Gold Fields Ltd (GFI) 2012 Q2 法說會逐字稿

Good day, and welcome to the Gold Fields second-quarter 2012 results. All participants are now in listen-only mode. And there will be an opportunity for you to ask questions after today's presentation. (Operator instructions). Please also note that this conference is being recorded.

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

Thank you very much. Good afternoon, ladies and gentlemen, and thank you very much for joining us here for the quarter two 2012 results conference call for Gold Fields. The presentation will be done by our Chief Executive Officer, Nick Holland. He will be making some high-level remarks on the quarter. And then we will open the call for your questions.

I now hand over to Nick.

Thank you very much, and good afternoon, ladies and gentlemen. Thank you for dialing into the call. With me here is Paul Schmidt, our CFO; our General Counsel, Michael Fleischer; and as you've heard, Willie Jacobsz, our head of Investor Relations and Corporate Affairs.

I trust you've seen our results announcement this morning. What I'll do is just give you some highlights, and then we can go into your questions. If we look at the first half of the year and also the quarter, here are some of the salient details. EBITDA for the quarter, essentially operating profit, $667 million; and for the half-year, just under $1.4 billion. Normalized earnings for quarter two were $224 million; and for the half-year, $504 million. And just to put that into context, last year, 2011, we generated earnings of $1 billion. So we look as though we're halfway to what we did last year at this stage.

Operating cash flow, very strong this particular quarter, $514 million generated from operations, and $874 million for the half-year. Free cash flow, which is the ultimate measure of cash generation ability we have in the company -- $100 million for the quarter, and $120 million for the half-year. The reason that the quarter is a lot more disproportionate than the half-year is that in the first quarter of the year, we have annual -- half-annual tax payments. And also, there was some working capital movements arising from the year end that usually affect the first quarter. So, $100 million is what we've made in free cash for this quarter.

If we look at production -- 862,000 ounces for the quarter, which is up 4% from the previous quarter. Cash costs were down 2%, to $851 per ounce. And that's well within our guidance for the year; and NCE, $1308. Remember, NCE is the all-in cost capital expenditure, whether it's growth capital, whether it's sustaining or replacement, including all the operating costs and G&A. That's all in there; $1308 for the quarter. Again, that's also very close to the guidance that we gave for the year.

The performance in South Africa has been a welcome improvement for the quarter. In KDC, the Kloof-Driefontein Complex, we saw production rise by 12% to 280,000 ounces for the quarter. And also, if you look at the half-year's production for KDC, in fact we were in line with the previous year. The first half of this year is very similar to the first half of last year. And that's a trend that we've not seen for some years. That's a pleasant reversal for us. KDC is now producing in line with what I've indicated a year or so ago, of between 1 million and 1.1 million ounces per annum. So, what you've seen in this quarter is what we've said it would be.

We're also pleased with the progress made at South Deep, with our critical path of destress mining. That's really to open up the ore body at depth, or the open stoping, which will be the bulk of the mining in the future. And we achieved record levels during the quarter, with destress mining going up by 52% quarter on quarter. That bodes well for the future, certainly. Capital expenditure projects at South Deep relating to the key infrastructure -- being be ventilation shaft, the plant expansion, as well as the full plant tailings facility for the base flow, are getting very close to completion. And we should see both the ventilation shaft as well as the plant expansion completed by the end of the year, with the full plant tails facility completed early in 2013.

And those particular infrastructure projects will provide the backbone -- together with tails facility that's already been commissioned last year -- while they build up to full production, to reach 700,000 ounce run rate by the end of 2015.

As some of you may know, we have issued a Section 189 notice to the union during this quarter; in fact, on August 2. The mediation process is now underway. And, hopefully, we'll get a final resolution on this situation over the next few months. So, we are hopeful that we can try and find a solution on this particular matter. But there are no guarantees, of course.

Beatrix also had a steady quarter, and is now also producing in a steady state, within its medium-range guidance of about 325,000 ounces to 350,000 ounce range per year, which we provided around a year ago. So, that's pretty much in line with what we've seen over this last quarter.

Southward, St. Ives also continued to perform well during the quarter. Southwest performance has been really excellent. And just to demonstrate what a world-class mine this is, this particular operation moved 33 million tonnes. This particular quarter had a mining cost of $2.00 per tonne. And that was actually back in line with the budget. So we are really getting our fleet utilization up to world-class levels in this operation.

