Gold Fields Ltd (GFI) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields fourth quarter results conference call. 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, Dylan. Ladies and gentlemen, thank you for joining us for this December 2012 results conference call. The format that we're going to follow is that Nick Holland will make a number of introductory remarks after which we will open the floor for questioning. I now hand over to Nick.

Good afternoon, or good morning, depending on where you are, and thank you, Willie, and thanks for joining us on this call to discuss Gold Fields' results for the quarter and year ended December 2012.

Joining me are Willie, as you've heard, and of course, our CFO Paul Schmidt and also Michael Fleisher, our General Counsel.

These are significant results because today we are also reporting on the formation of the new Sibanye Gold, which listed here in Johannesburg and in New York this past Monday. In our detailed results book we give a breakdown of the results for Gold Fields before the unbundling as well as the breakdown of the two new entities after the unbundling.

In addition to a brief review of our quarterly and annual performance, I also want to give you a brief overview of the revised strategy for the new Gold Fields going forward, after which we'll set aside some time to take any questions that you might have.

Turning first to the quarter just past, the 2012 financial year and of course the last quarter were a year and a quarter of contrasting forces, particularly in the last quarter.

Our international operations had a standout quarter with production up 11% to 496,000 ounces, with particularly strong performances from Cerro Corona and Agnew. But all of the portfolio internationally improved, which was very pleasing for us.

Production at our South African operations, however, dropped 27% to 282,000 ounces, with virtually all of this decline as a result of 110,000 ounces lost in the December quarter at KDC and Beatrix due to the protracted and illegal strikes that affected most of the industry in South Africa in the second half of 2012.

Despite the significant impact of the strike, total Group attributable production came in at 754,000 ounces which was down only 7% against the September quarter, largely as a result of the strong performance from our international operations.

Simply put, our production against the last quarter was down around 56,000 ounces and we managed to claw back therefore, half of the impact of the strike in this quarter of 110,000 ounces by the superb performance of the international operations.

The lower Group production during the quarter resulted in cash costs increasing by 3% from $916 per ounce to $946 per ounce. And our notional cash expenditure, or NCE, rose from $1,448 an ounce to $1,476 per ounce.

Now both of these quarters are distorted because we had the strike in both the September and the December quarter. Just to remind you, the strike in the September quarter cost us about 30,000 ounces and 110,000 ounces -- sorry, 35,000 ounces in the September quarter, 110,000 ounces in the December quarter, for a total impact of 145,000 ounces for the year. So, really, both quarters have been distorted by the strike impact. And of course, the fixed cost component in the SA operations is high. A lot of the middle and senior management continued to work. A lot of the overheads don't go away. So these cost figures for both quarters are heavily distorted compared to the historical trend prior to it.

The operating margin for total Gold Fields in quarter four was 44%, and the NCE margin was 13%, both flat compared to the previous quarter.

I think of significance is the fact that operating profit for quarter four at $578m was only 6% lower than the $617m in quarter three despite the fact that most of the strike impact was in quarter four relative to quarter three. And most of this difference is attributable to the exchange rate, but also, the improved performance from the international operations.

Net earnings for quarter four were therefore down to $54m compared to $171m in the September quarter.

We have taken the opportunity, given that we've rationalized certain high cost areas of our business, to write-off certain assets, particularly the heap leach operations at St. Ives in Australia. So, we've taken an impairment on that given that we've shut that down. Also certain of the brownfield exploration in Australia we've also written off and taken a very hard look at the carrying value of that exploration, particularly given the portfolio review and the need for us to focus on real value adding exploration. Of course, the budget for next year has also been cut. When I say next year, 2013 for exploration accordingly.

Normalized earnings then for quarter four $154m if you strip out all of the non-recurring items compared to $177m for quarter three.

Turning then to the full year results, I think a lot of the same issues that have impacted the last two quarters have also impacted the year. And it was a year really of two halves. During the first half, the South African operations had a very satisfactory performance and for the first time we had gold production at KDC virtually in line with the same period in the preceding year's six months. And that shows a lot of the work that we've done to stabilize the production base.

However, in the second half we had the challenges of the fire at YaRona Shaft at Driefontein division of KDC and also the strikes at both KDC and Beatrix, which started in the second half of the year.

So the net effect of all of that is the Group production for the year was 3.25m gold equivalent ounces compared to 3.49m ounces in 2011.

Now, if you normalize the full year for the fire and the strikes, what you would call very unusual non-recurring items, you'll find that our year-on-year production was virtually flat.

Total cash costs for 2012 were $894 per ounce compared to $795 per ounce. Again, I think this is heavily distorted by the impact of the strike in particular as is the NCE for the full year at $1,376 per ounce compared to $1,173 per ounce in 2011. I think had we not had the strikes, I believe that our NCE would have been significantly lower.

