Gold Fields Ltd (GFI) 2010 Q1 法說會逐字稿

Good afternoon and welcome to the Gold Fields' first quarter results for the financial year 2010. (Operator instructions.) Please also note that this conference is being recorded.

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

Thank you very much, Dylan. Thank you for joining us this afternoon, ladies and gentlemen, for Gold Fields Limited's first quarter 2010 earnings conference call.

Our results announcement was released earlier this morning, and a copy is available on our website at www.goldfields.co.za. Our conference call today is being broadcast live on the Internet, and anyone may listen to the call by accessing the webcast link on our Internet home page. In addition to analysts and investors, the financial press is also invited to listen to the call. A replay will be available by accessing the webcast link on our home page later in the day. The transcript of this call will also be posted to the website within the next 24 hours and mailed out to shareholders.

Before we begin today's comments, I'd like to remind everybody that today's results announcement and certain of our comments on the call may include forward-looking statements. Please refer to the cautionary language included in our results announcement and to the risk factors described in our SEC filings.

On the call today are Nick Holland, our Chief Executive Officer, Paul Schmidt, our Chief Financial Officer, Vishnu Pillay, the head of the South Africa region, Peter Turner, the head of the West Africa region, Glenn Baldwin, the head of the Australasia region, and Juancho Kruger, the head of our South America region.

Nick will start off by briefly summarizing our financial and operational results for the quarter, after which we will open the call for questions, at which time you can direct your questions to any member of the team on the call.

I would now like to turn the call over to Nick who will take us through the results for the quarter. Nick, over to you.

Thank you, Willie. Good afternoon and good morning, ladies and gentlemen, wherever you may be. Thank you very much for joining us for our quarter one 2010 results conference call.

I am pleased to report that Gold Fields has maintained production in line with the overall guidance provided on 6 August 2009, demonstrating an ongoing improvement in the stability, predictability, and consistency of our operations. Particularly gratifying has been the outstanding performances from Cerro Corona, Beatrix, and South Deep, all of which exceeded guidance, and Tarkwa, which achieved its guidance. Pleasing results were also delivered by Agnew and Damang.

The net result is that we have today announced net earnings for the September 2009 quarter of just over ZAR1 billion compared with a loss of ZAR293 million and net earnings of ZAR39 million for the June 2009 and the September 2008 quarters respectively.

Highlights over the last quarter are gold production that remained steady at 906,000 ounces, as I mentioned, and costs that were well contained, which is a significant achievement when considering an exceptionally strong South African rand that has been approximately 10% stronger against the US dollar over the last three months.

As mentioned, our overall production for the quarter was 906,000 ounces, which was the same as the previous quarter and in line with guidance, but significantly higher than that recorded a year ago in the September quarter of 2008, which means that we exceeded last year's production by 108,000 ounces, which is a 14% increase year-on-year.

Our revenue for the quarter generated an average US dollar gold price of $959 an ounce, up 4% on the previous quarter. But, the rand-US dollar exchange rate strengthened 9% to ZAR7.82 compared with ZAR8.56 in the June quarter. And as a consequence, the rand achieved price reduced from ZAR253,000 a kilogram to ZAR241,000 a kilogram. That's a 5% decrease.

The Group reported a solid cost performance during the quarter, despite the stronger exchange rate, and cash costs came in on guidance at $586 an ounce with our notional cash expenditure beating guidance at $826 an ounce. Significantly also is that the NCE is approximately 9% lower than in the September quarter a year ago.

Total cast costs increased 14% in dollar terms from $512 an ounce in the June quarter to $586 an ounce in the September quarter. The increase was primarily due to the strengthening of the rand against the US dollar.

Notional cash expenditure for the September quarter at $826 an ounce compared with $738 an ounce in the June quarter, with a significant part of that increase also due to the strengthening of the rand.

Our operating margin was 38% compared to 43% in the June quarter, with a healthy operating profit of $356 million in the September quarter compared to $385 million in the June quarter. Net earnings, then, were $129 million or $0.18 per share compared with a loss of $29 million or a loss of $0.05 per share in the previous quarter.

Now, in the September quarter, we did have an exceptional gain of $85 million, which was mainly made up of a gain of some $95 million on the exchange of our shares in Sino gold for Eldorado shares, and then the subsequent disposal of those Eldorado shares in the same quarter. So, that generated a net gain for the Company of $95 million.

Our net debt for the quarter increased from $756 million to $908 million. That's due to short-term working capital requirements. And also, when you translate this into US dollars, the stronger rand also pushed up the amount. In rand terms, the increase was only ZAR600 million.

Our balance sheet is certainly robust, and net debt represents just over two quarters of operational cash flow.

