Gold Fields Ltd (GFI) 2010 Q2 法說會逐字稿

Good day, and welcome to the Gold Fields results for the six months ended December 31, 2010. (Operator instructions). Please, also note that this conference is being recorded.

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

Thank you very much, Dillen. Good morning, and good afternoon, ladies and gentlemen. Thank you very much for joining us for this December 2010 results conference call. The format that we will follow is that Nick Holland will do a brief introduction, where after Paul Schmidt, our Chief Financial Officer, will give some brief remarks on the quarterly performance from a financial point of view. And then we will give each of our Executive Vice Presidents opportunity to speak briefly about their regions, after which Nick will conclude. We will then take questions.

I now hand over to Nick Holland.

Thank you, Willie, and good afternoon, everybody. Thank you for dialing into the teleconference. I trust you've had an opportunity to have a look at the results booklet, but let me start by taking you through the highlights, anyway, of our results.

The first half of the year has seen Gold Fields contain or reduce costs in all four of our regions, enabling the Group to continue to be cash generative. Our cash generation during the quarter totaled $136 million.

Coupled with the higher quarter-on-quarter gold prices, the lower costs saw the Group attain a higher notional cash expenditure margin of 20%. This comes just a year after we set ourselves that goal and compares to 18% previously. The NCE margin was achieved through active cost-containment efforts, through the business process reengineering initiatives, and in spite of the 6% and 9% appreciation of the rand and the Australian dollar, respectively. This positions the Group to generate sustainable margins at long-term gold prices.

Our safety record continues to improve; regrettably, with 18 fatalities in 2010 but down from 26 in calendar 2009, which again was down further on the previous year's figure of 31. Despite these improvements, we will continue to work tirelessly to reduce safety risks by focusing primarily on behavioral change programs amongst our miners whilst, at the same time, continuing our technical work on fall-of-ground and tramming-related accidents, which are the major agencies.

During the period under review, we rationalized and integrated two of our South African mines, Kloof and Driefontein, into one operation, which we're now going to formally call KDC. This has resulted in a flatter management structure and is expected to improve operational efficiencies.

Starting with our South African operations, South Deep's performance was on target during the December quarter, despite the weeklong strike that we experienced during the quarter. We continue to achieve project milestones. In December, we partially installed the head-gear on the ventilation shaft, and during the last few months of the year, we also hulled out the bottom of that same ventilation shaft.

Our other regions performed well, both financially and operationally. Damang in Ghana and St. Ives in Australia deserve to be highlighted, achieving strong production levels of 60,000 ounces and 125,000 ounces, respectively.

Going forward, our growth prospects continue to gather momentum, and we expect to make construction decisions on the following key projects over the next 18 to 24 months. Our Far South East JV in the Philippines-- that's been resourced now, and underground drilling has commenced in January. Drilling and feasibility studies are continuing at the Chucapaca project in Peru, and drilling at our 85%-owned Yanfolila project in Mali has revealed a number of high-grade outcropping shoots within close proximity of each other on the southern part of the property. A look into the use of metals rather than concentrates being produced onsite on the 12-million-ounce Arctic Platinum poly-metallic deposits in Finland continue. If successful, this will improve the project's economics significantly.

All these projects will contribute towards achieving our goal of 5 million ounces either in production or in development by 2015.

Other key events in the December quarter were the approval of and completion of three empowerment transactions at our South African operations, including an employee share option plan for 10.75% of our South African assets. What this means is that we have met the 2014 equity ownership requirements well ahead of time. And, of course, as you'll hear from Paul, the effects of these transactions have now been fully accounted for in our income statement in this quarter.

Following the departure of Alan Wright, who has served Gold Fields with distinction for 40 years, Dr. Mamphela Ramphele took over as Gold Fields' Chair on November 2.

I'll now hand over to Paul, who will give us a summary of the financial performance.

Good afternoon, and good morning, ladies and gentlemen.

Attributable gold production was steady at 898,000 ounces.

Revenue increased from $1.2 billion to $1.3 billion as a result of the higher US dollar gold price received. The gold price increased by $143 to $1,366 per ounce.

