Gold Fields Ltd (GFI) 2009 Q3 法說會逐字稿

Good afternoon and welcome to the Gold Fields' Third Quarter Results Conference Call. (Operator Instructions)

I would now like to hand the conference over to Mr. Willie Jacobsz. Please go ahead, sir.

Thank you very much, Leroy. Good afternoon and good morning, ladies and gentlemen. Thank you for joining us for this conference call on the March results for Gold Fields.

The format that we're going to follow is that our Chief Executive Officer, Mr. Nick Holland, will give a brief introduction to the results. After that, we will hand over to Paul Schmidt, the Chief Financial Officer. Following that, Vishnu Pillay, the Head of our South African Operations, will give an overview of the South African performance. And then, Glenn Baldwin will follow that with an overview of the international performance. We will then take questions and answers.

I now hand over to Nick Holland to give us the introduction.

Thank you, Willie, and good morning or good afternoon, ladies and gentlemen, depending on where you are. Thank you for joining us for this review of the Gold Fields' results for the March quarter.

In a nutshell, quarter three can be summarized as a quarter in which Gold Fields started to demonstrate its ability to generate real free cash flow on the back of improved safety, higher production and lower costs, as well as lower notional cash expenditure.

This is exactly what we've been working towards since I took over as CEO exactly one year and one week ago today. In reviewing this quarter's results, it is appropriate to reflect briefly on our strategic focus for 2009 and also to comment on our performance against the objectives we set for ourselves a year ago.

The first three quarters of financial 2009 were focused on setting Gold Fields up for the future, particularly in terms of the South African operations and restoring production closer to historical levels and our medium-term target of approximately 1 million ounces [for the quarter].

In doing so, Gold Fields will be well placed to generate strong cash flows. To achieve this, we had to, first of all, make a step change in the safety performance of the group; secondly, complete the safety-related rehabilitation and maintenance of infrastructure of our South African operations, in particular, the replacement of the steel infrastructure at the Kloof main shaft; thirdly, complete the secondary support backlog at all of our South African mines; and, lastly, complete our capital projects, in particular, the Cerro Corona mine in Peru and the Carbon in Leach plant expansion at the Tarkwa mine in Ghana.

In each of these areas, we have delivered on our commitments, and the buildup in production is firmly underway, albeit at a slightly lower pace than initially planned.

First of all, I'd like to talk about safety. In terms of our first objective, the overriding theme for Gold Fields during the past three quarters was undoubtedly safety. Exactly one year ago today on the 7th of May, 2008, I said that we will not mine if we cannot mine safely. We have relentlessly adhered to this principal, and at times during the past nine months we have had to curtail production severely in order to improve safety.

I am, therefore, pleased to report that this approach has paid off and has indeed resulted in a step change in our safety performance for the year to date.

During the previous financial year, that's financial 2008, Gold Fields experienced a shocking 47 fatalities. With only two months to go before the end of financial 2009, the number of fatalities has come down to only 13. And whilst we relentlessly strive for zero fatalities, this performance is particularly pleasing.

The safety drive over the past year has undoubtedly proven that safety and superior productivity go hand in hand. However, it is important to note that we're not declaring victory in our quest for improved safety. This remains work in progress, and we still have a long way to go.

Our objective remains to eliminate all serious and fatal accidents in the group. This is our highest priority, not only from a moral point of view but also from a production and from an earnings perspective.

In our view, 13 fatalities, while much improved over the 47 of the previous year, is still unacceptable, and we will continue our relentless pursuit of a safe working environment, free of serious and fatal accidents.

If I look at production, particularly pleasing is that during the March quarter eight of our nine mines reported production increases. Attributable gold production increased by 4% to 871,000 ounces from 839,000 ounces in the December quarter, which brings the cumulative annual production increase to 10% from the low of 798,000 ounces reported in Quarter one.

Production at the South African operations increased by 3% from 501,000 ounces to 517,000 ounces, with production at the flagship operations, Driefontein and Kloof, increasing by 10% and 15% respectively.

Attributable gold production at the international operations increased by 5% from 338,000 ounces to 354,000 ounces.

Looking at costs during the quarter, our cost control remained very good with cash costs improving by 2% to $471 per ounce. Particularly pleasing is that our notional cash expenditure, or NCE, which is operating costs plus capital expenditure, improved by 13% to $668 per ounce.

What this means is that during the quarter Gold Fields generated $238 per ounce of free cash flow before interest, taxes, dividends and exploration for every ounce of gold produced. This demonstrates our ability to capture the higher gold price, which was 14% higher at $906 per ounce, for the benefit of our shareholders.

On the back of increased production and higher gold price for the quarter, our operating profit increased by 55% to $416 million and our net earnings by 160% to $140 million or from $0.08 per share to $0.21 per share.

With the completion of the safety rehabilitation projects in South Africa, as well as our major capital projects at the international operations at the end of December, the March quarter was in essence a buildup quarter.