NCE margin for 2012 was 17% compared to 25% in 2011. Again, it's the flow-through effect of the production.

Net earnings for 2012 were $691m compared to $973m in 2011. And if we strip out the non-recurring items, then earnings for the year were $834m compared to $1b that we made in 2011.

We've declared a final dividend of ZAR0.75 payable on March 11, 2013. And that gives a total dividend for the year of ZAR0.235 which equates to a payout ratio of 25%. We've said previously that we would have a dividend policy of between 25% and 35%, a payout of earnings, and we've certainly complied with our promise there. And I think considering all of the difficulties we've experienced over the last year, it's understandable that we'd be at the lower end of the range for the year on our dividend.

And, just to remind you, the dividend policy of the new Gold Fields post-Sibanye spinout, will remain unchanged.

If I look at what the new Gold Fields will look like, you'll see in the book that we have shown you pro-forma results showing discontinued operations and continuing operations, which is what remains in Gold Fields and that's the accounting terminology that we have to use. You'll see that we can give you some brief salient features of what the new Gold Fields would have looked like had it been in place over the last quarter in the year.

Production would have been 2m ounces for the year, attributable production, that is, and 534,000 ounces for quarter four. Cash costs for new Gold Fields $793 per ounce for the quarter and $784 per ounce for the year. And you can see that's appreciably lower than the Group.

NCE $1,365 for the quarter and coincidentally, also for the full year. That's still high because we've been investing quite heavily, particularly at St. Ives, into owner mining, where we spent around $60m in the second half of the year. And, also, South Deep has had its highest year of capital expenditure that we're likely to see, around ZAR2.6b for the last year. That's around about $300m. So that obviously swelled that NCE as well. This year, you'll see a significant drop at South Deep and I've given that guidance in the book as well.

So NCE margin 19% for the quarter, 18% for the year. If you strip-out South Deep you'd be looking at around about 25% NCE margin. I think that gives you a measure of the quality of the international operations.

Cash flow, potential of the new Company, we generated $177m of cash during quarter four, and $276m for the full year. And if you exclude our investments into South Deep, which were filling the gap of $43m in quarter four and $167m for the full year, that's financing the deficit there. These operations generated free cash after working capital taxes and royalties of $134m for quarter four and $109m for the full year. So, strong cash-generative operations and within those figures we've also funded growth projects of around about $60m.

Achievements for the year. I think if we look back on the strike that took place, there were no winners in this and everybody lost, but we came out of it not having any injuries or fatalities for our people, no damage to property, and we didn't capitulate to the strike, and we got everyone back to work safely. And I think if we look at what happened elsewhere in the country, the situation could have been much worse. And I must give credit to our operational teams, how they dealt with this issue, and the patience and courage that was demonstrated in navigating through one of the most difficult times in Gold Fields' history.

2012 was also a good year for South Deep. In the first instance, we completed the infrastructure installations as planned by the end of the year. We completed both the ventilation shaft and the plant expansion. And we now have a full 330,000 tonne per month hoisting and processing capacity required for this mine to build up to its full production run rate of 700,000 ounces a year by the end of 2015. In other words, at this rate, 2016 will be the first full year that we can see 700,000 ounces of full production.

Secondly, during October we concluded a ground-breaking new accord with the National Union of Mine Workers at South Deep to adopt a new operating model including a much more productive 24/7/365 working arrangement. In other words, we're now working 24 hours a day, seven days a week, pretty much in line with the practice we have at our international underground mechanized mines in Australia.

This was a critical path item required for this mine to achieve its full potential. It took us almost a year to get this in place. We have already started with the implementation of the new model and will, over the next six months, bed it down and start seeing the benefits.

During 2012 we also completed the conversion to owner mining at the St. Ives open pits operations in Australia, which was the last in the Group to convert. And we've now made the conversion of all of our mines with the exception of Cerro Corona, to owner mining. And this has been a belief of the Executive that we have to capitalize on our core competency, which is mining, so we should be doing it ourselves.

Corona, I believe, is a unique situation where we're able to benefit from a very competitive contract arrangement that I doubt we could replicate across the rest of the world.

Proof of our commitment to sustainable development is that Gold Fields during 2012 improved its ranking on the Dow Jones Sustainability Index to third position across the mining industry in the world. During 2011, our maiden year on the index, we were fourth position and that means that we're the top South African mining company in the Dow Jones' sustainability index; a proud achievement for our team.