Net operating costs increased in US dollar terms from $697 million last quarter to $724 million this quarter. This increase was largely due to the strength of the rand. In rand terms, the South African operations were down by just over ZAR100 million quarter on quarter, and the three international operations were flat quarter on quarter. Operating costs in rand terms decreased from ZAR5.1 billion to ZAR5 billion.

As a result of the above, operating profit increased from $533 million last quarter to $610 million this quarter, while the operating margin increased from 43% to 46%.

Total cash costs increased from $697 per ounce to $728 per ounce this quarter, mainly due to the strength of the rand. In rand terms, total cash costs decreased from ZAR165,000 a kilo to ZAR162,000 a kilo.

NCE, or notional cash expenditure, increased from just over $1,000 last quarter to $1,094 this quarter, largely due to the strength of the rand, plus the $30-million investment at Damang into the owner mining fleet. NCE margin increased from 18% to 20%. Remembering that 20% NCE margin is the target that we set ourselves in the short term to achieve, so I'm pleased to report that we've achieved that target.

Earnings. A net loss of $106 million was incurred in the quarter, largely due to cost of a number of empowerment transactions completed this quarter. The cost of empowerment transactions amounted to $298 million. These transactions have been fully accounted for, and no further expenses will be incurred.

Normalized earnings increased by 53% to $211 million in the September quarter from $138 million-- sorry-- increased to $211 million from $138 million in the previous quarter, while normalized earnings per share increased to $0.29 per share from $0.20 per share in the previous quarter.

Dividend. We declared a final dividend of ZAR0.70 per share, resulting in a total dividend for ZAR0.70. Remember, this is a half year and a whole year for Gold Fields, as we've changed our yearend. This is in line with our dividend policy of declaring 50% of earnings after growth capital and adjusting for any exceptional items. In this case, we added back the cost of the empowerment transaction.

Cash flow. Cash flow from operating activities amounted to $557 million, up from $308 million in the previous quarter. Cash flow from investing activities increased from $303 million in the previous quarter to $421 million this quarter, mainly due to the $54-million payment for the option on FSE plus the $30 million, as I mentioned, that we spent on the fleet at Damang.

The net effect of above is that net cash inflow increased from $107 million to $172 million, resulting in cash on hand of $810 million at the end of the period.

If we look at our balance sheet net debt, the strong operating cash flow resulted in net debt decreasing from $722 million to $589 million. The interest cover ratio has increased to 45 times from 36 times in the previous quarter.

Our liquidity position remains healthy, with a further $950 million of dollar facilities that we've got committed plus an additional ZAR3 billion in rand facilities, while our maturity ladder has significantly improved, with the bulk of our debt maturity between 2014 and 2020. We are committed to maintaining our investment-grade rating and, as a result, are well placed to fund our pipeline of promising growth.

With that, I'll hand over to Juancho.

Thank you, Paul. Good afternoon, and good morning, everyone.

(Inaudible) quarter was another very strong period for Cerro Corona, delivering a record free cash flow of $89 million, slightly above $1,000 per equivalent ounce sold, on the back of a very strong 71% operating margin and a 54% NCE margin. Strong production, combined with the strict controls on our costs and capital expenditures, allowed us to close at an NCE of $650 per equivalent ounce, better than our plan for the period.

The technical studies required to confirm the feasibility of treating the oxides continued during the quarter, together with environmental permitting. The EIA should be filed during the current quarter.

The December quarter rounded the conclusion of 2010 as a great year for Cerro Corona. The strong operational improvements during the year delivered outstanding financial results for this period, with a 62% increase in operating profits for the year, up to $342 million, or a 71% profit margin, and a record free cash flow generation for the year of $209 million, or $520 per equivalent ounce, on average, for the year. This allowed us to pay our first dividend of $30 million during the quarter, as well as reduce our net debt position by $130 million during the quarter.

In addition to the oxides project feasibility, important progress was also made in two other growth initiatives. We initiated studies to evaluate the alternatives to increase our tailings capacity to grow our reserves. And, secondly, we completed 5,900 meters of drilling at Cerro Corona to improve the resolution of our ore reserves with early indications of further growth potential.