We did, however, experience unexpected challenges at Tarkwa and Beatrix during the quarter. I just want to mention very briefly about these two operations.

Tarkwa managed to increase production by a creditable 9% during the quarter, despite several commissioning problems with the new CIL plant experienced in January and February. These included the failure of a conveyor system, which reduced the quantity of feed from the crusher to the SAG mill, as well as process flow problems, which (inaudible) the thickness of the new plant. Glenn will provide more details of these commissioning issues in his section.

It's worth noting, however, that the mining at Tarkwa has been going extremely well with both planned volumes and grades being achieved. And these commissioning challenges that we've suffered over the last quarter have largely been resolved, and we expect to have a much better quarter in the June quarter. Glenn will give you more details in a moment.

Beatrix had a tough quarter, and this was the only one of our mines where we have seen a decline in production. The main drivers of the lower than planned production at Beatrix related to lower mining volumes associated with limited flexibility and lower yields impacted by mine quality factors. Vishnu Pillay will give you more details on this in his section.

I want to spend a minute or two on South Deep before I hand over to Paul Schmidt to go through the financials.

And production during the quarter did increase by 2%, and much greater confidence has been gained on the outlook for South Deep going forward. In August last year, I ordered a comprehensive and detailed strategic review of the South Deep plant refereed by external consultants. This review was completed early in the March quarter. The review confirmed that South Deep should achieve its full production run rate of approximately 800,000 ounces, and expectations are that this should be achieved by the end of calendar year 2014.

It further confirmed that the capital expenditure required to get there will be approximately $800 million to $850 million in current money terms. However, an added positive outcome of the review was the implementation of a plan to accelerate the buildup of South Deep significantly. To this end, the old south shaft system is in the process of being refurbished and will be brought back into production by the end of June.

This will, starting in July of this year, give us an additional 50,000 tons per month of hoisting capacity. This additional short-term hoisting capacity will enable us to increase production in the near term while we complete the second of the twin shaft system, which is planned for early in 2012.

Hoisting capacity of the incomplete twin shafts is currently around 175,000 tons per month and will increase to 330,000 tons per month when fully completed. As a result of the short-term increase in hoisting capacity, through the recommissioning of the south shaft system, production should increase from approximately 200,000 ounces during financial 2009 to approximately 300,000 ounces during the course of financial 2010. A further increase is likely in financial 2011.

And with that brief introduction, I now hand over to Paul Schmidt, our Chief Financial Officer, who will take us through the financials for the quarter.

Thanks, Nick, and good day, ladies and gentlemen.

As Nick mentioned earlier, gold production increased 4% from 839,000 ounces to 871,000 ounces this quarter. The realized dollar gold price increased from $792 per ounce to $906 per ounce. The net effect of the increased production and the higher gold price achieved resulted in revenue increasing 21% from $718 million in December to $869 million first quarter.

On the cost side, net operating costs were flat quarter-on-quarter at about $453 million despite the 4% increase in production. I'm pleased to report that we have successfully managed to realize savings on various (inaudible) commodities, such as copper, steel, diesel and explosives. During the March quarter, at the South African operations, approximately $2 million in savings were realized in fuel and copper [rather than] full-price reductions.

In terms of the international operations, continued cost savings from contracted rise-and-fall mechanisms are mainly diesel, steel balls, and ammonia were achieved, resulting in a savings of around $10 million for the quarter.

Cash costs, total cash cost decreased by 3% from $487 per ounce in December to $471 first quarter. NCE or notional cash expenditure, which is operating costs plus capital expenditure -- the NCE for the group decreased by 14% from $774 per ounce in the December quarter to $668 per ounce in the March quarter. This is on the back of the lower cash costs mentioned earlier, as well as lower capital expenditures. There was also the completion of the Cerro Corona and Tarkwa projects in the December quarter.

If we move over to operating profit, increased revenue and unchanged operating costs have resulted in operating profit increasing by 55% from $268 million in December to $416 million in the current quarter. Operating margin increased from 36% to 47%.

Earnings, net profit attributable to ordinary shareholders, increased from $54 million to $140 million or from $0.08 per share to $0.21 per share. Normalized earnings, that is, our normalized earnings, we would exclude all the funnies, such as gain on foreign exchange, profit and loss from associates, gain or loss on financial instruments, this increased from $60 million to $146 million or from $0.10 per share to $0.21 per share.

Cash flows from operations, cash generated by operating activities increased from $142 million to $186 million -- I'm sorry -- increased by $142 million from $186 million in the December quarter to $328 million in the current quarter. The quarter-on-quarter increase was due to the increase in operating profit, reflecting the higher gold price, and the increased production.

Cash flows from investment activities - those decreased from $239 million in the December quarter to $140 million in the current quarter. This was largely due to the capital expenditure decreasing from $239 million in the December quarter to $166 million in the current quarter. This decrease was mainly due to the finalization of the Cerro Corona project and the completion of the CIR expansion project in Tarkwa in the December quarter.

