Gold Fields Ltd (GFI) 2011 Q4 法說會逐字稿

Good day and welcome to the Gold Fields Q4 results conference. (Operator Instructions). Please also note that this conference is being recorded.

I would now like to hand the conference over to Nick Holland. Please go ahead, sir.

Thank you very much and good morning, everyone, depending on where you are, and good afternoon for those people who are in the same time zone as us here in Johannesburg, South Africa. Thanks for joining me on this call to discuss our results for the quarter ended December and to give you some brief highlights of the year-end results as well. Joining me on this call is our CFO, Paul Schmidt and also Zakira Amra, our Senior Vice President of Investor Relations and Corporate Affairs.

I trust you have now had an opportunity to review our results announcement, which was released on [Zans] and our website this morning, and some of you may have had a chance to view the webcast. As with previous calls, I am just going to give you some salient features of our results and then leave most of the time for questions.

Just dealing, first of all, with the quarter ended December, we managed to reduce 883,000 attributable ounces. That was marginally lower than the 900,000 ounces we produced in the September quarter. A couple of reasons for that small downward adjustment. First of all, we do report gold equivalent ounces, and in Cerro Corona we lost about 10,000 equivalent ounces because of the copper gold price ratio that changed. The underlying physicals were very good, but that was just the ratio of copper versus gold. So it was 10,000 ounces decline there.

We also lost about another 10,000 ounces -- we did not lose it obviously, it is deferred -- but 10,000 ounces lower for Tarkwa, which encountered principally some harder ores, which meant that the milling rate through the carbon-in-leach plant was slightly lower than the previous quarter at about 1350 tonnes per hour instead of 1450 tonnes per hour.

The good news is that we did see this coming. This is not a surprise for us, and we have recently commissioned a new secondary crusher in front of the carbon-in-leach plant, which will enable us to increase our throughput as it will enable us also to grind the materials to the required grind and get that through the plant. And those were the two principal reasons behind the marginal decrease in production.

The South Africa region showed a small increase. The Australasia region also showed a small increase, and this helped to offset some of the declines that we saw in both Ghana and in Peru.

Looking at our cash costs, cash costs for the quarter declined to $767 an ounce from $851 an ounce in the previous quarter. That is a 10% reduction. The rand exchange-rate did help, which weakened to ZAR8.08 per quarter compared to ZAR7.05 the previous quarter. That did help, but not just the rand depreciation, we also (technical difficulty)-- by good control over our costs, and we managed to, in fact, reduce our costs across most of the operations during the last quarter.

So the combination of those two issues, the slightly weaker rand and the improved cost control, enabled us to improve our operating profit from $804 million in the September quarter to $877 million in the December quarter. Net earnings for the quarter increased from $293 million in September to $336 million in the December quarter.

We also declared a dividend during the quarter, and that was 230 SA cents (see slide 11), which translates to about $0.29, and that brings our total dividend to the year of 330 SA cents (see slide 11) or around about $0.45 for the year, which we understand puts us on a dividend yield of around about 2.5%. And I may be mistaken, but I think this places us right at the top of the gold sector in terms of dividend yields.

Payout ratios are pretty much in line with the policy. We say that we want to pay out 50% of our earnings subject to deducting growth capital, and that is in line. But, if you look at the historical trend of our dividend payouts to our earnings over the last five years, we are somewhere around about 35%. Around about a third on average of our earnings over the last five years have been paid out. That is our reported earnings prior to adjustments.

So we are pleased to be able to, first of all, show the improved gold price on the bottom line and then to also reflect that in higher dividends for shareholders. And, in fact, we have been able to more than double our dividend compared to the previous year. So that has really helped us.

And some might say, well, these are earnings just because of the gold price, but what is really interesting is that over the last number of years if you take 2008, for example, to 2011, there has been an 81% increase in the gold price over that period. But over the same period, we have increased our EBITDA by 124%, we have increased our operating cash flow by 114% and our earnings by 169%. So we have, in fact, shown more than just the increase in the gold price of our earnings. We have, in fact, been able to expand our margin. And, hence, this whole concept of notional cash expenditure that I have been preaching about for the last four years is so important because that is the best proxy for determining whether you make cash. If you cannot make any cash flow off the capital expenditure, than you should be worried about the business, even though NCE might be chunky from time to time as you do certain projects.

