Gold Fields Ltd (GFI) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for dialing in. A very good afternoon. And welcome to the Gold Fields Q4 2010 Results Conference Call. Participants on this conference are in listen-only mode. There will be an opportunity for you to ask questions after the presentation.

(Operator Instructions)

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

Thank you very much. Ladies and gentlemen, welcome to this quarter four financial 2010 results conference call for Gold Fields Limited. We will follow the normal procedure as we usually do on these conference calls with Nick Holland, our Chief Executive Officer, doing an introduction and then handing over to each one of our regional executive vice presidents to do a short piece on each of the regions, after which we'll take questions. I now hand over to Nick Holland.

Thank you, Willie. And good morning or good afternoon, depending on where you are. Thank you for joining us for the review of Gold Fields' results for the June quarter. And this also corresponds with the full fiscal year to June 2010. On the call with me today are the following senior executives in Gold Fields -- Paul Schmidt, the Chief Financial Officer; Mr. Vishnu Pillay, Executive Vice President and Head of the South African Region.

I also welcome for the first time on one of these call Mr. Richard Weston, who's joined us around three months ago. And he is the Executive Vice President and Head of the Australasia operations. And we're glad to have Richard on board with us today; Mr. Peter Turner, Executive Vice President and Head of the West African Operations; and of course, Juancho Kruger, also Executive Vice President and Head of the South American Operations.

We're going to provide you with a brief overview, each of us, which will be short. And then we'll have an opportunity for you to ask us any particular questions you may have on the results.

As we have consistently said over the last number of years, safe production is the number one priority and the number one value in Gold Fields. Financial 2010 has been our best safety year ever, with all of our operations showing significant improvements in their safety record. In fact, we're now the industry leaders in South Africa. And some two years ago, it was a very different picture. And we've seen over those two years over a 40% improvement on both our fatality frequency rate and our serious injury frequency rate, a very significant improvement over two years.

Of course, there's still much work to be done. And we will be striving hard over the next year to show another quantum improvement in our safety. And Vishnu Pillay in particular will talk briefly about some of the highlights of our safety performance in South Africa over this last year.

For the [course] as a whole, attributable gold production was 13% up on the previous quarter at 898,000 ounces. Now it's in line with what we achieved over December quarter of last year.

Pleasingly, our NCE margin as up from 9% to 18%, NCE, of course, being notional cash expenditure. And that's the measure of total operating costs plus capital expenditure, which includes all of our G&A expenditure as well as our Brownfields exploration expenditure. And in our view, this is the true measure as to whether you can make cash.

We're the only gold producer in the world that currently reports notional cash expenditure. And we believe that this will help the industry to focus on real cash flow as we have done. So it's pleasing that our margin has gone up from 9% to 18% in our fourth quarter.

Our earnings for the quarter tripled to $120 million. Yes, that's a clipping at $220 million. And in particular, we generated free cash flow of $242 million before financing activities. And in fact, those financing activities reflected a pay down of some of our debt. And Paul will talk briefly about that, too.

We've been making steady progress on a number of Brownfields and Greenfields expansion projects, having declared in-field resources for the Canahuire target at the Chucapaca project and also at Hamlet at St. Ives, and in particular at South Deep. This Brownfields expansion project had a very good year, increasing production by 51% compared to the previous year.

We certainly have the momentum on South Deep. And we're on track to achieve our target that we've set for ourselves by the end of 2014. And that's 750,000 ounces of gold production. And I expect another good year in South Deep to move us along the road to achieving those targets.

Looking briefly at the annual performance, our attributable production was up 2% to 3.5 million ounces. And in that number are some multiple achievements, South Deep going up about 51%, as I mentioned, Cerro Corona going up by 80%, and also Tarkwa going up by 20%. So some very good performances from a lot of our assets have helped us to underpin that increase in production.

Total cash costs were $646 per ounce and our notional cash expenditure for the year $923 per ounce. And that includes all of the capital we're spending on the expansion of South Deep, which takes up about 20% to 25% of our total capital expenditure. And of course, we're not seeing the benefits of that yet. We will only see the benefits in future years as we look to quadruple the production coming out of this mine over the next years. We're spending the money now. And we're declaring that expenditure now. You'll see the benefits and a growth in our production later on. And our NCE market was also up from 13% to 15%.