Cash flow from financing activities, in the March quarter, there was an inflow of $12 million compared to a net outflow in the December quarter of $39 million. The net effect of this is that the net cash inflow for the quarter was $180 million compared to a net cash outflow of $92 million in the December quarter. The effect of all of this plus the exchange adjustment is that the cash balance at the end of March was $265 million compared to $109 million at the end of December, an increase of $156 million for the quarter.

If we look at the balance sheet, net debt has decreased from $970 million in the December quarter to $810 million this quarter mainly as a result of the increase in cash and cash deposits as discussed earlier.

Credit rating and refinancing strategy, in March, Standard & Poor assigned Gold Fields an investment grade credit rating. On the back of this, Gold Fields utilized this to access the local commercial paper market in May and successfully raised R568 million. The reason we did this is that the rates charged on the commercial paper were very favorable compared to bank funding, and we took advantage of this lower rate in the short term.

Over and above the commercial paper issuance, Gold Fields has secured two additional bank facilities in the form of a R1.5 billion five-year revolving credit facility and a $311 million syndicated two-year revolving credit facility. The US denominated facility pays interest at a margin of 275 basis points over LIBOR, while the Rand denominated facility pays interest at a margin of 295 basis points over JIBAR. When compared to similar deals done recently, both facilities were secured at a competitive pricing, given the current environment.

This refinancing strategy improves the debt maturity profile and provides flexibility in terms of access to funding. Our attention, however, remains to reduce debt over the next 18 months.

With that, I'll had over to Vishnu who will take us through the SA ops.

Thanks, Paul, and thank you, Nick. Good morning, ladies and gentlemen, or good afternoon, depending on where you are.

On the back of the introduction that's been provided by Nick, I'll get straight into the matters for the South African operations and start with safety.

We regret to report that there were five fatal accidents recorded for the quarter at the South African operations. The fatal injury frequency rate improved from 0.15 to 0.11 during the quarter, with the year-to-date at 0.09. An improvement in the lost day injury frequency rate of 4.92 to 4.78 was achieved. And the year-to-date number stands at 4.12. And the serious injury frequency rate reduced from 2.69 to 2.65 with the year-to-date number at 2.5.

Year-to-date compared with the last year, the fatal injury frequency rate has improved from 0.23 to 0.09. The lost day injury frequency rate improved from 8.06 to 4.12. And the serious injury frequency rate improved from 4.32 to 2.50.

We're extremely pleased with the results that we've achieved, and all the safety metrics are pointing in the right direction. To maintain the recent gains achieved in the safety performance of the South African operations, a safe production management initiative will commence in the new quarter that will address safety systems, leadership behavior and communication.

The Gold Fields group remains committed to zero fatalities, zero serious injuries and no disabling health incidents.

In terms of the overall performance, here are a few key indicators. In summary, the South African operations increased production by 3% despite the Christmas break. The increase in production was directly attributable to an increase in tonnage at Driefontein and South Deep and an improved grade at Kloof.

The Rand gold price strengthened by 16% from R250,000 per kilogram to R289,000 per kilogram as a result of a higher dollar gold price and a marginally weaker Rand/Dollar exchange rate. Operating costs were flat at 2.4 billion.

Total cash costs at the South African operations decreased by 4% from R149,000 per kilogram to R143,000 per kilogram. NCE decreased from R214,000 per kilogram in December to R206,000 per kilogram in the March quarter.

The margin at the South African operations increased from 39% to 48%.

In terms of operational performance, if I just go through the individual South African operations, Driefontein had a good quarter due to increased underground tonnage and the milling of low-grade Christmas stockpile. The estimate production for quarter four is 6.8 tons or 218,000 ounces of gold mainly due to improved volumes from underground and surface at consistent values.

Kloof had a difficult quarter due to unusually high safety related stoppages experienced during the quarter. Nonetheless, production at this operation was up 15% from the previous quarter as a result of major cleanups done during the quarter, which improved the mined coal factor from 73% to 97%. Work stoppages due to safety and the slow startup after the Christmas break resulted in lower underground tonnage.

The decrease in underground tonnage was offset by an increase in the yield from 7.5 grams per ton to 9.8 grams per ton. Gold production for the June quarter is estimated to be similar to the March quarter at 5.4 tons or 173,000 ounces due to further curtailments of pillar mining in the main shaft area post the fatal accidents in January and February.

In line with the Gold Fields focus on safety, mine management is working closely with the safety inspectorate of the Department of Minerals and Energy to ensure that all work areas are safe. Early indications are that some safety interventions may necessitate a pullback in volume at Kloof.

The following key areas will provide growth in production going forward - the main shelf pulley extraction, which will come into production during quarter one of financial 2010, and the increased mining at Number Four shaft.