Just turning briefly for the year as a whole, our attributable production for the year was 3.49 million ounces. That is broadly in line with the guidance we given at the beginning of the year and also very similar to the previous year. We have had a 48% increase in operating profit to $2.9 billion and a 49% increase in our free cash flow from operations to $751 million. Our NCE margin over the year on year increased from 16% in 2010 to 25% in 2011.

Now a very important metric is to look at the NCE margin per ounce. In other words, how much did we make per ounce of production after taking into account operating costs and capital expenditure. And, in fact, we increased that margin from $201 per ounce in 2010 to $396 per ounce in 2011, and that shows you the tremendous gearing effect that the increase in the gold price over that period -- that is a 29% increase in the gold price -- has had on the overall NCE margin.

Earnings went up 536% in 2011 compared to 2010, and we made just shy of $1 billion, $973 million of earnings was generated by Gold Fields for 2011. So it's been an outstanding year for us in terms of leveraging off the gold price, and it has also been an outstanding year for us in terms of pushing along our project portfolio. And we continue to make progress on our growth, and we're in the process of developing an extensive pipeline of projects, which will bring us closer to our target of achieving 5 million ounces per annum either in production or in development by the end of 2015.

The Chucapaca feasibility study in South America is on track to be complete this year, and we anticipate that we will be able to submit the environmental impact assessment during the second half of 2012.

We also completed the drilling to confirm and test the limits of mineralization of the Far Southeast project in the Philippines in October, and follow-up exploration has commenced. We are currently involved in a decision on whether or not to make the final payment for our 60% option in the project, and that is expected around about the middle of 2012. And that is contingent, by and large, on getting the FTAA process, which is the license allowing foreigners to earn a majority interest in the project. We expect that is going to be granted in the second half of this year, and then thereafter we will be in a position to exercise the option to pay the remaining balance of $220 million and take up our 60% stake.

Also finalized last year was the Damang -- sorry, we are also in the process of completing the Damang Superpit pre-feasibility study in West Africa, and we expect to complete that exercise in the middle of 2012. And, with that, we also expect to have a resource -- initial resource for the upgraded project, as well as a reserve for the project.

Pre-feasibility study in the Arctic Platinum project is continuing with a focus on reengineering the project and also identifying additional opportunities to add more material into the study.

So those are the main highlights that I wanted to mention on the project side on sustainable development. We were ranked fourth in the mining industry in the 2011 Dow Jones Sustainability Index, making us the top South African listed mining company on the GJSI. And for our debut participation in this index has been a great achievement for us. We also ranked first in the JSE Top 100. That is the Johannesburg Stock Exchange Top 100 Carbon Disclosure Leadership Index on the global Carbon Disclosure Project.

I think that is enough from me for the moment, and I would like now to open the lines for any questions, and either myself or Paul will endeavor to answer these questions as you put them to us. Thank you very much.

(Operator Instructions). Tanya Jakusconek, Deutsche Bank.

Scotia Bank. I just wanted to ask a few questions. I know who you probably have already reviewed this earlier, but can we talk about the Far East project? You mentioned that you are going to be looking at exercising your right in the second half. Is there anything that you are seeing in the project itself that would make you not exercise it, or is it really contingent on getting this FTAA? And then maybe just talk a little bit about what has been happening there.

And then my second question is on Arctic Platinum and maybe an update there in terms of the network. And then the third one that I wanted to get an update on was on the tailings projects in South Africa.

Okay, good. Those are three excellent questions. Certainly in the project so far, in Far Southeast in the Philippines, we are very excited about what we have seen so far. We finished a 17 hole sort of scope drill program, concept scope drilling, if you like, to augment the 88 holes historically that have been drilled into the orebody by previous players. And we are putting that altogether, and we are hoping at the same time of announcing that we have exercised the option and taken a 60% stake to also give a maiden resource. And we are looking to package all this into the second half once the FTAA agreement is in place.