At Chucapaca, our flagship growth project in the region, we completed 35,000 meters of drilling that are showing very encouraging results, with the resource grades increasing and further confirmation that the mineralization remains still open to the west. The studies required to confirm the feasibility of the Chucapaca project were accelerated during the quarter, with the aim of making a construction decision in 18 to 24 months. Drilling results at Chucapaca look every time more promising, and this asset is clearly developing towards becoming our next future mine.

Looking into 2011, our focus will continue to be on growth and optimization at Cerro Corona. We will be focused on sustaining the strong operational performance while, at the same time, continue working on the three strategic growth initiatives that I alluded to before. At Chucapaca, the focus for the year will be to complete the drilling campaign and to accelerate the feasibility study with the aim to make a construction decision on 2012.

And, with that, I pass it on to Peter Turner.

Thank you. A brief overview of the West Africa region. The region had a steady production quarter on the back of improved flexibility at Damang due to the secondary crusher performance. This all culminated in a cash cost reduction down to $540 an ounce and free cash for the region of $66 million. Ultimately, this delivered an NCE margin of 26%.

Moving on to Tarkwa, we had a solid production quarter, with cash costs down to $517 per ounce, and this delivered an improvement in operating profit of 19% at $141 million. A key feature of this operation going forward is the business process reengineering, which is taking traction to further reduce costs and improve margin and margin per ounce.

Moving on to Damang mine, Damang mine saw a step change in its production over the quarter. Production was up 7% to over 60,000 ounces, cash costs down to 9% to $608 per ounce, operating profit up 30% to $45 million. An important feature of this asset is the good performance of the secondary crusher, providing the flexibility where we're treating high-grade, fresh ores to feed the mill. The Damang super pit confirmation drilling at Damang (inaudible), Juno and Huni is delivering positive results, really underpinning our notion to develop a super pit in the near future. Our owner mining project at Damang is on track and on schedule and will be commissioned during the following quarter.

Moving on then to exploration, our operation-- our exploration venture in Mali, we have an intensive drill project, which will be due to deliver 80,000 meters by the middle of 2011. We are targeting a 200,000-ounce per annum startup project from a 2-million-ounce initial reserve in this area. Drilling continues, and we are expecting to complete a scoping study during quarter three of 2011.

In Ghana, drilling has commenced over a 1,100-square-kilometer area, and drilling has commenced at Sheba, some 25 kilometers from Tarkwa. Further in the central region of Ghana, drilling has commenced at Enchi, and, further, we have started some indicative work at the [Primera RL] during the next quarter.

Moving on then to our new discoveries in Mali, an important new discovery for us is a discovery called Guirin West. It is three kilometers from Komana East on the same shear zone and producing some really positive results. The strike length to Guirin West is 2.4 kilometer. And delivering the same kind of results that we've seen at Komana East, three dig opportunities, and we are seeing mineralization from surface [down]. A further new discovery would be Badogo and [Malikila], and these are also other deposits on the same shear system as Komana. And we're rather excited about the future prospects of that site in this region.

Moving on then to our focus for 2011, business process re-optimization will be key for the containment and improvement of cost and margin at both Tarkwa and Damang. And, looking forward, we're looking at near mine exploration growth at Damang mine to significantly increase the resource base of these operations.

Safety remains a core focus for our operations going forward, and, as it is our number-one value, will also receive major attention.

That is all from me. Thank you very much, Nick.

Unfortunately, Richard Weston, who heads up our Australasia region has had to leave for the airport because he's flying back to Australia tonight. And Tim Rowland couldn't join us today. But I'm going to briefly just give a couple of key messages about each of those two regions before we turn this over for questions.

The Australasia region has had a very, very good region-- very, very good quarter, rather, with production being up 11%. And it is a very good region too with production being up 11% to 169,000 ounces. And it's pleasing to see that Agnew has recovered its production back up to historical levels. Production went up some 25% in that particular mine as we got the mine back in balance following some very difficult ground conditions that we did encounter and we got out of sequence with our backfill and our stoping. We're, fortunately, now back in sequence, and I expect us to have stability along the lines of what we have produced this quarter going forward.