I should also announce today that we are progressing with a pre-feasibility study for installation of an additional 8 million tonne per annum CIL plant at Tarkwa to replace the North Heap Leach facilities. This project will help to keep Tarkwa, and, in fact, get Tarkwa up to around 800,000 ounces per annum. We are currently at a rate of about 720,000 ounces per annum. That will be provided through improved recoveries, as we divert materials to heap leach, which is giving us about 60% recoveries, into a carbon and leach plant facility which should be able to give us around about 94%, 95% recoveries; very much in line with what we get out of the existing CIL plant. This project has a healthy double-digit return, and should have a short payback period. It should also help us to reduce the cutoff rate, as we look to potentially move the exploration drill bits around the bits and look to expand the size and depth of those bits. And that could add further to the 10 million ounces of reserves we have at Tarkwa.

The two operations that do require some work is Damang in Ghana, and Agnew in Australia. And at both of these operations, we focus on restoring them back to production levels of around 45,000 ounces a quarter. And we hope to get to that level within the next six months. Certainly, the early signs of Agnew are encouraging, that we should have better production performance this quarter.

Cerro Corona in Peru has again had an outstanding quarter, achieving all of its physical and cost targets. This is truly a jewel in our crown. And it shows the kind of operation that Gold Fields is putting into Gold Fields for the future; having put this mine into commission late in 2008. We have therefore decided to proceed with feasibility studies on the extension of the sulfide plant, as well as a heap leach option for the stockpiled oxides that we have on-site. We have about 300,000 ounces of oxides at Cerro Corona. And that is it 7 million tonnes at about 1.4 grams a tonne. So there is significant value in here that we want to release. We are to complete both of these feasibility studies during 2013.

And I guess if you look at the brownfields growth opportunities that we do have at Tarkwa and at Cerro Corona, together with getting South Deep up to full production, you can see that we have the potential between all of those opportunities to add significantly to the production base over the next 3 to 4 years. And that's even before we consider the greenfields opportunities.

Let me deal with those greenfield opportunities now. Chucapaca project -- that is the 7.5 million ounce resource project in Peru; Southern Peru in new Moquegua province -- that feasibility study has been ongoing for around about a year. And we expect to finish that by the end of 2012. I don't necessarily think that's going to be the end of it. Because although we are getting a good return out of it, I believe we're going to do more work to value enhance that through re-looking, potentially, at the configuration of the project, in terms of size; and also looking to add more exploration ounces to provide for a longer life. And that's more work were going to do on that.

Arctic Platinum project in Finland -- if you can recall, we had a 7 million ounce existing resource from the existing Greater Suhanko project made up of the Konttijarvi and Ahmavaara pits. And we decided to also increase our resource potential here by going a little bit further north, about 7 kilometers north of that area, to what we call Suhanko North. And we've done a drill program over the last year. And it looks like we're going to add between 2 million ounces and 4 million ounces 2PGE plus gold, at similar grades to what we've got from Konttijarvi and Ahmavaara; but, potentially, with lower strip ratios, which will provide an important blending consideration which may optimize the economics, particularly in the short term of this particular project.

We are factoring all of this into the metallurgical tests work we are doing on the Platsol process, which, remember, is just a derivative of an autoclave technology. We are also feeding it all into the prefeasibility study. And we should have work on that completed by around the middle of next year. It still looks like a very interesting prospect for Gold Fields.

At the Far Southeast project, I'm pleased to tell you that we have our drill rigs turning on the ground. We've got 10 drill rigs at the moment, doing largely infill drilling; but with some step out drilling as well to test the extremities of the ore body. As we've said before, we haven't actually determined how big this is, because it's still open at depth and it's still open laterally, as well. Having said that, we believe that we will be in a position to provide a maiden resource by quarter four, the end of this year. And that looks very promising for us. The whole licensing process application to provide us with approval for a majority ownership in this project continues. And we've got no reason to believe that it's anything more than the process issue at this point in time.

Leaving, probably, the most important consideration, certainly -- I hope investors see it that way -- with our announcement that we've restated our dividend policy. And as the top dividend payer in the industry, we will in the future provide shareholders with a prioritized dividend payout of between 25% and 35% of normalized net earnings, irrespective of capital expenditure. And this assures shareholders of a dividend during periods of high expenditure on growth projects. In essence, what we are saying is, previously we had a policy of paying out 50% of earnings. But we knocked off growth capital, as it was called. But the net effect is, that we ended up with a payout of about 30%. We're going to be still paying out in that range. So it's not going to be a lower dividend than what we were doing before. What we're doing is we're giving more certainty about our desire to maintain a strong dividend payout as a first priority for shareholders.

And then, for us, to look at the balance of our cash flow to be reinvested in -- first of all, sustaining the current operations; and then looking for value accretive growth, whereby we can invest the balance in creating a better Gold Fields into the future.

I also included in my presentation this morning -- which you can see on the website -- a section on our perspectives of the gold mining industry at large, which we believe is important, because these thoughts do influence the way in which we see the future; and, therefore, how we are positioning our Company to benefit from the higher gold prices going forward.