We mentioned also in our Analyst Day on December 5 in Johannesburg and December 7 in New York that we were targeting around about 50 million ounces, and that is comprised of about 900 million tonnes at about 0.8 grams a tonne gold and about 0.5% copper. The deposit is still open in all directions, so we have got nothing to suggest that we are not going to at least achieve that.

Now the next step in the program is for us to commence another drilling program, and a lot of this will be in-fill to improve the resolution of what we have already got that will support the maiden resource declaration, and also to do some geotech drilling into the orebody itself, which will be important, and then doing some work around where would we put the plant ventilation charts, declines, etc. So we are doing all that work behind the scenes.

But, as I sit here today, this remains one of the really significant projects in the copper gold porphyry space, and if you look at the size and if you look at the grades and compare that to what is out there, this certainly ranks highly in our view.

So I don't see any particular reason why we would not go ahead and exercise the option. I think it is largely process-driven, and once we have done that, we want to get into a prefeasibility study. In fact, I don't believe we will start the prefeasibility study even earlier, and that is a measure of our confidence on where this particular project is going.

Is there any more on that before I move on?

No, I do have a question. Just on the resource that is going to be announced, it will be in the inferred category, all of these resources, and how many holes would we have this resource based on? Just the 17 plus the 88 holes that were previously there?

No, we are going to be doing more drilling between now and when we do the declaration, and we are probably going to do another 20 or 30 holes into the orebody. I suspect that we will only get this to inferred category to begin with, and then we will graduate it up to indicate it thereafter.

Okay.

Good. Then moving to APB, we have, of course, finished the pilot plant test work that we have done on the Ahmavaara and Konttijarvi orebodies. If you can recall, we said we are going to take a 50 tonne cut out of each of those orebodies and put it through the entire process. We have replicated the entire downstream Platsol facility, and the results have confirmed that we can significantly upgrade the recoveries by putting the Platsol process in place, which, if you can recall, is really an autoclave whereby we introduce ions -- pour out ions into the system early on. We separate our TGMs, then we capture the copper in the cathode, and then we take out the nickel thereafter.

So we have replicated that on a small scale plant basis. It works. Now what we are going to be doing is looking at whether we can add more bulk to the project because Konttijarvi and Ahmavaara will add about 130 million tonnes. But we believe that there is potential to add possibly up to 100 million tonnes extra by looking at the [Santa Cruz] north orebody as well, which is in close proximity on our lease. We are doing a 40,000 meter drill program on that. We have already started that, and we're about halfway through. And the signs are very encouraging that we should be able to bulk up this project even further by adding that in.

The second step will be once we have drilled all the core is to test all of that also for Platsol. We will do a meanability test on that, and then we will reconfigure and complete the prefeasibility study, and we intend to do all of these activities when we finish them by the end of 2012.

Okay. And now who's doing all of this network?

Well, we are doing it obviously with the assistance of people like Lakefield, SGS Lakefield.

Okay.

Can I move on to tailings?

Thank you.

Right. So tailings we put a slide in the presentation today -- and it is slide number 17 -- that I think answers questions I know that you have had before on what is the opportunity here. And this gives you an idea of the inventory. Now this is not a declared resource or a reserve at this point in time. This is an inventory, and we have split it into what we call active and dormant tails dumps, as well as the surface rock dumps that exist on each of KDC East and West. As we have indicated previously, there is just under 5 million ounces available here.

The grade and the tail stems are about 0.35 grams. The grades in the rock dumps are about 0.7 grounds a tonne.

So we are doing two things on this. First of all, we are looking to get some additional mobile plants in the circle pythons that we have spoken about, which is a much smaller footprint that actually crushes the rock and takes it through to an actual leach solution, but on a much smaller footprint at lower cost. And we have got one operating at the moment. We have got another two on order that should be arriving during the year, and we should have all three of those operating by the end of the year. And because now we have diverted rock dumps into these plants or we will be doing so on an incremental basis, we are going to be taking the tails, selectively the higher grade tails first and putting them into our plants, and we don't need that much configuration to do it because a lot of it can bypass the comminution section. In fact, about two-thirds can go straight through into leach, and about one-third would have to go through comminution with re-grinding and then back into leach.