Normalized earnings for the quarter, that's if we strip out all of the exceptional items, gains and losses on forex financial instruments, amounted to $80 million or $0.11 per share compared with earnings of $109 million, or $0.16 per share in the June quarter.

I'm going to briefly touch on each of the four regions and give you some of the highlights before we move into questions. In terms of South Africa, gold production was similar at 528,000 ounces. South Deep has an exceptional quarter. Production improved by 26% to 65,000 ounces associated mainly with higher underground volumes as this mine builds up to its 2010 target of 300,000 ounces for the year.

Beatrix continued its turnaround and increased production by 7% to 110,000 ounces. Driefontein and Kloof had difficult quarters after a slow start up caused by the spillover effect of safety stoppages late in the June quarter. Whilst gold production at Kloof was similar quarter-on-quarter, Driefontein reduced by 11% to 189,000 ounces.

Our development has increased over the quarter with Driefontein showing an 11% increase in development for the quarter, and on-reef development increasing by 36%. Also, values have improved. At Kloof, development was also up 11% with on-reef development increasing by 1%, again with better values.

Beatrix development declined by 9% because of hoisting constraints at three shafts due to winder repairs that should be behind us soon. South Deep had a massive development increase of 30% for the September quarter from 2,100 meters to 2,700 meters. And as development and flexibility improves over the next 12 to 24 months, we expect these mines to improve their performances. That's Driefontein and Kloof.

The focus remains on returning these operations to production levels closer to historical levels of around 6.5 tons a quarter at Driefontein and 5.5 tons a quarter at Kloof.

The total cash cost of the South Africa region increased from $5.27 an ounce to $6.47 an ounce. And operating costs were impacted by the annual wage increases, general increases in electricity tariffs, and two months of higher winter electricity tariffs over the period, as well as the stronger rand.

In terms of the West Africa region, managed gold production increased by 4% to 226,000 ounces with Tarkwa again showing an increase in production to 175,000 ounces. That's up 6%, and that's mainly on the back of increased CIL throughput.

With the Tarkwa CIL plant now having stabilized at its nameplate capacity of more than a billion tons milled per month, Tarkwa is now capable of producing between 190,000 and 200,000 ounces per quarter. And we will work hard towards achieving this range during the December and the March quarter. However, this is subject to resolution of the current wage negotiations, where we have reached deadlock with the union and the matter has been referred to arbitration.

Damang decreased slightly by 4% to 51,000 ounces for the quarter. But, that was largely due to a planned primary crusher rebuild.

Total cash cost for the region is flat at $513 an ounce for the West Africa region, and the NCE decrease from $687 an ounce to $678 per ounce.

The installation of the new secondary crusher at Damang is progressing well and is expected to be commissioned early next quarter. This new crusher will enable us to improve the blend of ore at this mine, replacing lower grade oxides with higher grade harder, fresher ore which will have a positive impact on production rates going forward.

At Tarkwa, the high pressure grinding rolls pilot project is commissioning as we speak. And the project is aimed at optimizing the fragmentation of and recoveries from heap leach material, and we could see an increase in recoveries of between 5% and 10%. And once the pilot project is completed, we will look at the results and determine whether we'd roll this out to the north section of the mine.

On the exploration front, there's been exciting progress at Damang. We're spending an additional $10 million a year with a view to doubling the life of mine, and positive results are starting to emanate from that.

With the Glencar purchase that we finalized during the quarter, Gold Fields has consolidated a large position in the Yanfolila belt, which includes 100% owned tenements and the Glencar projects including Komana, which has 1.25 million ounces of resource, Sankarani, and Solana. Field activities, which were suspended during the rainy season, are again underway. And our resource delineation drilling of the Komana deposits to initial drilling and target definition work on the other tenements will continue this quarter.

The South American region, we had managed production at Cerro Corona of 88,500 equivalent gold ounces produced, which was up 5% on the previous quarter. The NCE increased by 3% to $599 per ounce. A very good quarter again for Cerro Corona.

At the very exciting advance stage, Chucapaca exploration project in southern Peru where Gold Fields can earn a 51% interest in a joint venture with Buenaventura, resource delineation drilling ramped up to four drill rigs on the Canahuire project in July 2009.

Initial drilling is scheduled to commence on the Katrina and Katrina Este satellite targets in the next quarter, and drilling results from the Canahuire discovery have confirmed the potential of the deposit which is open to the west, north, and at depth.

Turning to Australia, gold production decreased by 5% to 146,000 ounces. Agnew had a good quarter with production increasing by 1% to 46,000 ounces. St. Ives had a more challenging quarter with its production of 100,000 ounces being 8% below the previous quarter. This was mainly as a result of rehabilitation work in the high grade area of the Belleisle underground mine taking longer than expected due to safety concerns resulting in lower mining volumes from high grade areas. We look forward to a stronger performance from St. Ives over the next few quarters.

