tarkwa expansion in Ghana is also on track. We believe that that will be completed by the end of the year, end of December that is. And that should also place us in a good position to get Tarkwa's production ramped up, now that we'll have a 1 million ton mill to process that.

At St. Ives the build up is also happening, although slower than what we would have liked. We expect to increase this quarter by about 10% and then by the March quarter we expect to be somewhere between 115,000 to 120,000 ounces.

So, my summary for you is that I believe we're still on track for our short-term target of 1 million ounces a quarter by March, hitting that run rate at least in that quarter and getting our overall costs down to $725 an ounce. And that's struck at an exchange range of 8 to the dollar. Currently we're at around about 10, so there may be some further upside if the rand exchange rate continues where it is.

And pleasingly, I think all of the projects are coming together at the same time, as well as the completion of the rehabilitation work in South Africa. So, we're a lot more positive that we've got better times ahead. This has been a very tough quarter.

The next quarter will be a little bit better. We expect production to increase by about 5% to 840,000 ounces and we also expect cash costs to decline by about 5% as well compared to this quarter. And you'll see a corresponding effect flowing through into the NCE.

So, a better quarter in December, but we're not going to see what I would call fireworks until the March quarter when we can get our projects at full production and get all of the rehabilitation behind us. But I'm confident that we're on track to achieve that in the March quarter.

So, I think with that I'm going to hand you over to Vishnu Pillay, Executive VP and Head of South African operations, to give you a synopsis of how he saw the quarter just past.

Thank you, Nick, and good afternoon, ladies and gentlemen. Just to follow on from what Nick had said, for the South African operations I'm extremely pleased to announce that our safety performance for the quarter that past was exceptional.

In virtually every single safety metric we had shown a significant improvement and I'm absolutely pleased to say that the investment that we had made in terms of the safety standards, the processes that we had put in place on the operations to address safety have been successful. I'm equally confident that going forward into the future a lot of that will be maintained by our operational Vice Presidents across all our mines in South Africa.

Just to give you quick feedback on our safety projects, some of which is really a repeat of what Nick had said but I'd like to take you through it anyway. Our secondary support program at Driefontein has been completed at the end of the quarter. There is some residue of secondary support work that we're doing at one, four and five shafts and we expect that to be completed by the end of December, which is quarter two. So, far we're making good progress in that respect.

Kloof main shaft, I'm pleased to say that that team is ahead of schedule by 10 days and we expect completion of that by the end of December. The mine intends to work throughout Christmas recess to have that work completed. And our expectation is that by January 2009 we will be back to manning material movement in that shaft complex.

On South Deep, the secondary support of the 95 2 West and 3 West ramps have been completed as scheduled. And those rigs that were deployed to do that secondary support is now back into full production.

I'm also pleased to announce that the vent raise hole, where we had the tragic accident on May 1, is scheduled for completion on November 11 of 2008. The new winder has been acquired, it's sitting on its bed now and the engineers are in the process of commissioning that. That should be completed by the eighth of November.

The conveyance for the shaft has arrived on the mine and we intend licensing that winder and the conveyance in the first week of November. Our plan calls for that shaft to be fully operational on November 16. So, I'm extremely pleased that our safety rehabilitation work across all the South African operations have progressed according to schedule and we have met the deadlines that we set for ourselves.

Production, Driefontein and Kloof have performed to plan so I'm not going to comment any further on those two operations. South Deep was below plan and the reason for that is two fold. We suffered an overhang from the restructuring process that we had gone through, we had accepted just over 2,000 voluntary separations on that mine.

And we had to take some time in rearranging our working arrangements for the remainder of our employees and that took longer than scheduled. We have seen in the quarter, though, an improvement in our development results below 95 level and that's pretty much on track.

Beatrix, I must be honest and say that the performance for the quarter has been a disappointment. And all of that rests largely in one single factor and that is our inability to get the mined coal factor back up to plan. Wefve returned 77% versus a plan of 89% and we're currently working very hard at correcting that.

We have requested permission from the Department of Minerals and Energy to clean under REEF horizon on Sundays and that permission has been granted. I expect to see some of that benefit flowing through in this quarter. Just on the electricity, all the South African operations are functional within the allocated quarter and the electricity supplied to the mines has been very stable.

On costs, South African operations have seen an increase in operating cost of 13% and a decrease gold production quarter-on-quarter of 11%. The decrease in gold production is essentially tied into our safety rehabilitation work and is expected to return to normal by Q3.

The increase in operating cost is largely due the annual wage increases, 20% increase in electricity plus the two months that we had on winter tariffs, the cost of secondary support and the rehabilitation work that had been done across the operations and, as a consequence, the reduced capitalization of off-reef development on the South African mines.