We have started doing that on a test basis. In fact, we have been doing it for the last six months, and so far the results are positive, and it looks like it can work, and in fact, surprisingly the recoveries are looking even better than what we thought they would.

Now all of this is going to culminate into a detailed feasibility study that we will put in place, and we anticipate finishing that work sometime in the second half of this year.

Now this would only, of course, capture the gold in the tails, and we have got the uranium. There is a parallel process going on with Gold One, and we signed a memorandum of understanding with them, whereby what we have agreed to do is to give them all of the feasibility study work that we did when we were looking at actually building a process plant that started to capture the uranium and the gold, and we have given them that. They are going to look at that in conjunction with what they have got, and why it is particular interesting to work with them is they have also completed the acquisition of Rand Uranium, which in and of itself has some interesting uranium opportunities, a very high-grade uranium opportunity. They have also got an existing plant, which, of course, would not necessarily be the right size to get the right milling rate. But it could be a starter project, which we might be able to expand on on a modular basis.

So what Gold One and ourselves are doing is looking at a range of options, and we will come up with an initial concept study, if you, like by the middle of the year, and then we will decide how best to go forward.

We don't know yet what the economics are going to be, how we are going to share the economics, and how we are going to share the capital, who is going to run it? All of that is up for debate. I'm reasonably flexible on all of those things. What is more important here is how we can extract value from this project, and I think this could be a very interesting way of setting some of the declines we have seen over the last number of years in the South African gold industry and in particular in the Gold Fields legacy assets.

And conceptually what recoveries have you been getting, and conceptually when could you see this actually contributing to production timeline-wise?

If we go it alone and just capture the gold, I think we will see this starting to impact production by the end of the year quarter four. We will see some of the benefits coming through quarter one next year. We will probably ramp up fully.

So far recoveries are around about 70% to 80%, which is a bit higher than what I thought they might be. I thought they might be down to sort of 65% to 70%. That is on the tails. And on the rock dumps, we are getting recoveries of around about 80%, 85%.

So it looks interesting. The costs are certainly cheaper than running it through a conventional plant. That is on the mobile plants, probably around about $7 to $8 a tonne versus maybe $9 to $10 a tonne through the plants. So it's about 22%, 25% cheaper.

So the signs are very encouraging, and with the rand gold price being above ZAR400,000 and all of this stuff being on surface, it is going to be pretty safe to mine it. What we have got to do is re-process it, and I think it's all about bulk. We have got to bulk up this project to really get the economies of scale and drive that through the unit costs.

Yes, I look forward to hearing more about it.

It is an interesting one. Thank you.

[Mark Pompe], [Meak].

You suggested in your New York investor meetings that you will be pursuing a registration, which would be applicable to some of your existing bond issues. Can you report on any progress on that front?

We are still considering all our options regarding whether we want to register the bond, and we just started the process, and we are weighing out the positives and the negatives. We will probably know in the next three months.

(Operator Instructions). Jivko Moutafov, Standard Pacific Capital.

A couple of questions. I actually dialed in a couple of minutes late, so if you have addressed it, please excuse me. But if you could talk briefly about dividend policy and cash use, cash distribution priorities there, that would be very helpful. That is the first question.

And the second question on the South African operations, we have had a very favorable environment with the rand gold price hovering around [420]. It is clearly very positive from an earnings perspective, and we have seen it in the results. But I was wondering if you can maybe quickly discuss some of the strategic opportunities that this environment presents to you in terms of maybe asset utilizations or optionality or cash use, something that is not entirely obvious looking at the income statement? So these are my two questions, please.

What I will do is I will ask Paul Schmidt to answer your question on the dividend policy and use of cash, and then I will come back to the strategic options on South Africa, if we may.

Our dividend policy is clear, and this fund (technical difficulty) was right in line with our dividend policy. And to just repeat that, dividend policy is to pay 50% of earnings after deducting growth capital, and for the last year, the only growth capital we deducted was South Deep and our share of the Chucapaca project. And we consider for the foreseeable future I will stick to my dividend policy, and the balance of the cash obviously was we got a big growth profile coming down the line. We will utilize excess cash for that, but we will stockpile our dividend in terms of the policy. I hope that answers your question.