Net earnings more than doubled over the year to $480 million. And I guess the underlying message we're giving you is that both in this quarter and over the year as a whole, we've been able to capitalize on the higher gold price and deliver that in the form of higher earnings and increased cash flow. And we've done that on a safer basis than last year.

And with that introduction, I now hand over to Paul Schmidt to take us through the salient financial results.

Thanks, Nick. Good day, everybody. The group salient features for the quarter are as follows. Attributable gold production increased by 13% from 793,000 to 898,000 ounces. The revenue increased from $970 million to $1.2 billion as a result of the high production as well as the high US dollar prices since the gold price increased by $90 to $1,191 per ounce.

Operating cost increased by 17% to $628 million to $672 million, mainly due to the 25% increase in electricity at the South African operations as well as one winter month of winter tariffs at the South African [auction] to [tune] 50% higher than a normal summer month.

The result of that is that operating profit increased from $344 million to $496 million this quarter, while the operating margin increased about 7% from 35% to 42%. The total cash cost decreased from $703 per ounce to $688 per ounce, while NCE decreased from $1,003 per ounce to $974 per ounce.

NCE margin more than doubled from 9% to 18% despite CapEx increasing from $250 million to $286 million. The main reason for the increase in capital was the procurement of a new fleet for the owner mining -- for the conversion to owner mining at Agnew in Australia.

Earnings -- net earnings more than doubled to $120 million from $44 million in the previous quarter. Net earnings per share increased from $0.06 per share to $0.17 per share, while normalized earnings per share increased from $0.18 per share -- to $0.18 from $0.06 in the previous quarter.

Dividend -- we declared a final dividend of ZAR0.70 per share, resulting in a total dividend of ZAR1.20 per share. This is in line with our governing policy of paying out 50% of dividends after taking into account (inaudible).

If we look at the cash flow, as mentioned earlier, this was a great quarter for Gold Fields in terms of cash flow. Gold Fields generated $242 million of cash flow before financing activities this quarter. From that, we paid down some debt. And the net cash flow the quarter was $131 million. This cash was used to decrease our net debt position from $829 million to $620 million at the end of the quarter. This translates to about 0.04 in terms of EBITDA to debt and equates to about four months of operating cash flow.

The reduction in debt is in line with my commitment to reduce debt, providing us with the flexibility to finance the various growth opportunities that we have identified, which leads me into our financial flexibility.

This quarter, we refinanced a $311 million revolving credit facility during late 2011 with a $450 million three-year facility. This facility was at 175 basis points, 100 basis points cheaper than the 275 which we had on the previous facility. This has increased our maturity and liquidity profile. And we currently have about $1 billion in available facilities.

This $1 billion allows Gold Fields the opportunity to be able to fund all the nice projects that my colleagues will be talking about in the next couple of minutes. And this will ensure that Gold Fields will not be needing to come to the capital markets in the foreseeable future to raise capital to fund its growth projects.

With that, I hand over to Vishnu Pillay, who'll give you an overview on the South African operations.

Thank you, Paul. And good day, ladies and gentlemen. I'll get straight into the matters with the South African operations and start with safety. Financial 2010 was the best safety year ever for the South African region. Seismic mitigation measures that have been implemented have been successful. And for the last six months, we've had no fatal accidents related to seismicity.

In addition, we've reduced the seismic-related serious injuries by 65%. All secondary support backlog has been completed. And the follow up ordered by Du Pont has confirmed the significant progress that's been made in safety management across the South African operations.

When compared to our peer groups within the South African mining industry, Gold Fields has clearly emerged as the leader in safe production management. And that's attributed to Nick, who's led the charge with respect to safety management, and the operational vice presidents, who had to implement all of the measures to mitigate serious injuries and fatal accidents.

Salient features from an operational perspective for the region -- South African region increased production by 23% to 488,000 ounces from 395,000 ounces. Total cash cost decreased from $889 an ounce to $778 an ounce.

NCE decreased from $1,288 an ounce to $1,129 an ounce. And the region achieved an NCE margin of 6%. The NCE margin, excluding the investment in South Deep, is 12%.

In terms of South Deep, the region's flagship growth project, production was up 21% from 58,000 ounces the previous quarter to 70,000 ounces this quarter and also represents a 51% increase year on year. The project generally has been -- has had a successful year with all key milestones achieved, either on or ahead of the time and much below budget.

