Gold Fields Ltd (GFI) 2012 Q1 法說會逐字稿

Good day and welcome to the Gold Fields first-quarter 2012 results conference call. (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 afternoon, everyone, or good morning, if you are on the other side of the Atlantic. Thank you for joining us on the call to discuss Gold Fields' results for the first quarter to 31 March, 2012.

Joining me today are our CFO, Paul Schmidt, and I'm very grateful to have all of our EVPs from the regions here today. That is Peet Van Schalkwyk from West Africa, Peter Turner from South Africa, Richard Weston from Australasia and Juancho Kruger from South America. Tommy McKeith also is here, who is the Head of our Growth and Exploration projects. Lastly, Michael Fleischer, our General Counsel, and Willie Jacobsz, Senior Vice President Investor Relations.

I trust that you have had the opportunity to view the results announcements via SENS on our website. Let me give you a brief overview of the group's quarter, and then we can spend more time dealing with questions that you may have on the results.

Quarter one group's attributable production was 827,000 ounces. That was down 6% from the previous quarter of December 2011, but on par with the performance for the same quarter a year ago. Production in quarter one is, of course, seasonally lower as a result of the Christmas break at the South African operations. Essentially we shut down the operations the day before Christmas, and that flows through into the first week in January, and of course, that impacts this entire quarter.

Key results for the quarter include revenue of $1.4 billion. That was down 6% from the previous quarter on the back of the lower production as indicated earlier. Net operating costs increased from $656 million in the December quarter to $743 million in the March quarter; however, what is key here is that around $40 million of that increase was related to translation adjustments given the changes in exchange rates quarter on quarter, and also we have had some fairly large gold in process swings between the December quarter and the March quarter, particularly the St. Ives operation in Australia. And that has, of course, also impacted the cost. The actual spend itself is still very well controlled.

Total cash costs increased from $767 per ounce to $870 per ounce as expected, and our NCE -- that is the all-in cost of production, the really true measure of what it costs to produce an ounce of gold -- that went up from $1206 an ounce to $1280 per ounce. The quarter-on-quarter increase in unit costs is also partially attributable to the lower production, as I said earlier, also due to the exchange rate effects on the translation of the offshore costs as mentioned earlier.

Net earnings for the March quarter were $268 million compared with $336 million in the December quarter, again to repeat as a result of the seasonally lower production.

Nonetheless, when compared to the March quarter last year, our net earnings were up 70% from $158 million in quarter one 2011 to the $268 million this quarter. And I do believe that shows the leverage of Gold Fields to the gold price. One of the concerns investors have had over the last couple of years is whether gold companies could show leverage to the gold price, and I think we have clearly demonstrated that it can take two comparable quarters, taking into account the Christmas break that we showed a sizable increase in earnings over that period of time.

Our NCE margin of 24% is in line with our long-term objective of 25% and, of course, higher than the short-term target of 20% and provides a healthy situation for the Company.

Very briefly on our growth projects, we are progressing well, and worthy to note that on 20 March, the group made a $110 million payment to acquire a 40% interest in the Far Southeast Project in the Philippines, and of course, we still have an option to take this up to 60% for a further $110 million and take a 60% interest in the project. That we expect to exercise some time either this year or next year.

The Chucapaca feasibility study in Peru is progressing well and remains on track for completion this year. And we expect to submit the environmental impact assessment towards the end of this year.

Drilling activities at the Damang Super-pit project in Ghana were completed during the quarter, and we also finalized resource models for execution of the pre-feasibility study.

What is particularly pleasing here is that we set ourselves a target at Damang for a 4 million ounce resource. And when we announced our resource statement in March this year, in fact, we have increased our resource to 10 million ounces. So we certainly exceeded your expectations and also our own, and this provides a wonderful platform for us to bring this to account. All activities are on schedule for completion of the pre-feasibility study in the second half of 2012. We should finish this, in fact, by the end of the year. We are currently assessing the impact of the recent tax changes and also the changes in capital allowances in terms of the overall viability of the project.

I think it is worth saying that the government has put together a commission of inquiry to look into stability agreements in the country, and they have already started engaging with us. This is pleasing to us because we are particularly concerned about the absence of a level playing field in Ghana where we, for example, are paying 5% royalties, other gold companies are paying 3%, certain gold companies have stability agreements, we don't, and we have told government we believe that this is not equitable. They are sympathetic to this problem, and I am hopeful that this full review will enable us to get an equitable environment for all of the companies involved and at the same time allow an environment where we can make additional investments into a country that we really do like and we understand.