Thank you.

Okay. And then on the second question, obviously the South African assets, as you mentioned, are now making some good cash flow. Strategically I think it is quite important that we recognize that that cash flow can be used for two purposes. It can be used, first of all, to achieve higher dividends for shareholders reflecting the higher price because of the significant leverage that these assets have. But also it can help to fund the international pipeline. And the one thing that if you look at Gold Fields over the last 13 years, we have grown the international production from zero to 2 million ounces a year without issuing a single share. That has been really financed by the South African cash flow.

Now obviously we need to look at the longer-term as well and what we think is possible. And there is a significant opportunity on the surface resources in South Africa, and then we've got about 4.8 million ounces on surface in tail stems and in rock terms, which we believe we can accelerate by increasing our processing capacity. And that could actually help us to increase production out of these South African operations.

Now we are in the midst of ordering some additional processing equipment, which is probably going to cost us about ZAR500 million over this year, and that will enable us to accelerate a lot of those surface resources. And we have got over 500 million tonnes, so there is no shortage of that. Plus ZAR400,000 they make really good money; they even make money at around about ZAR330,000 a kilogram. So there is a lot of headroom here. Even if gold prices went down ZAR100,000 a kilogram, this would still make very good money for us.

Also, if we look at the KDC East property of what used to be called Kloof, there is a very high-grade area of about 4 million to 5 million ounces, which is about two-thirds of that orebody, which is around about 9 grams a tonne. And we are mining it at much too slow a rate, we believe. And if we could debottleneck the shaft system by putting in some additional entry levels, some additional ore passes, [holiages], etc., we believe that we could accelerate that higher grade production. So that is another strategic alternative that we are looking at as well. And with these sort of prices, it would give attractive returns for us, we believe, so.

So that is some of the things that we are looking at on those assets. Beatrix and the Free State, I don't think we need to do too much because we have spent most of the capital on that operation. We have capitalized it fairly well over the last few years. We finished the three shaft infrastructure, which is going to be the nucleus of future mining, and I think that can be a very useful cash cow.

I think it is time now to recoup a lot of the investment we have made good, and it is also quite shallow, it is low risk in terms of seismicity, and it is a very productive operation. Lower grades but shallower, very productive, and I think it is a mind they can add significantly to the cash flow into the future. A lot safer as well. We don't have the same sort of safety risks there as we have had elsewhere in the group. So that is really the core strategy for the moment. I don't know if there is any follow-up question on that.

No, that is good. Thank you.

Joung Park, Morningstar.

So looking at the Far Southeast project, it looks like the exploration target has been increased to 900 million tonnes. So I'm just wondering where those ounces came from and if you expect this body to grow even more?

Look, we are assessing some detail in the Analyst Day in December last year and said that our target was to get to 52 million ounces, which translates to the 900 million tonnes. That is the target. And what we are saying is we have not got that yet as a resource, but that by the second half of 2012, when we get a maiden resource, our view is that based on the drill information that historically has been met, there is 88 holes into the orebody. And based on the 17 drill holes that we have done ourselves, we believe that there is a reasonable expectation that we can get our maiden resource somewhere in that area.

It is still open in all directions. It is around a kilometer across, and it's about a kilometer down, but there is no indication yet that it is closed off mineralized areas, and it is going to get possibly bigger from here.

So that is the target we have put out. We have not put out a resource yet, but we hope that by the time we put out our resource in the second half of the year, that we will be at or about that sort of level.

Okay, excellent. And then for South Africa, if we assume that there will be no further increases in electricity from [Ascound] and labor rates will stay at current negotiated levels, then what do you think will be the percentage increase in cash costs for South Africa?

Well, we have actually given that in our guidance in the book. If you look at our quarterly book, which should be on the website, I'm pretty sure it is on the website, if you look for that, but let us help you out. KDC operations, we are looking at cash costs of around about $1000 per ounce for next year, which takes into account a 28% increase in electricity and also takes into account the second year of the wage deal (multiple speakers) which is around about 8% to 9%. So that is up from about $946 for the year ended 2011 to $1000 an ounce in 2012.