St. Ives capital expenditure increased to $23 million spent mainly on excavating the Athena box-cut. The Athena development with become the fourth underground mine at St. Ives, and we expect first gold from this exciting new project within a year from now.

A capital expense of AUD308 million was spent on the termination of the Morgan Stanley royalty during the quarter. This is a particularly important development for the future of St. Ives because it will reduce costs at St. Ives by approximately $100 per ounce going forward, which will change the dynamic of this operation, in particular considering the exploration upside which we are now starting to realize particularly at Athena.

Before I wrap up then, I'd like to give you a high level sense of our guidance for the December, 2009 quarter. Attributable gold production is forecast to be approximately 925,000 equivalent ounces with increases expected from Driefontein, Kloof as well as Tarkwa.

Total cash costs in dollar terms is forecast to be similar to the September quarter at $590 per ounce despite the stronger rand. For December quarter, costs forecast is based upon an exchange rate of ZAR7.40 to the dollar and AUD0.90 against the US dollar. Total cash cost is forecast at $590 per ounce in NCE, then, at $870 an ounce. The guidance is obviously subject to forward-looking statements that Willie mentioned at the start of this call.

So, in conclusion, as you can see from the brief overview that I have given you, despite a number of challenges, Gold Fields is in good shape and we aim to continue delivering a rising production trend.

And before I open the floor to questions, I would like to remind you that Gold Fields will host an analyst's day here in Johannesburg on Tuesday, 3 November, at which we will provide you with a much more detailed account on each of our operations, and in particular on the many exciting growth projects that we have around the world, including our exploration potential. And for those of you who will not be able to join us in person, all of the presentations on that day will be webcast in the Internet and comprehensive verbatim transcripts of all of the presentations will also be made available.

With that, I want to open the call up for questions. Just to remind you, Vishnu, Glenn, Peter, and Juancho as well as Paul are all on the call to answer any specific questions that you may have on the individual regions. Operator, we are now ready to take questions.

Thank you very much, sir. (Operator instructions.) Our first question comes from Leon Esterhuizen of the RBC.

Yes. Hi, guys. Hi, Nick. Just a quick one on the Australian cost. I just want to check with you. The royalty that you cancelled, was that cancelled for part of the quarter or not at all? And will we see that benefit only in the following quarter?

Glenn?

Yes, good afternoon. The royalty was still during the quarter. So, we actually paid royalty up until the end of August. And you'll see some of the benefit for the full quarter coming through in the December quarter.

Okay. Thanks. So, you're saying you had the benefit of, say, $100 per ounce lower cost for September and that's still -- but, you still had higher costs and that's obviously due to the bad performance at St. Ives. But, the next quarter, we'll see a drop of at least $100 an ounce on the cost, is that right?

From the royalty perspective, yes. We saw probably about three weeks, because the way that our months work we saw about three weeks of the costs without the royalty in them in this quarter. And so, in the December quarter, if the gold price stays where it is at about $1,160 an ounce, that would be worth around about $110 an ounce, I guess. So, you would see the reduction in the cash costs.

What you'll see there is you're not seeing in the forecast a reduction in the NCE, primarily because of the additional spend on capital at Athena. But, you are seeing the reduction come through in the cash cost.

Thanks.

Our next question comes from David [Lethell] of Deutsche Bank.

Yes. Hi, Nick, guys. Just a question. We're getting now with probably five quarters or six quarters past the introduction of this notional cash cost sort of examinations, operations. And I wanted to know holistically, is it helping operations? I was just looking back at my notes, and year-on-year, the notional cash costs of the Group has risen by just over 20%, by my calculations. And I was just wondering as investors how we start to use this notional cash cost number going forward. Should we -- will we see this start to be brought back as you focus on returns on capital, or should we expect this to track the operating costs pretty closely?

Well, in fact, David, what I'll get Nikki to do is send you a graph that shows how notional cash expenditure has in fact moved on a per ounce basis over the last six quarters. And what you'll see, in fact, is notional cash expenditure per ounce has come down about 10% over the last year. So, in fact, it has reduced, and we'll show you the graph of that.

And by tracking the all-in costs of our business and managing our business on the all-in costs, it's definitely made a difference. And it makes sure that we understand the full impact of all of the spend in our group. So, Nikki will send you the graph, and it's very clear from that graph that you can see that in fact we've started to open up a margin towards the back end of the last financial year at the NCE level, particularly as we finished a lot of our major projects as we started to build up our production profile.

So, I would say changing to this methodology has been a resounding success for Gold Fields. And you'll see that when you look at the numbers more closely. So, I don't have any concerns about it. We're going to manage this on an ongoing basis.