Operation-specific information Driefontein -- production at Driefontein was up 26% quarter on quarter to 186,000 ounces, while development increased by 20% to 6.5 kilometers. The NCE margin increased to 19% from 3% last quarter. Annual production at Driefontein is expected to be between 700,000 and 800,000 ounces for financial 2011.

Kloof -- production at Kloof increased by 31% to 141,000 ounces. Development increased by 26% to 5.8 kilometers. The NCE margin amounted to 5%. Annual production at Kloof is expected to be between 600,000 and 650,000 ounces for financial 2011.

Beatrix -- Beatrix increased production by 10% to 92,000 ounces and achieved an NCE of 10%. Production for 2011 is expected to be between 350,000 and 400,000 ounces.

South Deep -- with a 10% improvement in production, this mine is on track to achieve its target of 750,000 to 800,000 ounces by end 2014, as mentioned below or as mentioned earlier. And a larger capital project is also on schedule. South Deep funded 48% of its CapEx this quarter, up from 13% last quarter. Production for F2011 is estimated at 340,000 to 370,000 ounces.

In conclusion, the focus for next year will continue to be on safe production, building on South Deep's momentum, and improving margins by reviewing our organizational design, structure, and processes on the South African operations. The South African region is expected to produce between 2 million and 2.2 million next year.

With that, I'd like to hand over to Peter Turner, who will take you through the West African region.

Thank you, Vishnu. And good afternoon, ladies and gentlemen. Firstly, the region had a record production quarter, producing in excess of 0.25 million ounces and free cash of 100 million. And secondly, certain exploration (inaudible), which I'll talk to a bit later.

Salient features for the region were -- our production showed a positive increase of 13% quarter on quarter to 257,000 ounces with Tarkwa coming in at record production of over 200,000 ounces. Total cash costs were $623 an ounce. The NCE margin improved from 30% to 34% quarter on quarter.

CapEx this quarter was $53 million. And despite these good results, our regional volume [embarking] on the re-engineering exercise in order to improve margin to protect our business against potential inflationary and commodity price increases going forward.

Moving onto Tarkwa and as previously mentioned, production increased to an all-time record level of 200,000 ounces as a result of an excellent performance from our CIL plant performing at 99.5% of nameplate. The NCE margin improved to 36%. And Tarkwa generated $85 million in free cash for the quarter. Production at Tarkwa for F2011 is expected to be between 730,000 and 760,000 ounces.

Moving onto Damang, firstly, production was up 6% to 57,000 ounces. And the NCE margin was 27%. At Damang mine, the secondary crusher facility was successfully commissioned. The secondary crusher will facility the crushing of [ardor] ore, which contains higher grades through the process facility, ultimately producing more gold.

In terms of Damang's growth potential, extensive Brownfield exploration was conducted over the past year. And the concept study to renew Damang's super pit is underway to bring the exploration ounces into future mining designs. Production for F2011 is expected to be between 225,000 and 240,000 ounces.

Moving onto our growth and our Yanfolila project in Mali, we have completed extensive drilling at the Yanfolila project in Southern Mali since taking over full control of the project in November of 2009.

Six new targets have been drill tested with indications of gold mineralization in near surface and off-site material. Encouraging drill resulted in the [seed] from Sanioumale West, which is seven kilometers north of Komana East and West. And drilling intercept for 10.2 grams over 15 meters from 13 meters have been recorded amongst many other good results.

And Komana East, which now spans the strike length of some 1.6 kilometers, three high-grade chutes have been drilled out, revealing excellent shallow mining off-site opportunities. And at this stage, the deposit is open to the north, the south, and at depth.

Interesting intercepts here are 22 meters at 4.8 grams a ton from 7 meters, 51 meters at 4 grams from surface, 53 meters at 6.5 grams from 8 meters, and 22 meters at 20.8 grams a ton from 53 meters. This style of deposit leans itself to early mining opportunities. So we're trying oxide-free digging and which will be of low cost. The intention in Mali is to develop a 2 million ounce reserve within a 30 kilometer radius of Komana and have a starter project in this region within three years.

In conclusion, the focus for next year will be on improving margins through our business process reengineering and maintaining sustainable and safe production. The [arc] for gold production for this region is expected to be between 950,000 ounces and 1 million ounces of managed production for the next year.

That is all from the West Africa region. And with this, I'll now hand over to Richard Weston from our Australia region.