Beatrix - as Nick mentioned, Beatrix has unfortunately underperformed. Gold production at Beatrix decreased by 25% from 3.3 tons or 106,000 ounces in December to 80,000 ounces in the March quarter as a result of lower volumes achieved across the three main operating shelves due to limited flexibility, hoisting constraints and the slow startup after the Christmas break.

Yields decreased from 4.2 grams per ton in the December quarter to 4 grams per ton in the March quarter mainly as a result of an increase in stope width and lower values mined. Gold production is expected to improve in the June quarter as a result of improved volumes due to stope panels being fully equipped. Unpaved panels have been stopped and the grades are expected to improve as a result. Production for the next quarter is expected to be 2.9 tons or 93 [sic] ounces.

South Deep - production at South Deep increased by 2% despite the Christmas break, and a further increase is expected in the June quarter. South Deep is now a fully mechanized mine. Production is expected to increase by a further 7% to 1.6 tons or 51,000 ounces during quarter four.

Financial 2010 is being planned with quarterly step changes in production output, which sees the F2009 forecast of 178,000 ounces building to approximately 300,000 at year-end F2010.

The recommissioning of the south shaft for hoisting will be completed in May and single-shaft hoisting has been planned for F2010 for reef and waste tonnage buildup that will be in excess of the current twin shaft hoisting capacity.

Shaft refurbishment and the installation of pump and backfill columns are required to continue during the remaining shifts at the south shaft. The second rock winder for the ventilation shaft at the twin shaft complex has been ordered and will be commissioned by December 2011 ahead of the base plan schedule.

In conclusion, the focus for the South African operations going forward is to accelerate flat-end mechanized development at all the operations and to ensure that the plans to restore Beatrix to full capacity gain traction and momentum, that the short-term drivers to increase production at Kloof are achieved safely and that Driefontein sustains its performance and South Deep delivers against its base plan.

We will continue to drive safety as a principal value and top priority in the organization.

Thank you very much, and I'd like to hand over to my colleague, Glenn Baldwin, who will talk you through the international operations.

Good afternoon, everyone.

The quarter was a good one for the operations in Peru, Ghana and Australia with attributable production up by 5% on the previous quarter. Safety, again, showed another consolidated improvement and was most noted at Tarkwa where, despite production ramp-up issues, employee safety was not compromised.

Total attributable gold production increased by 5% to 357,000 ounces, and the cash costs reduced by 2% to $497 per ounce. It was encouraging to see the reduction in NCE, down 22% to $694 per ounce, and this really highlights the positive impact of the completion of the Cerro Corona project capital and impact of Cerro's additional production into the international portfolio.

Total production at Tarkwa increased by 9% quarter-on-quarter as a result of the CIL expansion project ramp-up. There were more delays than planned, but I am heartened by the performance of the plant in the latter part of the quarter at near nameplate capacity and exceeding daily nameplate capacity at times into the June quarter.

The ramp-up challenges have largely been overcome, and we expect that June's quarter production will add another 12% of ounces sold to around 170,000 ounces.

The Cerro Corona production achieved in the March quarter was significantly better than the December quarter with more gold ounces and copper tons produced. But due to the lower prices received, the equivalent ounces remained flat.

The mining is progressing to plan, the concentrator is focusing on increasing circuit recoveries, and the tailings dam construction rate has been hugely increased. And this risk has essentially fallen away.

The June quarter should see a slight increase in production but a significant drop in cash cost and NCE, mainly as a result of the impact of copper price on equivalents.

St. Ives production continues to test the 110,000 ounce level and is committed to only increasing production by adding profitable ounces. The cash costs remain flat, and the NCE reduced quarter-on-quarter. And St. Ives made a good cash contribution to the group.

The development to the extension of Belleisle ore body, known as the [Nyad], was started and grades are expected to be about a gram per ton higher and also with higher recoveries in the order of 5% compared to Belleisle.

The Athena Conceptual Study continued during the quarter, and initial indications are that the operation may look to an investment decision in the second half of fiscal 2010 upon completion of a full feasibility study. The conceptual study should be finished by the end of the June quarter, and it appears that the project could increase the delivered grade of the Lefroy mill to around 3.2 -- 3.1 3.2 grams per ton from mid 2011.

At Agnew, production from the Kim stopes was affected by a once-off fill program to safeguard infrastructure. All of the metrics are heading in the right direction, and the lower forecast production for the June quarter is mainly due to a one in ten-year event of major maintenance on the mill girth gear, where they actually take the girth gear off, machine everything, and then put it back on again.

Production will be back at the 50,000 ounce per quarter level in the first quarter of fiscal 2010. Importantly, the mine appears to have increased its reserve base year-on-year and is very confident the conversion from resource to reserve in F2010 will extend the life of Agnew beyond five years from the Waroonga Complex.

Internationally, the March quarter showed increased gold prices being translated into stronger cash flows, especially from the Australian operations. The operating profit was up 70% to $177 million, and the NCE was below the company target at about $694 per ounce.