I must acknowledge the fact that over the last quarter, given our improvements in safety and the focus on restoring the integrity of our operations, we've made good progress. And personally, the executive team is quite confident that we'll be back into normal operating mode, as per plan, in quarter three and quarter four this financial year. Thank you very much.

Good afternoon, everyone, Glenn Baldwin here. Effective October 1 the South American region was added to my portfolio and today I will give you a report on the International operations, which include the mines Cerro Corona in Peru, Tarkwa and Damang in Ghana and St. Ives and Agnew in Australia.

The safety standards internationally continue to set the benchmark for the organization with Damang, St. Ives and Cerro Corona being lost-time injury free. Total attributable gold production was down a couple of percent to 366,000 ounces.

The forecast increase in production was not delivered due to delays in the ramp up at Cerro Corona, the pebble-crusher problems at Damang and under performance at St. Ives. This shortfall in ounces coupled with an increase in power costs and higher realized diesel prices in Ghana were the main contributors to the increase in cash costs from about $520 to just over $600 per ounce.

The dramatic increase in NCE is primarily driven by the project capital investments into the CIL expansion at Tarkwa and the continued spend at Cerro, both of which, for all intents and purposes, will be completed at the end of the December quarter. The CIL expansion will be commissioned in December. The already commissioned Cerro Corona project is tracking the $540 million to $550 million range, as reported previously.

In terms of production at each operation, Cerro Corona experienced what I would term normal commissioning issues. A highlight of the project commissioning start up, though, was the perfect start up of the crusher, milling and concentrate filtration sections of the plant. The bottlenecks identified in the flotation circuit are being worked on, with the aim of getting the plant to full production for the March quarter.

The ramp up to maximum levels of production at St. Ives were hampered by poor grade reconciliation at Argo, but we are confident that the new mining method implemented some months ago will yield positive results at the end of this calendar year. And the mine does remain on track for achieving its targets in the second half of fiscal 2009.

Agnew outperformed the guidance and performed very much to the plan we had in place for it. In Ghana the increase in GIP in the South Heaps will be released over time, following the completion of specing, which will correspond with the CIL expansion commissioning.

This increase in GIP at the South resulted in the September guidance not quite being reached, but I can tell you the gold is there. We are forecasting a low production quarter from Tarkwa in December due to the final tie ins of the CIL expansion, but the crews on site are doing a fantastic job and we expect to see much higher levels of production into Q3, certainly beyond 175,000 ounces.

Internationally, the September quarter was challenging but we managed our NCE well against the guidance. We are excited by the plans which show the completion of the major projects in Tarkwa and at Cerro in the December quarter. We are well positioned to see improved production and lower costs for the second half of fiscal 2009, with the NCE target for the company clearly set at around $725 per ounce. Thank you.

Okay. I think in conclusion I think you've heard that the outlook for the next quarter, that Gold Fields is now completing some of the key issues that have impacted the quarter and shouldn't reoccur again into the next couple of quarters. And I think the outlook is certainly much brighter from here on out, even if currencies in Australia and South Africa do pull back, as I suspect that they will, given that the dollar is probably going too fast.

But we're on track to achieve our goal of a run rate of 1 million ounces a quarter by the March quarter. And at this stage of the game I don't believe there's any major concerns in us achieving that. So, at this stage, then, I would hand over to any questions that people might have. And either myself, Vishnu, Glenn, or Paul will try and field those. Thank you.

Thank you very much, sir. (Operator Instructions). Our first question comes from Allan Cooke of J.P. Morgan. Please go ahead, sir.

Good afternoon, gentlemen, just three quick questions if I may. With respect to the oil hedge, you used to have a page in your disclosure, Nick, where you'd have any currency or any other derivative disclosure. I think that's been dropped because many of those contracts are no longer on your accounts.

But could you just talk to any derivative structures, and in particular the oil hedge, where you had that sort of R56 million come through on the income statement this quarter? Is there any more of that if there's movement in the oil hedge? Or has that now been written down?

And then, the second question just goes to the impact, obviously the rand dollar weakness is good for costs in South Africa and your margin. Could you also talk to the impact of the Aussie dollar weakness and how that's impacting, or is likely to impact, your December quarter? What is the split between Aussie dollar and US dollar exposure in your cost base in Australia?

And then finally, you've been talking to three or four years out of 5 million ounce per annum run rate, say by 2012, in the target. Is that a stretch target? Or do you guys have specific projects or acquisitions in the pipeline identified right now in Australasia, in South America and in West Africa that gives you confidence on that target?

Okay well let me deal with the first and the third question and then I'll ask Glenn to deal with the one on the Aussie dollar. I think first of all, we haven't dropped anything out of the book, Allan. I think if you look at our book we still have a schedule called hedging derivatives, as we've always had. So, the information is all there.