Thank you, Peter. And good afternoon, ladies and gentlemen. Quarterly production for the two mines in Australia was stable at 149,000 ounces. Total cash costs increased from $681 per ounce to $702 per ounce. And NCE increased from $932 per ounce to $1,076 per ounce. The NCE margin amounted to 10%. CapEx amounted to $61 million due to investment in cost improvements and growth opportunities at both mines. And the gold mining industry has been excluded from the recently introduced Mineral Resources Rent Tax.

At St. Ives, production increased by 10% to 119,000 ounces this quarter due to improved contractor management and a significant improvement from the underground operations. The NCE margin increased from 9% to 19%. And in terms of growth projects, Athena's development is on scheduled for first ore during quarter two F2011. Hamlet's feasibility is due quarter two F2011. And we have commenced exploration drilling at Yorick, another underground deposit with potential further development.

Business process re-engineering has commenced with good margins. And production at St. Ives is expected to be between 440,000 ounces and 460,000 ounces in F2011.

Turning to Agnew, Agnew had a difficult quarter with production of 32,000 ounces. And this was impacted by ground and (inaudible) in the Kim ore body limited access to high-grade strikes and the [starting] out-of-sequence mining. And in addition, we changed from contractor mining to owner mining.

Production is expected to improve over the next several quarters, as we increase tons from Main and Rajah, complete the owner mining transition, and return to in-sequence mining. In addition, business process re-engineering will commence in quarter two 2011.

In terms of growth at Agnew, we have achieved encouraging results due by both Main and Kim lodes. And annual production from Agnew is expected to be between 160,000 and 170,000 ounces in F2011. And the production outlook for the region is 600,000 to 635,000 ounces for F2011. And with that, I'll hand over to Jauncho, who will talk us through the South American region. Thank you.

Thank you very much, Richard. Good day, everyone. Cerro Corona had a very strong quarter with record cash flow generation of $77 million or $853 per equivalent ounce on the back of strong sales production results, lower NCE, and sound working capital management strategy.

Quarterly production at Cerro Corona exceeded our guidance and amounted to 97,000 gold equivalent ounces, while annual production increased from 219,000 equivalent ounces to 392,000 -- sorry, 394,000 equivalent ounces year on year.

Total cash costs increased to $369 per ounce from $333 per ounce quarter over quarter, while NCE decreased 6% from $532 per ounce to $502 per ounce. NCE margin increased to 54% from 50% in the previous quarter. CapEx decreased from $24 million to $14 million quarter on quarter.

Another significant milestone for Cerro Corona this quarter was the completion of the tailings time raise to level 3740 on budget and on time.

At the Chucapaca project in Peru, we announced initial resources to net of 5.6 million gold equivalent ounces at the Canahuire discovery with mineralization potential beyond the extent of current drilling. A pre-feasibility study has commenced together with a new round of in-fill drilling. We have also commenced initial drilling at the Katrina target. And we're excited about the prospects of the multiple targets at this project.

The focus for next year will be to increase throughput in the plant at Cerro Corona from 800 ton -- from 700 tons per hour to 800 tons per hour, which is the actual design capacity, to complete the detailed engineering of the oxide plant with intention of starting construction in 2011, and to complete a study aimed to improve recoveries. Production for fiscal year 2011 at Cerro Corona is expected to be between 320,000 to 340,000 equivalent ounces, in line with our lock mine plant.

Conversion of resources into reserves at Cerro Corona is another area of management focus and a key strategic objective. During the present fiscal year, we will continue to analyze alternatives to solve the turn tailing storage capacity constraints and also develop an in-fill drilling program, both initiatives instrumental to achieve this important objective. At Chucapaca, the main focus during the year will be to complete the pre-feasibility study.

That's all I have to report. And with that, I would like now to pass it over to Nick for the final conclusions.

Thank you, Juancho. I'd like to end up this presentation by talking about the most significant events of the quarter and of course the year. And that has been the execution of our South Deep new order mining right. And that now means that all four of our South African mines are now in receipt of executed new order mining rights. Now as a consequence of the award of the South Deep right, which by the way also includes the Uncle Harry Grant that we acquired a couple of years ago. If you remember, that includes about 14 million ounces of resource. So that's incorporated.

One of the key issues around the order of this license is three impairment deals that need to be completed. And once these deals are completed, Gold Fields will have achieved its equity ownership targets in terms of the 2014 charter requirements. Now these three deals in essence are as follows. One is a broad-based employee ownership plan for some 47,000 of our South African employees, which will culminate in effectively a 10% stake in the South African assets. But that will be exchanged for 13.5 million Gold Fields shares.