If we look at Beatrix, we are looking at around about $960 per ounce again, including and not excluding, as you suggested, but including the electricity increases, including the wage increases $960, and that is up from -- that is pretty flat, which will be a good achievement for next year.

So based on a gold price of $1750, you are still looking at sizable operating margins from both of these assets for next year, even after taking into account the increased costs that inevitably will come through. Obviously we will try and offset some of that, but I think we are trying to give you what we see is the worst-case scenario here.

Tanya Jakusconek.

I just wanted to have two more questions, if I could. Chucapaca, can we -- Nick, can you give us an indication of what you are expecting your program to be focused for in 2012 on the property? Whether the aim is more to extend the known resource, or is it in-fill, or just the program there?

And then my second question is on your reserves and your resources. I know that will come out with your annual, but just an indication of what you have been seeing, whether we are looking at replacing, etc., this year?

Okay. Look, on Chucapaca we have drilled out the orebody quite significantly. We have put 100,000 meters of drilling into Chucapaca. We have got 7.6 million ounces, and 70% of that is already in the indicated category. So I think we have got a high degree of resolution from the in-fill drilling.

We want to be testing the extensions of the orebody. As you can recall, it is still open at depth and open to the West, so we are going to be doing some more drilling over there as well.

But our big focus this year is going to be just get the feasibility study done. We want to finish that by the second half of this year and hopefully around about August/September. It is very important that we also get the environmental impact assessment application in because that could have a six to 12-month timeframe depending on how things go. So we have got to get that in.

And, by the end of this year, we want to be getting a development decision from our board on this particular project and from our joint venture partners so that we can crack on and get this into construction during 2013 and try and get this into production by 2015.

Now we must not obviously lose sight of the opportunities around the region and also around the potential to extend the orebody further to the West. So we will be doing some other drilling in the area. We will be testing some of the other targets around Chucapaca, and there is a number of them that we will be testing, Katrina, Katrina ST, and a couple of others as well that look very interesting.

So we will be looking at that, too, in 2012 because there is an indication that there could be a number of other diatremes in the area. In fact, one diatreme is below a potential tails dam site. So we are going to be doing some condemnation drilling on that site as well to check that out.

A big area of focus has got to be to get this feasibility study done, get the EIA submitted, and then get this to a point where we can reach a development decision by the end of this year.

So I should not be looking at a big jump in that resource of 7.6 million ounces by year-end?

No, I don't think so. I think the main focus now is how we actually deliver that. But over time it is quite possible. Whether it will optimize in a pits, it's highly unlikely if we find more now because it is dipping about 14 degrees from East to West, if we find more, it's probably not going to optimize in a pit shell. So we would have to look at the potential for underground, but we do want to consider that as well. But I think that will be run on a lower level scale but in parallel with some of this work.

Okay.

Second question?

Yes. My second question was on the reserves and the resources.

Yes, yes, yes, an indication. Well, it is hard to give you an indication because the work is still in progress. So I think the best way for me to answer your question is to say, watch this space, and we will share it with you as soon as we can.

And when will that be?

That will be by, I think, the end of March, possibly a little earlier, but around about the end of March. I know that we are setting up an exploration presentation on the reserves and resources. I cannot give you the exact date of that, but what I will do is I will get Willie to give you a call afterwards and let you know when that is likely to be.

Okay. And been the $1200 gold price, would that be fair in terms of your reserves and $1500 for resources?

I think we are using $1300 as the three-year trailing average.

We are working on the SEC guideline $1300 is the three-year trailing average that we will be using. And for resources we are using about 10% higher. I think we are using $1450 that is integral.

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

Well, thanks, everyone, for dialing in, and it has been, I think, a challenging year for Gold Fields. But, at the end, it has also been satisfying in the sense that we have made almost $1 billion of earnings this last year, which I think does show that we have managed to realize the benefits of the high gold price in the bottom line. We have also realized it in our cash flow, and we have also realized it in our dividends. And having a 2.5% dividend yield I think is very nice for a gold company, and I think you will find that that is right up there in any comparison with the senior grade. And I look forward to seeing those of you who will be at those conferences that we will be at in the US over the coming months.

And, with that, I wish you a good Friday and a wonderful weekend. Thank you and 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.