St. Ives has got up to 125,000 ounces of production, which annualizes out at 500,000 ounces a year. And it shows what a great operation this really is. And, since we've owned St. Ives back in 2001, this mine has produced 5 million ounces since we've owned it. And I'm pretty sure there's a lot more out there. And, in particular, the fact that we've increased our reserves by 28%, I think, is noteworthy of the very good work that's being done on the near-mine exploration.

Also, the Australian assets are making money, notwithstanding the fact that the Australian dollar continues to get stronger-- in fact, even stronger than the dollar at the moment. But the NCE margin, notwithstanding that, went from 22% to 29%, and this region made $67 million of cash flow during the September quarter. And there's a lot more upside to come, particularly as St. Ives and Agnew, as well, look to improve all of their processes and to further reduce their costs and increase the life further.

I must say, three or four years ago, I thought Agnew was coming to the end. We only had about three years of life left. Well, today, based on the reserves we've put out, we've got at least seven years' life with very promising upside in terms of underground bulk mining potential in the main load zone of the Waroonga underground, which is the less-developed and shallower part of that mine. But indications are, with the drilling we're doing, that it's going to extend a lot deeper, and we expect the reef also to get quite a bit wider.

So both mining opportunities at depth there could be very interesting for us.

Going back to South Africa, it's noteworthy that the South Africa region during this particular quarter made 485,000 ounces, compared to 497,000 ounces the previous quarter. That's only a variance of 1.5% to 2%. And, despite the South Deep strike of ten days, I think the guys have done a really good job. And, with the cost control put in place-- Now, bear in mind the likes of Kloof and Driefontein, which, of course, is now named KDC and Beatrix. They made a 16% NCE margin, and so they're not far off as assets themselves to the 20% level. And bear in mind also that that margin helped us to fund the balance of the requirements of South Deep, because South Deep will only get to cash flow positive, we expect, by 2013. So those cash flows have been very important in shoring up the region's requirements to fund South Deep.

Also, you'll notice in the book we have given our ore reserve update. This is for the position as at the end of December. And our ore reserves are now coming out at 76.7 million ounces at December for the Group attributable. That is compared to 78 million ounces attributable at June. And, if you add back depletion, you can see, in fact, we've added ounces to the overall Group. There are pluses and minuses here. But I think, noteworthy, 28% increase at St. Ives and an 18% increase, or about 5 million ounces, at South Deep; particularly exciting to report those.

We'll give more detail and the full short-form report on our reserves and resources around about the end of March, early April. And, of course, the details will be included in our annual report for the six-month reporting period to December, which we hope to get out by the end of March. So you'll see more details on these reserves and, of course, on our resources.

With that, I'm going to hand this over to questions, and either myself, Paul, Juancho, or Peter will endeavor to answer your questions. Thank you.

Thank you very much, sir. (Operator instructions). John Bridges, JPMorgan.

I'd like to get a little bit more detail on the metallurgical process for the Arctic Platinum palladium. And also, then, if you could talk a little bit more perhaps about Chucapaca, I'm particularly interested in that one.

I'll answer the first question. Then I'll hand over to Juancho, who will talk more about where we are on Chucapaca.

The metallurgical process that we're looking at is untested commercially, and it's called Platsol. And, basically, it's a hydrometallurgical process that relies on a form of pressure oxidation. And it's not taking anything new. It's taking a whole bunch of known technologies and putting them into a different sequence because, as you know, we have poly-metallic metal deposits here with multiple metals in the head, and we have to, of course, split them all out. So it's taking known technology.

We've done small, bench-scale testing in the laboratories to indicate what this will mean. And what it's showing us is that the recoveries could increase quite a bit. One of the issues that we had on APP back in 2003 when we did the original feasibility study is that, besides the fact that the price tag was much lower than what we've got today for all of the metals, it's that the recoveries were quite a bit lower. For 2.2-grams-a-tonne head grade, 2PGE+ gold, we were getting recoveries in the mid 50s. And, at those price tags, the project was somewhat challenged. Now, with the price tag we've got today and with the ability to produce what is likely to be a copper cathode onsite, which you can then sell to the market, and, also, a platinum precipitate, which you can then send off to the refineries for further refining, effectively, we're producing metals onsite and not concentrate. And the early indications are that we could see up to a 15% increase in recoveries.