And there'll be the issue of these new 13.5 million Gold Fields shares to a trust to be formed for that purpose, which will hold these shares for the benefit of all of the employees. And it'll act as a conduit in terms of channeling down dividends as well as being the focal point for voting on behalf of the beneficiaries. And these 13 million shares represent about 2% of the current issued capital of Gold Fields.

Second important transaction is the creation of a broad-based impairment consortium that will take effective 10% interest in South Deep. And that broad-based consortium will be made up of a number of constituent parts. And I'll talk about that in a moment. But first of all, that 10% interest will vest on a phased basis. And for the first ten years, that consortium will receive approximately $3 million a year in preferred dividends in the first ten years.

Thereafter, the stake will effectively start participating in the underlying cash flows of South Deep on a staggered basis, going up to effectively 10% after 20 years, 5% between years '11 and '15, and 10% after year '20. And in the interim, the preferred dividends will also decline proportionately. The details of this are included in our press release that we put out this morning on the transaction.

Now that broad-based consortium will be comprised of three main elements. First of all, 54% of that will vest into a broad-based retirement trust, which will focus on education at large for the country. And this is a particular issue for South Africa, given the number of unskilled people and our need for skilled -- particularly the youth of our society; secondly in youth development and lastly in skilled development for the mining industry. We need to train more mining engineers in this country. So a lot of our money will get down to grassroots projects to ensure that we can do exactly that.

And then the last part of the deal is a small 1% effective interest in the three South African mines, excluding South Deep. And that will be exchanged for around 600,000 new Gold Fields shares, 0.6 million Gold Fields shares, which is pretty small in the context of the other transactions.

And again, let me stress. These three transactions once they're completed will mean that we have now satisfied all of our ownership requirements in terms of 2014. And we've decided to do this now early on, get this done. And it's not really a tick-the-box issue. This is much more the living spirit of the mining charter and transformation in the country. And we expect these transactions to be completed before the end of calendar 2010.

This year has also seen the retirement of Alan Wright as our Chairperson, who will officially step down at our annual general meeting in November. He will be replaced by Dr. Mamphela Ramphele, who joined the Board as Director and Deputy Chairperson on July 1, 2010.

Our focus for next year will be to achieve further improvements in our safety, to see a further step change in the group annual NCE margin from 15% to 20%. And bear in mind in this last quarter we already got to 8%. So it's not a matter of (inaudible) to get there -- and maintain the momentum at South Deep and to advance the pipeline of exciting growth projects.

Let me come back to the 20% margin. Why is 20% so important? 20% is important because it does two things. One, it enables us to pay dividends to our shareholders and to consolidate our position as one of the highest dividend payers in the industry. Secondly, it will allow additional funds to be generated so that we can pursue growth in this company towards our target of 5 million ounces either in development or in production by 2015 and to fund that growth as far as we can from internal cash sources.

And let me come back to the dividend. The other important reason to show cash returned to shareholders is that we've lost a lot of investors to ETS. And whilst ETS has been good for the industry in pushing the gold price, we've lost some demand and some investment into the equities. What's important now is for the gold equities to make sure that they are an attractive investment in their own right.

And by ensuring that we can pay cash dividends to shareholders, we can provide not only capital growth, which I believe we can do, are continuing to improve our margins, but also we can provide cash returns to shareholders. And that's one of the reasons why Gold Fields will continue its policy of being a significant dividend payer.

So with that backdrop, we will now pause to give you an opportunity to ask us some questions.

(Operator Instructions). Our first question comes from Sabrina Grandchamps from HSBC. Please go ahead.

Hi, good afternoon. I just want to say best wishes to Mr. Wright on his future endeavors and congratulations to Dr. Ramphele. I just have a couple quick questions. The first is on South Deep. Does the mine life plan of 39 years include Uncle Harry's deposit?

The question is -- does the mine life of 39 years for South Deep include Uncle Harry?

Sorry, Sabrina?

Yes.

It's Vishnu speaking. No, the answer is it does not include Uncle Harry's. And given that it is not included in the new order mining right, the revised life mine schedule will take that into account when the excavation development is completed.

And do you have any thoughts or just some guidance as to when Uncle Harry's would start to contribute to production at South Deep?