Sorry, I haven't got that in my book but that's okay, I'll look for it.

Page 15, look in your book on page 15. You'll find all of the detail in there. We've bought some call options on the oil price in the previous quarter and, of course, you have to mark-to-market those call options. And because the oil price is pulled back, that insurance premium, if you can call it that, a lot of that we've had to expense and that's the 56 million you're seeing in the income statement.

But I think the important thing to note here is that we've bought insurance. We haven't locked in a price, we've bought insurance so that if the price goes above the levels indicated on page 15 that we are protected. However, if the price goes below that, we also participate in that full reduction.

So, if you look at the oil price today of $60 a barrel roughly, we will participate in all of that benefit. But if the oil price, of course, goes back above the levels indicated in the book, then we're protected at that level. So, Allan, I would urge you to get the right book, the information is in there. And if you've got any further questions you can call us.

Going on to the long-term strategy of the regionalization, I think I've mentioned previously that our first strategy in Gold Fields is to get us to 4 million ounces a year annualized. And we want to do that by March. And that will put us in a position where we can start generating cash flow. Because right now, as you know and as I know, we're not generating any cash flow and that's the important thing for us to do.

Once we're generating cash flow, we can look to try and grow the various regions. And if you look at Australasia, we're currently doing about 640,000 ounces a year, so we need about another 360,000 to get to the million ounces. And I'm giving us three or four years to get there.

We don't have necessarily projects identified today that will get us there, but we have a lot of interesting opportunities around the mines. And also, if you look at the exploration page, we've gone to a lot of detail to give you some of the opportunities there. And some of those I think will come to account in the time frame that I've indicated.

If we look at West Africa, after the expansion we're going to be at 675,000 ounces. We're also looking for other opportunities around the mines and also in country for us to get that up to the million ounces in the three to four year period.

I think the biggest challenge for us is in South America -- the opportunity there to get us up to 1 million ounces. And I think once Cerro Corona is stabilized, the key objective there is going to be to look at how we can ramp up that operation.

We have another 5 million ounces which sits in resource that's not in reserves, effectively it's another 100 million tons. And clearly that's going to be a key objective in 2009 is to work at how we bring that to account. And that could result in production going up maybe 50%, 60%, 70%, difficult to give you numbers, we also have opportunities around the mines.

So, the 5 million ounces is really made up of some things we know about that we can bring to account in terms of organic growth, things around the mine that we think we can bring in, and then some stand-alone opportunities. But we're giving ourselves three or four years to do that, but we can obviously only do that if we have the balance sheet to do it and we have the cash generation to do it. And that's why getting to the 4 million ounces a year annualized is the first key objective. I think on the third question you asked I'm going to hand over to Glenn Baldwin.

Good day, Allan.

Hi, Glenn.

Just a couple things about Australia first, and I think that will put it in a bit more perspective for you. Obviously, both at Agnew and St. Ives the mining is undertaken by a contractor.

And the contracts which we've had in place, both at Agnew and St. Ives, have capitalized their equipment over the last few years. And, therefore, any exposure to purchasing equipment going forward is not as great as we would have in a Tarkwa scenario, for example. So, our risk is a little bit protected there with respect to the equipment purchases.

Certainly the guidance in the book with respect to cash costs, CapEx and NCE are calculated in the Australian dollar terms and then we convert them to US dollar terms. And you'll see in the book that we've used an exchange rate for conversion of 85. At the moment it's tracking around $0.65 to $0.70, so that would obviously reduce the US dollar per ounce.

Your question probably goes to what split should I use. We're affected by global ammonium prices, obviously affecting explosives. Cyanide, although the bulk of the cyanide is actually produced in Queensland, if I'm not mistaken by Orica. Diesel and steel, we are protected on power because we get power which is produced by gas from the Northwest Shelf. And at the end of the day, anything which is an exchange rate risk to us is all converted to Australian dollars anyway.

I would say that, if you were worried about the split, maybe 10% you might consider for the US dollar side of things. But typically when we do our forecasts, we just used a straight dollar to Australian dollar exchange rate and I give the guidance based on that.

Allan, most of the costs in Australia are really incurred in Australian dollars. The US exposure is there, as Glenn has said, but by far and away the weakening of the Australian dollar against the US dollar, you won't participate in most of that weakness, if that's really your question.

Thanks, Nick. Thanks, Glenn.

Thank you very much. Our next question comes from Terence Ortslan of TSO Services. Please go ahead.

Thanks. I think the previous question you answered the bulk of it in essence. You're getting carried away with this quarterly and periodic aberrations in operations and the financial results, but I think the long-term perspective is that you're outline the stability and the targets and objectives.