We are well positioned to see improved production and lower costs in the last quarter of fiscal 2009 and position the operations for fiscal 2010 to achieve the company NCE target of less than $725 per ounce. Thank you.

Thank you, Glenn.

Ladies and gentlemen, from the overview that we've just given you, it is clear that our main focus is on ensuring that our current operations deliver to their full potential. This is work in progress, and we will not be distracted from that objective I can assure you.

While our focus is clearly on improving our existing assets, work is continuing apace on a number of growth projects in our portfolio. We have three advanced exploration projects, the [Tuka Baka] project in Southern Peru, the Talas project in Kyrgyzstan and the Komana Sankarani project in Southern Mali in West Africa. The Tuka Baka and Talas projects have the potential to be at a scoping or pre-feasibility stage by early in the New Year with the Komana project achieving this milestone late in calendar 2010. We are hopeful that at least one of these could advance to a project stage soon thereafter.

We also continue to progress our uranium project in South Africa. Drilling of the historic tailing storage facilities on the West Wits operations has been completed. Following internal and external review, the work will be consolidated into a SAMREC compliant resource to be completed by June 2009. And just to remind you, we have around 13 dumps around the West Wits operation -- that's about 45 minutes drive from Johannesburg -- containing around 400 million tons of uranium, gold and sulfur.

The feasibility study of Driefontein run of mine tailings operations -- that's, in other words, treating the uranium from current arisings -- and the pre-feasibility study of the treatment of the historic tails storage facilities at the existing dumps is in the final stages of completion and will be followed by an external and internal review scheduled for later this month.

Both studies will be completed by the end of June. All project activities are scheduled to ensure that we are able to make a final decision to progress to a combined feasibility study by the end of next month.

And thereafter, I would hope that we can take this to the Board in the first quarter of 2010 calendar year for at least an in-principal investment decision.

At St. Ives in Western Australia, drilling at the Athena and Hamlet deposits continues to deliver attractive gold grades, as Glenn indicated to you. And initial resources for both of these projects will be included in the next resource statement due in June with an initial reserve expected to be included for Athena.

In conclusion, despite a very challenging March quarter, which includes the traditional Christmas break in South Africa, eight of our nine mines showed increased production resulting in positive cash generation. Gold Fields remains on a positive production trajectory, and the aim is to steadily increase production safely.

Production for the June quarter is expected to increase by approximately 3.5% to around 900,000 ounces, bringing us closer to our medium-term production run rate of 1 million ounces per quarter. The macro economic environment remains in favor of the gold price, and our basket of consumables has also responded positively.

Against this backdrop, the strategy remains to sweat the assets, increase production and improve margins, while avoiding any M&A heroics. We believe that this is the best strategy to unlock value for our shareholders.

With that, let's now take some questions.

Our first question comes from Victor Flores from HSBC. Please go ahead.

Yes, thank you. Good morning.

I have three questions this morning related to the South African operations. First, with respect to Kloof, the quarter was significantly aided by the much higher grades that you got as a result of the cleanup, yet I see you're looking at the same production level for the June quarter. Am I to assume that you're going to get better tonnage at a more normalized rate, or is there something else happening there?

Victor, good afternoon. It's Vishnu.

Hi, Vishnu.

The outlook for Kloof is pretty similar to what we had achieved in the previous quarter. And the reason behind that is the potential pullback in production from the main shaft area as a result of safety initiatives that we've put in place. That exercise is not entirely complete. We are reviewing a substantial number of our work areas to take a final decision on that. But we've built into it a potential pullback in production.

Having said that, the focus on cleaning up in old mined out areas and getting the current horizons cleaned out will remain our focus going forward. So the expectation is that we should normalize back to the average grades that we've seen for Kloof going forward.

Sorry, Vishnu, it wasn't clear to me. You're saying you're going to get back to normalized grades not in the June quarter but thereafter?

The June quarter will see normalized grades, but we'll see higher tonnages coming out from certain areas of seven and four shaft. Yes.

Okay, great. Thank you.

Now just turning to South Deep, could you run us through sort of what the economic improvements are as a result of the decision to refurbish the south shaft? I mean, I understand the production improvement and it gives you more hoisting capacity. Could you just briefly walk us through what the economic improvement is, whether in terms of the overall rate of return for the project or what it might do to costs over the next couple of years?

Look, what it does at this stage, Victor -- Nick here again. This enables us to accelerate the production profile. I mean, as you know, we have around 3.4 million ounces in current mine, and we were scheduled to mine that over around about 15 to 20 years. By utilizing the south shaft system, we're able to bring some of that production forward, which otherwise would not be able to because we're only expecting to get the second of the twin shaft systems fully in place and ready for utilization in 2012.

So what this does is this enables us to bring production forward, and the real trick here is -- we don't have the economic analyses, but the marginal cost of an extra ounce of gold at South Deep is quite low because we are incurring, as you know, substantial costs to keep that whole infrastructure going.