I can't give you a definitive date because it's not in the mining schedule yet.

Okay. And would it be counted as a separate asset? Or would it be included with South Deep?

It would be all more or less included under one new order mining right.

Okay. And in Australia, do you have an idea of how much you plan to spend next year and I guess between now and the end of the year what you hope to achieve in the region as far as exploration?

Yes, could you repeat that question again, please?

Sure, my question just has to do with exploration in Australia, how much you plan to spend in the next fiscal year and what you hope to achieve by year end in the region?

Yes, we're looking at $30 million for the full year, for the F2011.

That's fiscal year or for --?

That's financial year. That's 2011. So probably about $15 million for the first six months.

Okay.

And that's really to further grow the ore body. One of the key strategies, Sabrina, is to grow the ore bodies at these two operations so that we can actually not only lengthen the life but also enable us to review options to optimize the exploitation of the ore body. And it's more difficult to do that when you've got a shorter life. And that's one of the reasons we're spending quite a significant amount on exploration. And we expect to show positive results over the next six months on our reserves at both the St. Ives and Agnew as a consequence of that expenditure.

Do you have the breakdown on how much you plan to spend at Hamlet and Athena?

Sabrina, we'll get the numbers to you, the specific breakdown, okay?

Okay. And lastly, do you have any updates on drilling at Cerro Corona? You mentioned in your release that you're evaluating alternatives to resume work. Can you talk about what those alternatives are?

Yes, Sabrina. This is Juancho speaking. What we're doing is we're evaluating alternatives basically to increase our trading storage capacity. And we're also doing some in-fill drilling to further confirm the characteristics of the deposit as we move forward with the aim of potentially increasing or converting more resources into reserves.

If you're specifically -- your question is focused on [Consolidaire] or [Iyoke], which is our exploration joint venture with Buenaventura in the region, we are still evaluating the social political environment and context. On October 3rd, we're facing local and regional elections. And right now, we believe that we have to wait and see what the outcome will be so that we find the best moment to resume exploration activities in the joint venture.

Will you know -- do you hope to have a better idea by October -- at or around October 3rd on whether or not you'll be able to resume drilling by the end of the year? Is that like a big -- ?

We're permanently assessing the future of the JV and the future activities of the JV, will the future of the JV like I said, but the future activities of the JV. And obviously, after the elections, we expect the political context to calm down and provide us with a better environment to resume activities.

Okay. Thank you.

Our next question comes from David Haughton from BMO Capital Markets. Please go ahead.

Yes, good morning. And thank you for hosting this call. I had a couple of questions with regard to the development plans of your new projects, so wondering what steps are required before you can make a commitment to developing Yanfolila in Mali and Chucapaca in Peru and if at this stage whether you could provide us with a bit of a thumbnail sketch as to how those projects might unfold.

Okay, David. I'll ask Peter to talk briefly on Yanfolila. I think fair to say on Yanfolila, we are in an extensive drilling program now. And then after Peter's spoken, I'll ask Juancho to talk very briefly on Chucapaca. Peter?

Thank you.

Thank you. David, the first point is we're busy with a [stamping] study on Yanfolila, specifically Komana East and Komana West. And we hope to have that finished by year end. And this is an extensive drilling program at the moment, which over the last six months has really consumed some 80 kilometers of extensive drilling in the region. And it's looking very positive. And our intention is to have a startup project going within three years from now and on at least 2 million ounces. And I think for now, that's pretty much what we can say about this project.

All right, so if we're thinking typically, you'd be looking at structuring a ten-year life around this sort of thing. So would we be thinking in the order of 200,000 ounces per annum coming out of the project?

I think that would be a fair assumption, yes.

And the average grade looks pretty healthy, a lot of it from the surface. So would we be able to estimate the grade to be around the 3 to 5 gram kind of level on average?

Well, look, I wouldn't like to guess on grade. But generally, what I can say in that region on average, you probably pan out at about 3, 2.5 to 3 grams. And what we're saying here is that (inaudible) early startup projects, which would have the ability to generate returns very quickly and to grow. While we in fact explore further, we'd certainly have the ability to start a project around (inaudible) or something in that nature.

Interestingly here, too, the OE3 dig, it'll be free milling. We've checked all that. And quite frankly, this is very, very easy winnable resources early -- at early stages.

(inaudible) more milling or heat bleach kind of scope?

