Gold Fields Ltd (GFI) 2011 Q1 法說會逐字稿

Welcome to the Gold Fields quarter one 2011 call. (Operator Instructions). Please also note that this conference is being recorded. I would now like to turn the conference over to Nick Holland. Please go ahead, sir.

Thank you, Dylan. Thank you, everyone, for dialing into this conference call this afternoon -- or this morning depending on where you are -- to discuss Gold Fields first-quarter results for the period ending 31 March, 2011. I'm joined today by Paul Schmidt, our Chief Financial Officer; our Investor Relations Senior Manager here in Johannesburg, Nikki Catrakilis-Wagner, who you all know. Also, we have Willie Jacobz on the line who is in Boston, and we also welcome Zakira Amra to the Gold Fields fold. Zakira joined us at the beginning of May as Senior Vice President Investor Relations and Corporate Affairs, so we welcome Zakira into the group. I trust you have had an opportunity to look at our set of results, which were put out this morning in Johannesburg, and before I open up the line to questions, I would like to provide a few highlights.

Production for the quarter was 830,000 ounces, which was 5% ahead of the comparative quarter in March of 2010. And why that comparison is important is because both quarters have the circled December Christmas break in South Africa included in them. For those who are not aware, remember we generally have a two-week shut in South Africa for Christmas, and that typically takes place all in the March quarter. It does not affect the December quarter; it affects the March quarter.

So despite the shut in this quarter and compared to the same quarter last year, we took 5% better on a like-for-like basis. That is an important improvement. And compared to the December quarter, our production is 8% down as we expected it to be as a result of the impact of those year-end holidays.

I guess the thing that I'm pleased about is that we have managed to improve our production in South Africa in this March quarter compared to the March quarter last year, which is a function of improving our production overall and managing the Christmas break a little better than what we did last year and managed to process a lot more over that Christmas break this year than what we did last year.

We forged ahead with our focus on cost containment and with operations continuing to benefit from our business process reengineering process, which is now ingrained into our business.

For a third consecutive quarter, Gold Fields has reduced its operating costs, which fell to $699 million this quarter from $724 million in the previous quarter. And also, what is pleasing is that compared to the same quarter last year, our cash costs have gone up from $703 an ounce to $751 an ounce, which is around about a 6% increase, but has been well contained despite currency strengthening. Again, the impact of this business process reengineering has helped us to limit the increase in those costs and also to help us improve our operating margin. Operating margin improved in the March 2010 quarter from 35% last year to 46% in the March 2011 quarter. And that is a clear indication that we are able to deliver a lot of the gold price increase to the bottom line, which is also indicated in our net earnings, excluding gains on losses on foreign exchange and financial instruments, nonrecurring items where you have seen, in other words, the normalized core earnings in the business have gone up from $44 million in the March 2010 quarter to $165 million in the March 2011 quarter. I think that gives you a good indication that the increase in the gold price over that period, which went up from $1100 to $1389, that a significant proportion of that increase has been delivered into higher operating margins and also into higher earnings.

Our national cash expenditure rose -- or margin rather -- our national national cash expenditure margin rose from 20% to 21% during the quarter. And, as I said some time ago, our minimum objective is to get to a 20% margin, and now our objective is to attempt to get every asset in our group to a 20% margin. That will be the next target that we set ourselves, and that certainly puts us in good stead to generate sustainable margins at a range of long-term gold prices.

So net earnings for the quarter I have explained already, significant increase compared to both the previous quarter and compared to the comparative quarter last year.

Let's talk briefly about growth. The progress on our growth projects continues apace, and we are well positioned to achieve our goal of having 5 million ounces in production or in development by 2015. Our resource definition drilling continues about 51% earned Chucapaca project in Peru. We have now got 12 drill rigs operating on that particular site doing a combination of infill drilling and also step-out drilling to test the continuity of this ore body. And in both cases, we are seeing good extensions to the ore body, suggesting that we should be able to show a significantly improved resource later in this year. We are hoping to get that out by around September and also indicating that the growth could potentially be higher as well. But certainly the infill drilling we are doing is confirming the growth that we had delineated as part of our inferred resource back in May of last year, and this is proving to be one of the most exciting discoveries in South America over the last five years.

We are continuing our work on the feasibility study on that project, and we hope to have that finished by the middle of next year.

Exploration at the Far South East project in the Philippines is ramping up, I'm pleased to say. And at this stage, we now have eight underground diamond drill rigs operating. It has taken us some time to get the underground drilling platform in place, and we started drilling around about the end of January. In the quarter-end review, we have done about 5000 meters, but as of to date, that has gone up to about 7000 meters, and I believe now with eight underground diamond drill rigs operating. Previously we had up to around five as was indicated in our report, we should see a further increase in momentum. And the early indications of the drilling are showing that the envelope that contains the mineralized ore -- this is a copper gold porphyry, which was around a kilometer across and about a kilometer down from a depth of about 700 meters starting at the depth, looks like that envelope is getting bigger, and we are seeing mineralized zones both before we intersect the ore body and drilling is ending in mineralized zones suggesting that this particular ore body is open laterally and at depth. So this could be sizably bigger than our initial estimates.