Now, of course, we're not going to make a decision based on bench-scale laboratory testing, so the next step is to take a 50-tonne cut out of each of the three deposits that make up the 12 million ounces. That's Vaaralampi, Ahmavaara, and Konttijarvi. We'll take a 50-tonne cut out of each of those deposits and then do a bulk, pilot-plant test for each of them because they've all got different ore characteristics. It's not a homogeneous ore body, so that's why we need to have a representative sample across the ore body and then get that processed in Canada. And then we should see the results towards-- I would think maybe third quarter of this year we might get the results back. And, if that proves positive, then I think we're going to be accelerating all of the redesign, if you like, updating of the feasibility study we did some seven years ago, and see whether this project makes sense to develop.

Whether or not we're going to develop it on our own or with someone or do something different, I think that decision is too early for us to contemplate. What we've first got to do is understand whether we've got a robust project now that is going to be well positioned on the PGM's cost curve and then decide how we go further.

I hope that gives you some clarification. Is there anything else you want--?

That's interesting. Who's doing the testing in Canada?

We'll do it through Lakefield.

Okay. Excellent. Thank you.

Upon declaring the initial resource of 5.6 million gold-equivalent ounces in May 2010 and completing the scoping study that basically supported an open-pit mining and positive metallurgical recoveries at Chucapaca, we decided to commence the second phase of drilling and accelerate all the studies required to confirm the feasibility of the project. This second drilling program started in July 2010, and it's very aggressive. It's 100,000 meters that we're going to be drilling, out of which already 35,000 meters have been completed.

The new drilling that we have completed continues to confirm the growth potential and the robustness of our resource model at Canahuire. Canahuire is the deposit that we're right now exploring and working on in Chucapaca. There have been very significant drilling intersections returned during the quarter, with some results greater than 300 grams per meter. Some of these intersections, just to provide you further perspective, include 36 meters at 12.5 grams per tonne, 56 meters at around 26.5 grams a tonne, 127 meters at almost 3 grams a tonne, and 89 meters at almost 7 grams a tonne.

So, to provide us with a better understanding of the impact of these results, we developed a new planning block model. And, basically, as a result, we observed that the high-grade mineralization is planning now to the west. And, although preliminary, the new results are confirming the continuity and upgrade of high-grade mineralization within the currently defined resource, which is real encouraging-- the continual extension, as well, of the high-grade mineralization to the west.

So, in a nutshell, these preliminary results look very, very promising, the grades are improving, and the model indicates that the deposit is extending and still open to the west. So that's really exciting for us.

I don't know if you have some other questions around it.

Do you have properties surrounding the JV, or is it Buenaventura? Whose property is the high grade pointing towards?

We do have significant land tenement around the Chucapaca project area of interest, and we are definitely going to be working on exploring it further down the road. And Buenaventura also has some land and some properties around the area. So it's both of us. But our joint venture is focused on the Canahuire deposit at this stage, which is what I alluded to when I commented the results of the drilling program and all the project feasibility scope.

Okay. Are there any critical dates for--? When will you be reporting the next phase-- at the end of this year?

We are accelerating right now all the feasibility studies, and a very aggressive work program has been put together. And what we are expecting is to make a construction decision within 18 to 24 months. That will be somewhere in 2012.

Excellent. Many, many thanks, Great results, guys. Thank you.

(Operator instructions).

Dillen, we will conclude, seeing that there are no further questions. Nick, will you give a few closing remarks?

Certainly, the closing remark I would make for you is the Company is making good cash flow. The balance sheet is strong. We've had three robust quarters of circa 900,000 ounces of production, and that's probably the greatest degree of stability we've had in our production for some time. And I think what we've got to do is consolidate on these results and, at the same time, push our growth pipeline so that we can improve the overall quality of the portfolio in time and grow this production base.

So I think we've all got lots of work to do, and we look forward to talking to you again in six months' time. And, with that, goodbye.

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