And as you can see, both this quarter that we've just reported as well as the quarter ahead, we're showing a healthy margin between the gold price and the NCE. And I'd like to try and maintain at least a 20% margin, that level, if we're able to. Now, there may be quarters that we can't. But, that would be a longer term objective for us if we could.

But, let Nikki send you the graph and I think you'll see clearly from that what we've achieved.

Okay. That'd be great. And this 20% margin, is that between the spot price of gold and the NCE? Or, where is this 20% you're referring to?

Between the spot price of gold and NCE. You've got it exactly right.

Okay. All right. Just wanted to make sure. Okay. Thanks, Nick.

No problem.

(Operator instructions.) Our next question comes from Shane Hunter of BJM.

Good afternoon. I've just turned to the text in your report and actually found the answer for what I was actually looking for. It was just to do -- just the grade here from Kloof mine, which has dropped a bit. And you do have an explanation in the text so I'm happy with that. Thank you. That's all for me.

(Operator instructions.) Our next question comes from Paul Durham of Auerbach Grayson.

Thanks so much, Nick. It's to see if you've got to your steady progress with your -- well, your steady production today. And you mentioned the -- you're going to be ramping up a bit more next quarter to 945,000 ounces. When do -- have you sort of given up the million ounces a quarter notion, or is that sort of something achievable but you're just working up to it very slowly? What's the sort of the -- a timetable on that, please?

I think you've summarized it better than what I could have done, Paul. We're creeping up slowly. It's still a target. I'd love to be able to get there by the end of the fiscal year, but it may not be at that time. It may take a bit longer because, remember, I said at the start of this year that we expected our quarterly production to range between 925,000 ounces and 950,000 ounces a quarter.

We're sticking to that, and it should be closer to the higher level by the end of the year than the lower level. And who knows? We might yet get to that target not too far away. It's difficult to give you a precise deadline, but certainly if South Deep can continue its buildup into 2011 that would certainly help us to get to that if all of our other operations could continue their performance uptick.

So, it's not an unrealistic target, Paul. But, it's a question of getting there and it's obviously taking us a little bit longer. But, the momentum is right. If the momentum was going the wrong way, I'd be concerned. The important thing is the momentum is towards that target.

Great. Thank you very much.

Our next question comes from David Lethell of Deutsche Bank.

Yes, sorry. I just wanted to follow up, Nick. On South Deep, I mean, it's made some great progress as you had hoped so for this financial year. Are we pretty much at the expectations for the rest of the financial year on the production rate, or have you guys had maybe a look at it and maybe will do a little bit more than the previous guidance around South Deep?

David, good afternoon. It's Vishnu speaking. Our production plan calls for an increase in production on a quarterly basis. So, we expect that this quarter we should be doing marginally better than we did last quarter, taking into account that last quarter was an exceptional quarter by all standards for South Deep.

So, I guess the answer is yes, we expect to see improvements as we progress going forward for the various quarters in this fiscal year.

But, the dramatic kind of step change and the acceleration with the south shaft open is -- now it's just modest increases, is that right?

No. All of these increases that we're talking to is coming out of the twin shaft complex. We are in the process of refurbishing the south shaft complex. We have hoisting capacity of 60,000 tons.

But, what we will be doing is bringing that shaft into production at some date soon. We just have our resource plans and mining plans to complete, and then we'd like to bring it into production. That would be over and above the production that we anticipate from the twin shaft complex. That's not built into our plan, David.

Oh, really? The south shaft as an operating shaft is not in your plans in the guidance you've given us for this financial year?

Yes. The guidance that we've given for this quarter doesn't include south shaft.

Okay. Thank you so much.

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

Thank you, operator. I think in conclusion, Gold Fields continues its upward trend, and we also continue to deliver positive results from South Deep as it builds up its production profile. And as you can see from the guidance, we expect South Deep to do better again in the next quarter.

So, I guess the one point I would finish with, and no one has actually raised this question, is the proposed increase in power costs by Eskom, where they're asking for 40% per annum over three years. And just to let you know that we are analyzing the impact of this on our business because, as you can imagine, this has a flow through not just to our direct energy costs but also our indirect cost, potentially.

And we'll be analyzing the impact on our business and we'll also be preparing responses to government in terms of the public participation process giving our views. But, certainly our first indications of this is a very, very significant impact on not just Gold Fields but the gold industry and the mining industry generally, and the national economy overall.

And we need to engage with government to provide creative solutions on this which don't result in a massive increase in production costs at the frontend of most of the industrial and mining companies in South Africa, which is going to have negative consequences. It's probably better to try and encourage government to look at some kind of broad-based tax possibly imposed over a longer period of time to make sure that we can achieve the vision of the country of providing affordable power for all. And we look forward to engaging with government and finding solutions to this issue over the next few months.

And with that, I'll thank you for your participation. Have a good day.

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