So every additional ounce we can run through this infrastructure has a very low additional cost, and of course you've seen the Rand gold price. Even today, it's still around R250,000 a kilogram. And that's really why we're bringing the south back and the 50,000 tons that it will give us. And next year, we can generate higher ounces. And in turn, that will enable South Deep to be in a position to fund a greater part of its capital progress.

And in the longer term, there is still potential for resources around the south shaft area that could also be brought to account as a separate project. We need to do more work on that. But it's clear to us that having the south shaft system available gives you flexibility to be used, because it's connected at 95 level to the twins, and also to access the additional resource that does exist around that area. And so that's the main reason we're doing this.

Okay, great. Thank you.

And then, if I could just finish up with a question on Beatrix, we've talked many times before about the issues that seem to plague this mine. And it seems now it's an issue of hoisting capacity and flexibility. We've talked in the past about some labor issues and fragmentation and sweeping. And I see that the production in the June quarter is expected to go up somewhat but not to the levels that we've become accustomed from Beatrix.

Could you give us some sense of what the holistic solution is, if you will, for Beatrix, if there is one?

In one quarter, you could never fully define a holistic solution. What I have to say is that as we come across the issues that we have to address they've been addressed on the operation. I acknowledge that previously we had issues with fragmentation. That's been resolved through changes in explosives that we've made on the operation. I also acknowledge that we've had labor issues, but I'm pleased to say we've made considerable progress with establishing a good working relationship with the union leadership on the mines.

The subject of hoisting constraints essentially relates to one shaft only, and that is the principal number three shaft at Beatrix. And believe it or not, the issue here is that with the uptick in production both from the stoping horizons and development the shaft can't actually cope with hoisting tonnages in excess of 155,000 tons a month and do maintenance at the same time.

So it's not a constraint that we can't manage, and our engineers are looking at how best we can speed up the roundtrip time and whether we need to change the skips on the shaft so that we can load to a full 16-ton capacity.

So that's work in progress, but I don't see that as a permanent restriction going forward.

I have to say that the face level or the face flexibility issue is not a new one. It's been with us for some time, and I think you're familiar with the fact that several years ago Beatrix had in excess of 36 months of ore reserve. That's been considerably reduced now.

The challenge, with respect to flexibility, is really at the number one and number two shaft complexes where we have to mine pillars and we have not been able to open up and equip a substantial number of those pillars in time to give us the flexibility that we desire to manage our mining mix because, at Beatrix, mining mix is important.

So that's constrained us in terms of our volume. And what we're currently doing at the moment is making sure that we've got dedicated crews opening up and equipping faces at these shafts to give us the flexibility that we desire.

I'm quietly confident that we're slowly getting on top of all of the issues that we've been able to pick up. We've seen an uptick in production over the last two months, and we're quite confident that we'll return back to anything between 3 and 3.4 tons a quarter very soon.

Great. Thank you very much for your answer. Thanks so much.

Thanks, Victor.

(Operator Instructions)

Our next question comes from (inaudible) from Silver Arrow Capital Management. Please go ahead.

Good morning.

I have a couple of questions. One is where do you see the net debt going to by the end of the year. What I understood from you in the past was that your 47 fatalities accounted for roughly sort of $200 million in revenue, and where do you see the 13 fatalities that we see now? Where do you see that figure going to, say, by year-end, again calendar year-end?

And then, another question is could you please give us some guidance on labor costs and electricity costs for Gold Fields?

Okay.

Paul, would you want to answer the first question?

Yes.

Hey, (inaudible), we see net debt by the calendar year-end going down to about $0.5 billion. That's what we are working towards. As you can see, we brought it down by about $170 million this quarter. And if the gold prices are maintained where they are and we have the production uptick and capital remains quite stable, we believe that by December we should be around $500 million or $0.5 billion of debt.

Do you want to talk to electricity?

I think dealing with the other issues, I'll attempt to answer those.

Look, in terms of fatalities this year, I don't have a specific figure as to what the impact of that's likely to be. There has been some impact because there have been stoppages during the year. But it's been nothing like what we've had in previous years.

But I think the important thing that you should take away from this is the internally imposed stoppages that we've put in place, which is part of the stop, fix and continue philosophy. And what that's done is to make sure that we fix things before they become a problem.

And that's one of the reasons you've seen our production come down because we've gone back and we've fixed infrastructure. We've even closed a whole shaft system over this period of six months prior to December. You've heard about the secondary support backlog that we've addressed by redeploying crews. It's more a question of internally imposed restrictions on production to fix these.

Now that we've fixed those, we're going to see a rising trend in our production. And as you'll see in our forecast for the South African operations, if you add up all of the forecasts for the next quarter, you'll see that we're expecting to go up to about 16.7 tons of gold in the forecast from 16.1 tons.

And you're starting to see the impact that Vishnu and his team are now making, given that we've stopped and we've fixed a lot of the issues. Now we're into the continue phase, and we'll move forward on that basis.