Well, probably heat bleach. Given that it's going to be a cap of soft oxide ores, it could well lend itself to heat bleach. But I think in fairness to the team, once we've got a definitive resource in front of us and we understand all of the characteristics of that resource and as well as the geometry, et cetera, we'll be able to make a more informed decision.

But I think it's fair to say, David, that this is almost synonymous to St. Ives area. It's a large area. It's about 80 kilometers by about 60 kilometers. We're only focusing on part of the property to the south, a 20 to 30 kilometer radius. There are multiple targets elsewhere on the property. But we want to get something away in terms of a starter project and then use that as a base to consolidate and grow the property.

To 2 million ounces is only the beginning. But we want to get something started so that we can start to get a presence in the area, we can get a team underground. And that helps you to gain certain momentum on the site. And so that's why the focus is what Peter's just described.

Okay. And the second project was Chucapaca.

Yes, Juancho's going to talk to that.

Thank you, Nick. Yes, in Chucapaca, basically the joint venture company between Gold Fields and Buenaventura, which is called Canteras del Hallazgo, reported back in May an inferred resource estimate of 5.6 million equivalent ounces, as you know, at one of the targets, which is the Canahuire discovery. This is the target where the discovery hole was hit.

This project has some other interesting and potential and very exciting satellite targets. Two of them are called Katrina and Cerro Chucapaca. And we're -- we have already started doing some drilling. And we're very hopeful that we will get some positive results.

But getting back to the Canahuire discovery, basically, we have finished our positive conceptual mine scoping study. This was completed by [Amik]. And it supports that the project is both technically and economically viable. It considers conventional open-pit mining. And we will be processing the ores using basically conventional copper flotation technology with CIL recovery of golden tails.

The plant should be around -- we expect the plant to be a plant of around 20,000 tons per day capacity, slightly -- I would say slightly -- I would -- very much similar to Cerro Corona in size. And probably we should have a life of mine of ten years in the project.

We're very busy right now commencing what I call a very aggressive and ambitious in-fill drilling program of 100,000 -- a little bit more than 100,000 meters for the fiscal year, which is going to be obviously a key ingredient for our final pre-feasibility study, which is at the current phase where we are.

We don't expect a construction decision earlier than 2.5 years from now probably. However, we believe that the team will push as hard as they can so that we can move forward the project. The sooner, the better. All the permitting for the work that needs to be done in the next fiscal year in the next phase of the project is granted or has been granted by the Ministry of Energy and Mines and all the relevant authorities. And on the other hand, we already have long-term agreements with the three communities of the direct area of influence, which is also a key enabler to move forward to the next phase of the project.

All right, and just looking while you were talking on page 41 of your slide deck, quite a lot of topography. And most of those resources are contained in what looks like Canahuire. And I'm just wondering just looking at this plan whether -- it looks like most of it's contained on the top of a hill. So I presume the strip ratio would be relatively low. I'm wondering where you might find a place to put the plant site. I'm presuming it might be down in the valley somewhere, and whether you've got an appropriate place for tailings.

Yes, well, this is a very different site than what we have at Cerro Corona. Cerro Corona is a very constrained site from a topographic perspective. This is located in the Altiplano. The Altiplano is basically a flat area in the upper Andes of Peru. And so what you have perceived in slide 41 is not exactly right because the project is not located on the top of the mountain. It's in what I would say a V-type creek or basin. And therefore, the strip ratio has been reported and informed in our press release. We expect it's going to be around 3.5 to 3.8 times.

The site location and all the ancillary facilities can be easily located on the flatter areas surrounding the project. And we have also as part of the scoping study already determined the initial location for both the waste and tailings done.

All right, excellent. Thank you.

Our next question comes from John Bridges from JPMorgan. Please go ahead.

Hi, Nick, everybody. I'd just like to follow on from David's question on Chucapaca, interesting project. The characteristic of the concentrate you've produced, any issues there?

No, we don't foresee any issue. Actually, it's going to be a very low amount of concentrate produced because we will be recovering most of it in the form of gold directly in the project after the CIL treatment of the tails. So we don't foresee any issue with that.

And we have also to keep in mind that we have -- I think we have developed very relevant skills and experience in managing copper concentrate production and commerce allocation through our Cerro Corona project.

Okay. And the surface rights to build the mine, how far along are you with those?