Clearly there is a lot of drilling to be done, and now that we have got our eight underground rigs operating, we expect to see further results over the year, and clearly we will be updating the market as we progress this particular project.

Remember Gold Fields has an option to earn 16% of this project from Yanfolila mining.

Turning to Arctic Platinum in Finland, remember this is a Palladium, platinum polymetallic project, about 3 to 1 palladium platinum, but also with nickel and copper and, of course, gold. Gold makes up around about 10% of the total value of the metals in the head. That is very much a polymetallic deposit. We have completed the metallurgical drilling on the two 50 tonne samples that we wanted to get for pilot plant flotation, which we have started in this quarter, and once we finished that, we can then do the full metallurgical tests on these full 50 tonne samples similar to the bench scale laboratory testing that we have done earlier, and just see if we can corroborate the results that we are seeing. Essentially we're looking for a pickup in recoveries to confirm what we had seen in the bench scale testing. And if that works and then we will move into a more detailed feasibility study to see what this project now looks like with us producing the metals on site as opposed to the concentrate, which was previously envisaged with higher recoveries, but it looks very, very interesting at this point.

At the Yanfolila project in Southern Mali, as you did see in our reserve and resource supplement that we put out last month, we have an inferred mineral resource of 740,000 equivalent ounces. That is at about 2.5 grams a tonne. These are surface shallow oxides, and our drilling is continuing over the next six months through to the end of the drilling season, which will take us through to about July/August. And we are optimistic that we can significantly add to that and get this project to scoping study level by September. And depending on the size of what we find, we could well get into a situation where we start a feasibility study for a starter project on this particular operation. Which we would like to get to something around about 200,000 to 250,000 ounces a year. That sort of level of production is what we are looking for.

But we will update the market again later in the year as we get the results of the latest pass of drilling, as well as the elements of the scoping study.

Lastly, over the last few months, we have made two offers to buy the minority shareholders at our Peruvian and Ghanaian operations, and as a consequence of that, we have managed to increase our economic interest in Gold Fields La Cima at the Cerro Corona project vehicle that owns the mine from 81% to 99%. So effectively we have achieved our goal of acquiring virtually all of the interest in the mine. That means that we now earn attributable production of about 400,000 equivalent ounces a year out of that operation, producing at under $400 per ounce cash costs.

Our agreed offer to buy out Iamgold's 20% interest in our Ghanaian mines still requires a number of approvals, principally approval from shareholders. That circular has now been dispatched to shareholders, and the extraordinary general meeting to approve that transaction is slated for June 20. These transactions are low risk acquisitions, in line with our strategy of increasing our offshore exposure and at the same time acquiring 100% of the operating assets where possible. And it is low risk because we really understand the assets. We understand the risks, and we also understand the upside in these particular operations.

And had that transaction been cleared through January 1 this year, our first-quarter production split is around about 48-52, somewhere around there, close to 50-50. And on a normalized basis going forward, if these transactions are concluded and taken into account pickup in production out of South Africa outside of the March quarter, we would expect to be somewhere around 50-50. And that is significantly changed from the split of about 65% out of South Africa three years ago, 35% international assets, and we are looking at about 70% of our operating profit coming from the international regions. So I think you can clearly see the group is certainly diversifying its production and earnings base, and that is a strategy that we are continuing to pursue over the next three to five years.

I think with that brief synopsis of where we stand, I would now like to open up to questions, and myself and Paul, our CFO, will endeavor to answer your questions. Thank you, Dylan.

(Operator Instructions). John Bridges, JPMorgan.

I just wondered there has been some commentary coming out of Peru that there might actually be two populations of gold at the Chucapaca mine given the opportunity of a potential open pit and maybe a concurrent underground mine that might give you a different sort of profile to this operation. I just wondered if you could comment on that and perhaps give a bit of detail of how the feasibility is going.

Sure, John. Clearly, as we are doing our stepout drilling to the West just to orient you again, the ore body steeps -- dips about 14 degrees East to West. The current strike length is about 1.3 kilometers, and what we are seeing at the moment is the potential for a larger pit than what we foresaw in the earlier delineated resource. But, of course, at some point your pit does not optimize any further, and it may be that we need to access the continued extensions on an underground basis.

It is very early days, John, but the possibility does exist for that, and I think only once we have completed this next drillout, which will take us through to end of August, and then we will obviously do all the assaying and the modeling. Once we have completed that work, we will have a better feel. But I believe that there is significant potential here for not just an open pit operation, but, as the ore body steps deeper, that we could then get into possibly a deep-line system into the underground potential that exists deeper but further to the West. And we are not sure yet where that closes out. That is still open on strike as well.

Okay. Great. I don't think you mentioned this in your prepared remarks, but any news on the Palladium project, the Arctic Platinum Palladium project?