In terms of power and labor, power -- as we've said before, power tariffs in South Africa have been rather low in comparison to both international standards and in comparison to the funding obligations of Eskom in providing new capacity to meet the ever increasing demand for electricity.

Now we've worked on the assumption of around about a 25% increase in power going forward. We don't know what that's going to be next year. But that's more or less what it was this year starting April. So I think a good working assumption is to use that going forward.

Power represents about 11% or 12% of our total costs in South Africa. So let's assume a worst case scenario that you continued with a 25% increase. Now that would mean a doubling of power in about four years, which would add about $50 an ounce over four years. That's what it would mean if you doubled the power cost.

In terms of wages, we've been served with the wage demands recently. That was publicized in the local press here in South Africa. I don't want to comment further except to say that the industry is obviously collaborating on our response to the wage demands. I'm sure that, again, this year, there'll be an industry negotiating forum through the South African Chamber of Mines. And I don't believe that we'll get off to the negotiations in earnest until the end of May.

We will approach the negotiations in good faith and obviously endeavor to find solutions that suit all parties. But other than, I think it's too early to comment on where these wage negotiations might settle.

Thank you.

And one more question, how do you see the production profile increase for South Deep, say, from this year for the next, say, three to four years?

Sorry, (inaudible), I'm just trying to get a hold of my notes.

Our production profile for F2009 is currently at about 5.5 tons. And I'll just give you that in ounces. Let's see here, 178,000 ounces. And that's expected to build up to 300,000 ounces going forward in F2010.

However, I should emphasize the fact that production in F2010 has been planned with quarterly step changes in production output as against having to see 300,000 ounces divided equally between four quarters.

The mine plans have been completed and will be reviewed shortly. But we're quite confident that that's an achievable number given the fact that we've placed a significant order on equipment and we have diverted some of our equipment into the production process.

Thank you very much and good luck.

Thanks, (inaudible).

Thank you.

Leroy?

(Operator Instructions)

We have a question from David Leffel from the Deutsche Bank. Please go ahead.

Yes, good morning, gentlemen -- afternoon.

Tarkwa, I thought that mine, once the new mill was in place, was supposed to run at somewhere between 190,000 and 200,000 ounces. And I, just glancing through your guidance, see something down about 170 for the coming quarter. I was just wondering if there is some residual operational issues at Tarkwa that we should be aware of and I guess what your longer-term plans are at Tarkwa.

David, our longer-term -- in fact, our short to medium-term plans are that Tarkwa will produce between 180,000 and 190,000 ounces. I haven't changed that. And we've had a whole team of metallurgical experts go and look at this plant and have come back and confirmed, as far as they are concerned, the integrity of that plant is intact.

I guess it's just the buildup, David. The buildup has taken longer. We've had these commissioning issues. We haven't quite hit what I would see as steady state. And that's why we're taking a more cautious forecast for this quarter. And 170 is what we're putting in for the June quarter. But that is by no means a reflection of what this place can do at full production. So I'm taking a more cautious approach given the commissioning issues.

And based on the experience that we've had here and at Corona, buildups often take longer, so I want to give you a more realistic expectation as to what you can get. But absolutely by the September quarter, I want this operation between 180,000 and 190,000 ounces. And there's a number of optimization ideas we've got in mind that will take this operation higher than that thereafter. But I think let's bank 170 first, and then we'll move to the next target, bank that, and then we'll move to the next target.

Okay. Thanks.

Nick, maybe to follow on, on the previous Beatrix question, I mean, historically, when you've had operations and mines that don't meet the grade for several quarters, you've sold them and moved on. And clearly Beatrix sits a long ways from your center of gravity in South Africa.

I mean, is there operations like Beatrix that are considered non-core? And if Beatrix is core, why does it remain a core operation?

Look, first of all, if you look at Beatrix, it's a 6-million-ounce ore reserve. It's an operation that's fully capitalized. We've spent all of the hard money on the three-shaft project, which is the future of Beatrix. It's low-grade, sure, but it's pretty shallow. And even if you just get up to the figures that Vishnu has indicated, around 3.3, 3.4 tons of gold, at these sort of prices, this asset can make very attractive cash flows for Gold Fields.

And the other thing is if you look around the globe, try and find assets where you've got 6 million ounces of reserve, fully developed mine. For us to sell this, someone's going to have to give us a mighty big check. I think this is an asset that provides good steady cash flow for Gold Fields and, if we get these issues right, and we're on the verge of getting them right, I'm pretty convinced that this will make good returns in cash flows for shareholders for the next 15 years or so.

So yes, some people have asked us the same question you have. But I believe that we can make this asset work. And remember, our overriding philosophy, David, is to sweat our assets, make our assets work. That's what it's all about.

So is this a new strategy from the years before when you sold assets like Evander, which also had these sort of margins.

I think the difference, though, David, is Evander was losing money. Evander was actually losing cash for us on a regular basis. And at that particular time, it was a question of do we keep assets that are hemorrhaging in our hands, or do we actually sell them and move on and develop other things.