I'll tell you what we said in the slides in the transcript of that presentation out to all of you overnight. So I won't dwell too much on it, except to say that the industry really does need to respond to the fact that although the gold price has gone up significantly over the last five years, the gold equities have not responded in kind. That means all of us have got something to do to turn that around. And we're going to be giving serious thought to what that means for Gold Fields as well. I think, with that, we've given you a fairly detailed synopsis.

And I'd now like to turn it over to questions -- which either myself; Paul, our CFO; Michael Fleischer, our General Counsel, is also here; and Willie Jacobsz in between us -- will endeavor to answer your questions. Thank you very much.

(operator instructions). David Leffel, Deutsche Bank.

Hi, Nick. Thanks for the call. Just I guess specifically on South Deep, you've done a good job of keeping us informed of the process as you try to restructure your working arrangements with labor. Can you give us some specific dates, or when we might expect more specific dates? Because I think you've done some filings in accordance with the Labor Act in South Africa. And then I guess I was on the previous call back in early July -- because I'm uncertain of the actual costs if you reach a good resolution with the workforce accepts the change in the jobs, and I guess the total cost if they do not. If you could share those things with me, that would be helpful.

Yes, the process under the Labour Relations Act was a 60-day process which commenced on August 2. So that process, unless it's extended, would expire on 1 October. So, what's happening now is, we're in a facilitation process. There is a facilitator that's been appointed by the CCMA. And the parties are obviously talking and determining each other's position, and trying to find some kind of solution to this. So I would like to let that process run its course. I wouldn't want to try and predict any particular outcomes at this point in time, because we don't know what the outcomes are going to be. That's why we've had to get to a formal process under the Labour Relations Act. Because we were in deadlock beforehand. So now that process has to be given a chance. And let's see where we end up at the end of the period, and what the options might be for us, and then take it from there, David.

Okay, but would it be possible that this process extends out from October 2 if the facilitator suggests that there is still further discussion room, and you'll let it? We'll be, maybe, into November or something like that? How set in stone is the 60 days and the facilitation process?

At this stage, it is set in stone. Now, that's our period. Until you hear otherwise, that's our period. And then we'll see where we end up at that point in time. But we've been in discussions with the union on this since April. And we've had detailed discussions on the operating model we want to put in place since November. This has gone on for a long time, so we do have to get to a point on it. So at this stage, we are working on 60 days.

Okay, but the facilitator can't order, in terms of the labor laws, that you carry on negotiations?

No. That would have to be by mutual consent. And at this stage, we're not seeing any extension beyond this date. That is the date that we are putting down as a date by which we want to get finality on this.

And you've talked about some monetary considerations for changing the work hours and the bonus structures. And I think you mentioned $300 million. Now, if you retrench the workforce and go to a new structure, is the $300 million the right number, or is it even more? Because I have heard rumors that you have offered to buy out the current contract for like nine months.

If we did gather which you suggest, there would obviously be an incremental cost which could be of a similar content.

Thank you, David.

600?

In effect, I think probably the retrenchment would be about $300 million. I think you're mixing up the $300 million with retrenchment. And incentives are not going to be that much, but they could, over a period of time, add up. But that would be spread -- there would be additional benefits paid out over about a two- to three-year period that could add up to about maybe $200 million or so. But those would be linked to particular targets being met. And so, it would self-financing. But yes, the number did mention last time was around about $300 million, if you had to do the full retrenchment.

Thank you.

(Operator instructions). Tanya Jakusconek, Scotiabank.

Thanks for the call. I have three questions. The first one is just a continuation on the labor agreement. Just from a financial standpoint, how would that be recorded? Would it go through the cash flow statement of a $300 million payment, and then any additional payments over the cash flow statement through the next few years? Is that a correct way of -- (multiple speakers)

(multiple speakers) would be a once-off cost expense from cash flow immediately. Other costs that we had mentioned it would be incentives paid as part of the normal monthly salary run. That's the way it would be accounted. So the full $300 million on the number, the next thing that could be, that would be a once-off costs expense when it's paid.

Okay. And that would be a cash flow impact.

Oh yes, yes it would be a cash (multiple speakers)

Okay. Perfect. That's my -- that's an easy one. Just to -- then, the other two; one is Chucapaca. Because just listening to you to, Nick, talk about the finishing the feasibility study by the end of 2012. And you want to have time to do more work in terms of the configuration and, obviously, the size and exploration. The configuration, are you thinking it to be smaller configuration? Because, given if you're looking at expiration in the size, am I just interpreting it wrong, that you're looking at it as a smaller operation?

No. We're just saying what is the best capital efficiency ratio of size to capital? I mean, it would dictate -- you should look at -- is it a 30,000 tonne a day; is it 25,000 tonne a day? Do you get economies of scale or a better capital ratio if you make it smaller or bigger? But, of course --

Okay so it isn't anything, Nick, that you've seen in the ore body that's making you readdress it?