Well, I would -- we're working on the strategy. And I would really prefer not to elaborate too much on it because obviously it's a very sensitive issue that we need to manage. But we are very focused and already working on the strategy to acquire the surface rights.

Okay. Great. Best of luck, guys.

Our next question comes from [Mary Lagrange] from [Agro Research]. Please go ahead.

Hi, Nick and the team. I just wanted to ask with regards to the new transactions. I think you've made it quite clear that roughly ZAR1 billion will come through the income statement probably over the next six months related to these transactions. I wanted to know whether the sort of circa 300 million that will be paid out from South Deep profits, whether that's included in that amount because my feel is that it's not. And then how that will be accounted for going forward, if it will just come out -- come through the income statement on an annual basis for the first ten years of 20 million?

No, all three transactions are going to be accounted as a one-off charge to the income statement, transaction one, two, and three. All of them will be done once off.

Okay. And am I correct that you expect to have that all completed and done over the next six months. That's correct. We'd like to have it done by 31 December.

Okay. And is it likely to be distributed across the two quarters? Or do you think it'll be more balanced towards the end of the --?

It'll be in quarter two. I'm sure that's --

Quarter two.

Yes.

Okay. Excellent. Thanks for that. And then one other question. With regards to you guys leaving to December year end, does that imply that you're going to be putting out an annual report now and then at the end of the calendar year as well?

Correct. There'll be a six-monthly annual report. And then we'll revert to annual one with a December year end from calendar 2011 onwards.

Okay. And will we be getting updates of resources only now and with the annual report due for the financial year? Or will we get an update after six months as well?

What we'll do is we'll do a full reserve and resource estimate again at the end of December. And we'll do a reconciliation for the period up to June that's just past, no point trying to do the exercise twice. So we'll rather do a full reconciliation again at -- and a full estimate again at the end of December.

And do you see -- can you give us an idea of costs that may be involved with changing the reporting period?

None at all.

None. Okay. That's great. Thanks a lot.

This really is to line up with most of the peer group, particularly in North America.

Great.

Our next question comes from [David Lefel] from the Deutsche Bank. Please go ahead.

Yes, gentlemen, Nick, well done on these results. They look pretty good. I see in your slide presentation you talk about increasing -- well, restructuring and increasing productivity. And I see that in your notes you talk about projects 1M, 2M, 3M, and so on. I just wonder -- can you give us just a summary of what we should expect over the next 12 months, I mean, in the way of operating metrics and approvals? I mean, should we look for cost savings immediately? Are they built into your numbers that you've given us for guidance? Or should we look at production increases? And are those in the numbers already?

What we're really after here is to help underpin an improvement in the overall margin after notional cash expenditure from 15% to 20% for the group at large. That requires us to have a fresh look at all of the business processes, organizational design, reporting structures across the organization and also look at the entire process from mine to mold across the entire company. It's not just a South African issue. It's across the Company.

And so that's an exercise we've already started on. And that should help us underpin getting to a 20% margin. And if you look at the guidance in our costs over the next year, I would say that part of that is accounted for, mainly because we've started certain elements of that work and other parts [inordinately]. And other parts to it we haven't specifically quantified yet. And this is something that we'll give you more resolution and definition on once we've done further work on.

But my immediate target and the immediate target of this team is to get our NCE margin up to 20%. And this quarter, we got to 18%. For the year as a whole, we were at 15%. But that'll be the next target.

Obviously, we want to get ounce growth as well if we can, David. I'd like to get the production up. And of course, we have a long-term target to do that. But it's not ounces at any cost. We want to make sure we generate profitable ounces. We want to make sure we generate ounces that make cash. So if we can do both, that's great. But the first priority is to improve the margin over our existing production base.

Okay. Great. And I guess you've given us 12-month production targets. I mean, you're changing your year end. Should we be just dividing these numbers by two to get to I guess an interim number to December?

Yes, pretty much. But what we'll do is we'll give you updated guidance as we go. So we'll give you a steer at the end of December what it looks like for the full year of 2011. And of course, we'll be reporting again at the end of September. But if you want to put something into your model, David, I guess that's a reasonable assumption, except for South Deep. South Deep is probably going to be more weighted I guess fiscally to the second half of the year.

Okay. Okay. Thanks, Nick.

Very good.

Gentlemen, we have no further questions in our question queue.

Okay. Well, thanks very much indeed, everyone, for your attendance today. And we look forward to speaking to you again in six months' time.

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