Maybe I'd suggest you have an analyst half-day meeting or something like that to try to the aberrations and to smooth out the process and get into more like a big picture number. So, I'll leave it that, but if you can elaborate more about what the long-term stability is in terms of the numbers of the financially and also operationally outlook on the answers. Thanks.

Thanks for the positive comments.

(Operator Instructions). Our next question comes from Shane Hunter of BJM. Please go ahead, sir.

Good afternoon, just a few questions. First of all for Glenn at the Cerro Corona, (inaudible) price, are you just going to be using spot or do you have any contracts at all that we can work from?

Sorry, Shane, that question didn't come through clear. Could you just repeat the first part please?

Yes I'm just trying to get an idea of what we can expect for the copper price received for Cerro Corona, if you're working on a price received which is going to be in line with spot or do you have any contracts that have some sort of [spot] prices.

Shane, we have contracts which we deliver into in terms of smelter contracts, but all of the contracts pay us at spot price.

All right. And then could I just ask a question about the grade as well for Cerro Corona. I recall earlier on from the work that we're getting indications that there were going to be some higher grades earlier on. And I recall there was a bit of a change in the reserves as well and recently were some of the [up slide] ore I think might have actually come out of reserve.

And I see that the grades in this quarter are actually well down on some of the numbers I had and I understand that there might be some tweaking of the plans, obviously. But if you could just give us an indication what sort of grades are you looking at over the next few quarters?

That's a good question, Shane. Certainly the grades that have been published are quite distorted, as you can probably imagine, with the first six to eight weeks of putting oil through a crusher in a mill and having the variability in the oil zone that we get between the oxide and the supergene, hypergene and mixed oil zones. So, the numbers you see there I'm not terribly concerned about in any way, shape or form.

Going forward we certainly do have a plan to stabilize the blend at higher grades than what you see there. Certainly numbers in around about 0.6% copper feed and 0.9 to a gram a ton in gold is what we'd aim for steady state over the first, let's call it over calendar 2009. Those are sort of the grades we'll be looking at around there. Recoveries will probably help you in your model, we're looking at around 70% to 75% recovery for copper and around a 60 to 65% recovery for gold.

Thanks for that. And there's one question to do with South Africa and it's to do with the increases in the power costs. You mentioned a number there [roughly] of 20%. Is that increase including the extra tariffs now for winter? Or is that just a flat [discount] increase and then you've still got some other percentage increase over and above that now for the winter tariffs. If you could just --.

Yes Shane, the 20% is the annual increase. And then over and above that we've got the impact of the winter tariffs. And you know if one looks at the overall increase in power, you could probably take about 40% of that related to the winter tariffs, which obviously will be out of the system in the next quarter. So, the total increase includes the winter tariffs and the 20%, so you'll see some claw back coming back in the next quarter once we're out of the winter tariffs.

Okay thanks for that. That's all for me.

Thank you.

(Operator Instructions). Our next question comes from Simon Kendall of UBS. Please go ahead.

Hi, thank you. Just in terms of credits, and obviously that's quite topical at the moment and I notice that the long-term data is by R2.5 billion. Can you just run through where that came from, what are the repayment schedules and what further unused credit facilities that you have to draw on?

Okay look, most of that increase in debt was to fund Corona, was to fund South Deep, because bear in mind South Deep with the pull back in production was in fact incurring an operating loss and also had to fund its capital, some tax payments, and then just short-term working capital movements.

You know we're building up a mine at Cerro Corona and obviously we've got to finance the working capital build up. So, I'm not too concerned about the debt levels, this is a debt level that we're comfortable with. We've got more than adequate lines available to access if we need more funding, those are all in place.

And you know we also have a war chest of liquid investments on the balance sheet that, in a worst case scenario, we have around about $600 million of investments on our balance sheet. Probably about $400 million of that is pretty liquid. And if, in a crisis situation, if we had to liquidate them we could. And so Gold Fields is in good shape.

And I think the other point is that we're now well capitalized because we've spent the money on our projects and our project burn rate is now decreasing significantly. If you look at our cash flow you can see, for example, that our capital expenditure has dropped $100 million during the quarter from $327 million last to quarter to $234 million this quarter.

And we're now going to start moving into cash generative position as the projects come in as the ops get back up. So, we're in good shape all around, Simon, to get through this credit crisis. I'm not concerned about that at all.

Okay thanks for that.

Gentlemen, we have no further questions. Would you like to make some closing comments?

No I think that's it. Thanks for your contribution and we look forward to having our half-year discussion with you around about the end of January next year. Thank you very much indeed. Bye bye.

On behalf of Gold Fields, that concludes this afternoon's conference call. Thank you for joining us, you may now disconnect your lines.