No. The ore body is good. The question of whether we can get more -- we know that there's a lot of exploration potential within the area of interest. There's a least four other targets in the 5 by 5 kilometer area of interest in the joint venture between the two companies. And we've done some targeting, but we haven't done enough drilling. So we believe that we should get an exploration program going probably around about the middle of next year, and see what else we can find. I think that will create a more robust project.

We've got a project that could go at this stage. But we want to be absolutely sure that we can make this thing a flyer, in the face of robust gold prices, and not just spot prices. And we've used lower prices than spot, make no mistake. As you know, since I've spoken to you, we've indicated $1500 as a long-term price. But I'd like us to make sure that we can really create a robust project here. So we probably need around about another year of work to complete all this exercise. And then we can give you the full details.

Okay. All right. And then, Nick, now that I have you on, just for the North American audience, some of your views on what's happening in South Africa and the violence surrounding the platinum industry, and how that's impacting you and so forth.

Yes, look, it's not impacting us at this stage. The union that people are referring to is AMCU. You may have heard of them, which is a sort of a splinter union that broke off, and was formed some time ago. We don't have them on the gold mines to any degree. They have been around, trying to get support. But at this stage, they haven't really been that successful.

One of the benefits in the gold industry -- contrary, possibly, to the platinum industry -- is we have central bargaining agreements. In other words, we negotiate all of our wages in the gold industry as a gold industry, and not as individual companies. And platinum is actually decentralized. And that has a lot of benefits, in the sense that we are able to, as an industry, agree things; and not one company do something that might affect another company.

And also, the union has never reneged on these deals. And, usually, there have been two-year deals, and stuck to their guns. And I must give them credit for that. So we haven't had them on our operations as of this point in time. That's not to say that we can rule out the risk of that happening in the future.

And certainly from a country perspective, what we have advised the Chamber -- and we've been closely involved with this process over the last week -- is there should be greater engagement and dialogue between all of the various parties to try and understand people's perspectives, and try and get some sense and sensibility back into this whole process. The Chamber is going to be talking to everyone, and playing a leading role in trying to resolve this issue. Clearly, we've got to get stability back into the country; and, more importantly, into the platinum sector, at this point in time.

So, a lot of the deals with rock drill operators in platinum that we are looking to try and get higher wages -- and they possibly ended up being convinced by people outside the normal forums that they could be assisted in this process; and not only get into this whole culture of finger-pointing. And that's why the government has initiated a formal inquiry into the entire process. We don't want to second-guess how the whole thing really happened, because there are so many different stories. Now let the inquiry run its course. Let's learn from it.

But, in the meantime, we strongly urged the industry to enter into a proper dialogue and try and understand people's perspectives. But only we can create more polarization in this process. So that's really our summation, as to where we are right now.

Okay. Well, thank you for that. And then maybe just some other thoughts on the silicosis case.

I've got Michael here, our general counsel. This is quite a technical process, in terms of the notice that was served on us three days ago. So let me hand over to Michael, and he can explain specifically to you what this is.

Great, thanks Nick.

This audience will probably be very familiar with class actions -- North America, Canada. So, in South Africa, the rules are not well-established around class actions. The jurisprudence is limited. And I guess it's going to be a process that's going to develop with the silicosis litigation. What's been served on us is an application to certify a class. The application is effectively split into two sections. One is, it defines a class on an opt-out basis. So, in other words, you will be included in the class unless you decide to opt out; and it then has a phased approach. If the court certifies the class, then what this particular lawyer intends to do is to argue the common factual and legal issues on behalf of the class; and then if he is successful on that basis, then potential claimants, potential plaintiffs, will have to then opt in for the purposes of establishing their personal damages.

So we've only just got this application about 48 hours ago. We've got a legal team that's actually been in place for a long time in anticipation of this litigation coming. We are considering what our approach would be. In the ordinary course of the rules of courts, you've got 10 days within which to decide to oppose or not oppose the application for certification. And then you've got another at least 15 days within which to file your papers.

The important thing, though, is that there are no specific numbers of applicants or plaintiffs here. Because we haven't even defined the class yet, number one; and number two, there is certainly no mention or quantification of any type of damages. That's something that is way down the line. And, really, in a nutshell, that's where we sit at the moment as far as official service of process on us.

Okay, so I guess we'll just have to wait out for your 10-day -- 10, 15 days, and then see where we are after that.

Exactly.

All right. Okay. Thank you very much, gentlemen.

(Operator instructions). Ladies and gentlemen, we seem to have no further questions. Do you have any closing comments?

No, I would just like to thank everyone for joining the call today. And for those of you that will be at the Denver Gold Show in September, we look forward to seeing you then; or on our travels around North America and elsewhere in due course. Thank you very much, and goodbye.

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