The other thing is the upside on Evander didn't look particularly attractive. And yeah, I think Harmony has done well on the asset, but I think the future is now more challenging.

So that was a different scenario and a different timeframe. At R240,000, R250,000 a kilogram, Beatrix has the potential to make R60,000 or R70,000 a kilogram quite easily. And that's very attractive to us, if we can produce something like 14 or 15 tons a year.

Okay. Thanks.

Good.

(Operator Instructions)

We have a question from Shane Hunter from BJM. Please go ahead.

Well good afternoon.

First of all, well done on the safety stats. I think it's obviously been in a hard way, but I think that you guys have achieved a lot there.

I just have a couple of questions, one, first of all, for South Deep and you did answer something I was going to ask, and that is do you feel there's going to be a step change over the next few quarters to get to your target, [which] is going to be 78,000 and 75,000 ounces a quarter. But if you could just confirm what would be your actual target now for quarter four FY '10.

By quarter four FY '10 we want to be producing consistently at an annualized rate of 300,000 ounces.

So that's going to be 75,000 ounces in that quarter?

Yes.

And so you would be building up over the four quarters or what would be actually five quarters now for that target?

You want to know what the buildup is per quarter?

No, no, it's just that obviously you will be building up consistently over the five quarters to reach that target. There's no sort of really big step changes, then?

No, there is step changes. But overall, I suppose the best way to answer your question is that overall production for the year is expected to be 300,000 ounces. But you might find in the first quarter it's slightly below that on an annualized basis. And by the end of the quarter four, it'll be slightly above that on an annualized basis.

But I think for your purposes, just assume that we're probably going to be around about 20% under in the first quarter and maybe 20% over by quarter four of 2010. If you want to use that as a rule of thumb for the buildup, that's probably okay.

Okay. Thanks for that, then.

And just a question, given the debt -- and I know Paul's obviously trying to help us by putting in this table obviously showing the debt that you've got over (inaudible). But I was kind of confused (inaudible) [what the] added $250 million that had been rolled over -- I thought that was due to the -- that'd have to be repaid back in FY '10. So I was expecting to see a bigger number there compared to what you've got in the table. But I suppose I might be missing something perhaps?

The $250 million, Shane, which expires this month, has been rolled over for two years with the $311 million facility. So that will be a 2011 expire. That's how it's been rolled.

Okay, that's fine. I thought it was one year.

No, it's a one-year with a one-year term-out, so that's two years.

Okay. Thanks for that. Thank you.

Leroy, we'll take one more question.

Certainly, sir.

Our last question comes from Allan Cooke from JPMorgan. Please go ahead.

Good afternoon, guys, just two quick ones.

Firstly, on the BEE and the charter requirements looking to 2014 and the 26% equity empowerment level, could you just talk to that now that you've finalized the first leg, if you like, with the Mvela resources of your commitments to the charter? So that's just on the BEE strategy. Where are you in terms of the charter requirements and what are you going to do to get to the 2014 level?

And then, just to the mechanization of the flat-end development, you want to be 100% mechanized by financial 2010. And the big cost there is obviously buying all the equipment. Do you have an estimate of a CapEx of a cost that will be required to reach that 100% mechanization target by 30 June, 2010 under that Project 2M? What's the cost of 2M?

Right.

I'll deal with the empowerment issue first, and then I'll ask Vishnu to deal with the mechanization issue on the flat-end development.

In terms of the obligations, we've been looking for some time at doing an ESOP scheme for a significant part of the difference that we need to get to. And we also have some other historic deals that we've done, which we believe should be considered for potentially credits on certain parts of the 26%. I don't really have too much detail as to how much we're likely to get for those deals because we've got to have a debate and a discussion.

But the biggest single contributor to filling up the 26% from the 15% is likely to be an employee ownership scheme. We've been in discussions with the unions for some time on this. We're in discussions with the Department of Mineral Energy. And as soon as we've got more clarity on what we want to do, we'll obviously give more information to the market.

But if we did that, that would break the back of the balance of it, Allan, and I don't think there would be too much residual ownership to be secured for that.

On the second question, I'll hand over to Vishnu.

Allan, I don't have a number for you right here, but what I can do is just tally up the capital allocations per operation and send that through to you tomorrow morning, if that's okay.

Oh, that's fantastic. Thank you, guys.

And that would -- just to bear in mind, Allan, that would be included in -- when we talk about the sustaining capital going forward, and to give you an idea of what we're looking at, we're looking at somewhere between R1.7 billion and R1.9 billion next year. That would include all of the South Deep ramped-up capital, and it would include things like the mechanization capital. You don't need to add more capital over and above that.

It's all in there.

The targets we're talking about would cater for these kind of things. Okay?

Thanks very much. Thank you.

Good. Well thanks very much for your participation this afternoon. And we appreciate your questions and your interest and we look forward, once again, to talking to you in three-months time. Thank you and goodbye.