Yes, as I mentioned very briefly in the opening remarks, we have made two 50 tonne cuts into the Suhanko ore body, two brand-new 50 tonne samples, and that is going to be now floated, do a flotation of that in our pilot plant, and then we are going to replicate the entire metallurgical process on these 250 tonne cuts, one from Konttijärvi, one from Ahmavaara. Those are the two principal ore sources in the Suhanko project, and we should have the results by the end of September, which we will see whether we correlate with the bench scale laboratory testing we did early on the project. And if that correlates with what we are seeing in those early bench scale tests, I think that would be a strong signal that we could actually get a lot more confident in the metallurgy of implementing the PLATSOL process on site, which essentially produces the metals on-site as opposed to a concentrate and then flow that through a detailed feasibility study during the course of 2012.

Okay. I suppose given the difficulties in operating platinum mines in South Africa, this becomes more and more interesting as time goes by, right?

Well, exactly. I mean if you look at some of the platinum operations are getting much deeper. The higher grade Merensky Reef is now a much smaller proportion than it used to be, and you are into some of the lower grade UG2 getting deeper. So I think this does provide an interesting alternative, and plus, it is not -- I would not say it is high grade. It is about 2 grams a tonne head grade, but it is surface mining in Finland, which is ostensibly the lowest risk country in the world. So 12 million ounces as well. That could be a lot bigger. Back in 2003 we stopped drilling because we thought we had enough for a starter project. There is definitely scope to increase the size of that ore body both in terms of new drilling and in terms of applying different cutoffs. Because remember in this polymetallic deposit, all of the metals in the head have increased significantly over the last eight years since we did that drilling. So it could look very different today if we did more drilling and we applied different cutoffs. That work still has to be done. And once we finish this metallurgical test work, we will get into all of that as well.

Could you remind me what the other metals are?

Yes, it is 3 to 1 palladium platinum, and then we've got nickel, copper and gold. That is principally the split of the metal and the head.

Okay. The normal suit. Okay. Excellent. Well done, guys. Thank you.

Leon Esterhuizen, RBC.

Just a quick one. In terms of the string of holidays we have in the current quarter, I think it is probably also at least a two-week break, if not more. Has this been taken into account? Do you think that you can produce better numbers from this quarter compared to the December quarter given this break?

Yes, I think we can. And the one difference in this break between the December break is the holidays are interspersed over a period of time. We have continued to work in between those holidays, and we have called for volunteers on a lot of the holidays. So we have had some turnout.

For example, yesterday was voting day in South Africa, and we have had reasonable turnouts at most of the operations. And you know the same over some of the other holidays, so we are going to feel it again. You know, there is no doubt that this does play havoc on production, but I believe we are going to manage it a lot better than Christmas break, and I expect us to improve over this quarter.

Okay. Great. So there is not a big sort of ramp-up into H2? You are going to have a gradual increase?

Yes, I think we will be better in H2, but I'm still sticking to the guidance that we gave for the year that we updated you on at the last quarter, taking into account what we know today.

(Operator Instructions). Bruce Alway, Merrill Lynch.

(technical difficulty)--

Can you talk into your microphone? We cannot hear you.

This headset should be retired as well as other parts. No, I'm getting client questions on Silicosis obviously in relation to Anglo Gold and what is going on there, but I wondered if you could add a perspective in terms of how you think this is going to play out? I mean we have heard that the provision at the very least will be required to increase. I mean how does that work? Does everyone put a pot of pool -- a pot of money? Can you just kind of go through those issues?

We are evaluating the impact of the constitutional court decision that was sanded down, which basically says that liabilities of employees are not limited by legislation or potential liabilities and that people can seek relief under common law. We have got to evaluate what we think that means. We are looking back and trying to get our arms around what the potential might be.

I cannot tell you anything today further than that is that we are working first. But what you will see in the report, which is talked about under the operational improvement section, is that we are improving our current work on reducing the impact of employees to Silicosis significantly. In fact, we are already ahead of the industry milestones that were set some years ago, and we are going to be spending a lot more time looking at what else we can do to mitigate the risk.

So clearly we have to make sure that from a business perspective and from a sustainability perspective for our employees and our business that we reduce the risk further to current employees. But clearly the impact of what has happened over the history is a different situation, and we're trying to get our arms around that. I cannot tell you any more at this stage or how long that is going to take or what potential solutions might be on this. And so that is where we stand at this stage.

Okay. So I mean it is obviously a kind of industrywide problem. Everyone is trying to get some sense of how many claimants and how then, I guess, there is a bit of a snowball effect, isn't there, effect in suits that are going to come through?

We don't know that for sure, Bruce. I think that is speculation stage. It is an industry, a gold industry issue, and the gold industry is engaging in reviewing this, and we as a company are also doing our own work behind the scenes. But I think it is speculative at this stage to assume that there is going to be a huge number of suits or whether, in fact, those suits will even be successful. I think that is speculative.

I think we have to get our arms around this, understand the issue and then determine the way forward. And more than that, I cannot say at this point.

Yes, no, I mean to me it sounds like it is difficult to prove you have been in a single shaft for the duration that you have -- that you have picked up silicosis is going to be difficult to prove. But yes, I hear you. Thanks for the update.

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

No, I would just like to thank everyone for their attendance today, and we look forward to talking to you in one quarter's time. Thank you very much. Bye, bye.