Finally, during the quarter, we released our latest mineral resource and reserve statement, reflecting that our reserves at the end of December were 80.6 million. That is 5% up compared to December 2011. And what is also nice to see in that number is it represents now a much greater technical and geographical spread with the legacy operations now making up only 23% of the total reserves, and five years ago that used to be around about 46%. So it does show that we are getting diversification, not just in our production where only 48% of our production is now coming out of South Africa, but also in our reserves and our resources.

I think that is all for me, and I would rather now open up the line for questions, and either myself or my colleagues with me today will endeavor to answer your questions. Thanks very much.

(Operator Instructions). Carly Mattson, Goldman Sachs.

I was just wondering if you could give us an update on the factor that you are taking into account as you look at potentially -- if you have reconsidered registering your bonds?

It is Paul here. We have done a lot of work at looking at registering the bond, and we don't believe it will have a material impact on our rating, etc. The issue with our bond trade at the moment is not the lack of demand, it is the lack of supply in that a lot of our bondholders are long-term holders, and they are not prepared to sell.

We will shortly spend six months annualizing the situation, hearing stories pushing both sides whether you should register or not. And we have decided that the current bond we are not going to register it because it will not -- we will not get the benefits of all the effort we will have to put in and the additional costs of it.

John Bridges, JPMorgan.

I just wondered with what is going on in Peru, the uncertainty there, what is your read on that and how it would affect Chucapaca?

This is Juancho Kruger from South America here. The Conga project is clearly marking I think an interesting point for the industry because I think it has allowed for the government to go publicly in support of the development of the mining industry and the future projects in the country.

So what we have right now is a situation by which the Yanacocha, meaning by that Newmont and Buenaventura are evaluating the outcome of the independent review of the Conga project EIA, and we all expect that the project should be moving forward.

Going back to our Chucapaca project, I think we have a difference, and the difference is that there is no fundamental opposition to the project. When I say fundamental opposition, it is opposition driven by political interests or ideological movements.

What we have in Chucapaca is a group of people in the communities that is supportive of the project in that not only them but also the regional and local authorities are supporting the project. When I say supporting is that they all understand the importance of the project, and they are all willing to support the project because they see the benefit that they can get in terms of future economic and social development in the region.

What we are now in the middle of is negotiations with the communities who own the land, and obviously as in any negotiation, they are going to push to get the highest price possible, and we need to get into fair and equitable terms with them.

But I think that we have a completely different situation in Southern Peru specifically in the highlands of Moquegua where our project is located compared to what we have in the Northern part where the Conga project is located with a framework agreement with the government where the government is really supportive and looking forward to developing the industry.

So the local government there is supportive as well?

The local government is supportive. I have been personally meeting with them. My last meeting with the Regional President of Moquegua was actually Wednesday last week, and we are in permanent interaction with them. And actually they are -- just to illustrate how supportive he is, he is willing to help us mediate on the land discussion, land acquisition discussion with the communities.

Okay. That is very helpful. Many thanks. Good luck, guys.

David Haughton, BMO Capital Markets.

Thank you for the update. I have got some questions just looking at Ghana. Damang has had some issues, it looks like some maintenance issue, together with grown versus recovery kind of problems, downgraded the guidance. What do you see for the future there? Does it need a further investment to get the equipment back up to the standard that you would like, or are we looking at lower throughput and grade going forward?

Thanks for the question, David. I'm going to ask Peet, who is the EVP of the region, to deal directly with your questions. Thank you.

David, if I can answer your question, it is partly what we are saying that basically the safety issues in the Damang CapEx specifically where we are mining at the moment, created a prevailing problem for us. We obviously related to part of the issues in the processing unit, but that is mainly because we are mining quite excessively on the size of the upper -- the Northern and the Southern side of the pit, diving down and opening up the orebody because of the reserves that we have established.

The plant is getting older. This plant has been built in around 2000, and we were keeping it alive, and obviously there is some extra additional capital to be invested in this process to get it back up to actually cater for the higher blends that you want to feed it.

All right. So with that revision for the guidance that we have seen, would we expect an improvement going into next year and beyond given what you have just said?

Most definitely because this is basically what we can say that it covered a year. We have basically reset the processing unit, we reduced the throughput, and mainly the direct result of that is that we will see the gold ounces being produced will be level. But from next year onward, it will be definitely clearer, and we obviously afterall, especially looking also at the Super-pit in Damang going forward. Because that most definitely is also a strong driver for us, appreciating the current visible parameters to prepare ourselves for the Super-pit that is coming in the next two or three years.

Okay. I'm glad you mentioned the Super-pit because that was a follow-on question. What kind of scope and scale just broadly are you thinking about?

Scope and scale? The scope and scale, we are looking at what -- at the moment we are busy doing the final analysis in terms of the mining, and we are looking at around 8 million to 10 million tonnes per annum processing unit. And so we don't have this fixed number yet, but looking at what the mine can handle in terms of fleet and requirements to get the ore out of the ground, that is probably the size that we are looking at. And that is in the order of basically doubling the production at Damang.

Okay. And that is through CIL? Is that an expansion of the (multiple speakers) ?

(multiple speakers). Four metallurgical tests indicate that it will be a typical CIL process with there is a huge amount of gravity growth upfront from [35%] up to [75%], so we will obviously have gravity recovery of gold upfront in this sector.

Switching continents over to Australia, the ground conditions at Agnew have also resulted in a reducing of the guidance. I'm just wondering whether you see that as an issue that can be resolved or whether we should recalibrate our expectations from Agnew going forward?

It is Richard Weston here. There were two issues in quarter one at Agnew. The first one, which we think is limited to quarter one, the Kim orebody moved further to the north or plunged further to the north, and we had to take our starting front to follow that. We had issues with ventilation, which slowed our production. We have since overcome those issues, so I don't think Kim will be an issue going forward.

The other issue concerns the mine life, and that is poor ground conditions. Those conditions we expect will continue in quarter two, but we are reasonably confident that we will overcome those issues by the end of quarter two.

Okay. So once we move into 2013 or maybe even the second half of this year, those kind of problems would be behind us and we are moving into better ground and increased production? Is that a fair assessment?

Yes, we are fairly confident with the initiatives that we have currently got in place for the mine life. We will overcome those issues by quarter three.

David, we should be able to get back to a range of between 40,000 and 45,000 ounces on a sustainable basis per quarter at Agnew, and also at Damang, I believe, probably around about towards the end of quarter three, quarter four. That is what we are looking to do. And then those sort of levels would be a good proxy to use for what we would expect in 2013.

Adrian Hammond, Exane BNP Paribas.

I have two questions. Firstly, I would like to focus your attention to the South Deep operation there. You head up production over the last year, falling from about 76,000 ounces per quarter to about 58,000 now. And in the last quarter, development reached -- development fell quite a bit by 25%.

Could you just give us some highlights as to what is happening on the ground? Are there any issues that we should be concerned about, and could you give us some sort of guidance on production for the year?

It is Peter Turner here from the South Africa Region. The development issue that -- maybe let me deal with that first. The upfront development issues that you see were really, I think, seasonal, and we had a fairly long shutdown over the Christmas break where we had hoist work to be done specifically on what we call the hoops joint of one of our reef winders.

And essentially what happened is we became waste constrained within our ore passes, and when we came back after the Christmas break, in essence we had to empty our systems, and that really kind of pushed back all of our intra-development and consequently caused that result in loss of waste production.

I'm happy to report that going forward in terms of reef developments, as far as the de-stress goes, which you would know is one of the issues that measurables fall progress at South Deep going forward. And I would like you to watch the next quarter's production because certainly we have seen positive trends in this regard, and we expect to be back on our de-stress targets by midyear of this year. And I think -- (technical difficulty)--

Sorry, we cannot be more precise, but that is the nature of our industry and what we are dealing with in terms of processes sometimes over which we have no control.

(Operator Instructions). Anna Mulholland, Deutsche Bank.

Just a quick question back on the subject of South Deep, if I can. In your result statement, you mentioned that you are in ongoing discussions with the union at the mine. Could you please just remind me what the specific issues are there with the employees and the union and when you expect to have some resolution from those negotiations?

It is Peter Turner here from South Africa Region. We are in ongoing dialogue with the union at this point, and as is written in the text, it is all about looking at our future operating model for South Deep and dealing specifically with issues around work cycles, business optimization processes in a bout to ensure that we have a benchmark mine for the future.

And these are matters that we are discussing with the union of South Deep. I think you will also notice at times there have been issues with the union at South Deep, and these are matters that are in consultation within at the moment, that we really need to get in place for the future of South Deep. It is a long-life mine, and there are certain business operating practices that we have -- would like to have in place for the future. So that is the dialogue that is ongoing at this particular point in time.

In terms of timing, I guess I cannot commit to a specific time right now, but it is a process that we will play it by ear as it goes. We will be dealing with issues and resolving them as time goes by. I don't have a feel for how long that will be, but certainly I don't know, Nick, what you would think, probably -- I don't think we can (multiple speakers) at this stage?

We are hopeful of finding a solution to the issues. We are engaging, but it is critical that we have some changes in the operating model in order for us to increase the momentum on this particular asset.

(Operator Instructions). Gentleman, it appears we have no further questions. Would you like to make some closing comments?

I don't think so. I just want to thank everyone for their attendance this afternoon and wish you a good day and look forward to talking to you again in the future.

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.