You've heard a lot about our strategic portfolio review in the wake of the presentation that I did in Melbourne on July 31, last year. And with that in mind, during the second half of 2012, the Group engaged in a comprehensive analysis of Gold Fields' operating model and the assets in the portfolio, both producing mines and growth projects. This was in response to the ongoing underperformance of the gold industry and, clearly, Gold Fields when measured against the higher gold price we've seen over the last five years.

The outcome of this analysis and review was the recognition and adoption of five key guiding principles which will underpin the Gold Fields' strategy going forward.

The first of these is that our focus should not be on ounce targets at any cost but on the generation of cash flow. Resulting from this, the Group embarked on a review and repositioning of all of its operating mines and structures to optimize cash generation in a more sustainable manner. This decision led to the November announcement of the creation and unbundling to shareholders of the new Sibanye Gold as a totally independent company with its own dedicated executive management and Board of Directors. Sibanye was listed successfully on the JSE and New York Stock Exchange this last Monday, February 11.

The review process also resolved to reposition all of the producing mines in the Gold Fields' portfolio to focus on the production of profitable ounces only and to halt marginal production. One of the problems in the gold industry has been the lure of the marginal ounce when gold prices go up, which hasn't always generated the value that it was meant to do.

Some of the key decisions that followed are as follows. At Agnew, it was decided to withdraw from the low grade and high cost Main and Rajah loads in the Wurunga underground operation and to focus only on the high-grade Kim load, and to right-size the mine accordingly. We reduced the complement of people, we pulled out one of the drill rigs, we pulled out some of the loaders and trucks and we've now right-sized the operation. As a consequence, Agnew's production will be lower in the future at between 150,000 ounces to 160,000 ounces a year. But as you've seen from our guidance, we're looking at dropping our costs at least $200 per ounce so it'll make a big difference and improve the overall cash flow.

At St. Ives, the marginal heap leach operation was stopped. While this will result in production declining by between 30,000 and 40,000 ounces per annum, it will also lead to a lowering of costs and more profitable production overall.

At Tarkwa, production at the marginal and high cost South Heap leach operation was curtailed. And that facility has been shut down, which will result in a production decline of 30,000 ounces to 40,000 ounces. However, this enables us to reduce the footprint and to reduce the overhead cost base. And we'll see the benefits coming through at Tarkwa over time.

At South Deep, the focus is now for this mine to become cash generative by the end of 2013. And I've said to you earlier that capital is reduced significantly in 2013. We expect a 10% to 15% increase in production and the net effect of those two should mean that the mine will be able to carry its own costs in the second half of 2013.

The second guiding principle which emerged from the review process was to focus our growth efforts in the first instance on low-risk, high-return brownfields opportunities near our existing mines. There are a number of opportunities at our existing mines to raise production while simultaneously enhancing the Group's ability to generate cash and here are some of the options that we are considering.

The proposed Tarkwa expansion Phase 6 project will entail the suspension of all remaining heap leach operations and the processing of this will all through a carbon and heat plant in order to improve recoveries. Various options for the expansion of the existing CIL capacity at Tarkwa are under consideration, which may even include an expansion of the existing plant at a lower level of extra volume and what would be the case potentially on a standalone greenfields additional facility. Again, I want to stress we're still evaluating the best option to make sure that we are demonstrating a proper return on capital invested.

Similarly, at Cerro Corona, an opportunity exists to expand the existing sulfide plant, thereby bringing production forward given the fact that Cerro Corona has over 5m ounces of gold equivalent reserves that we're mining over around about 18 years. In addition, there is an opportunity to process more than 300,000 ounces of gold, which remains captured in oxide stockpiles, through a new heap leach facility.

We continue to evaluate all of these opportunities. No decisions have yet been made and we will only press ahead with any of these projects if can see demonstrable return.

Thirdly, we will pursue greenfields opportunities only if they truly are for attractive returns and will contribute to the cash generation objectives of the organization. With this in mind, we continue to value engineer Chucapaca, to take advantage of the significant declared mineral resource of 7.6m ounces and that means we have a number of opportunities. Do we build a smaller plant and have a smaller mine as opposed to the current base case of 30,000 tons a day? Do we have a open pit and an underground operation combined given the fact that a lot of the higher grade portion of the ore body exists at depth and you can't necessarily get the full benefit of a smaller open pit because of the higher grade that exists at depth, so that's another opportunity. And, also, the grades to the west still look good, as the ore body dips around 14 degrees from east to west. So there is work underway there which could include additional expiration on other targets in the joint area of interest between the partners.

At Far Southeast, we've completed the underground and surface drilling programs largely. And we're now continuing to focus on licensing and social engagement activities. In fact, we will still continue with surface geotechnical drilling during this year and scale down the underground drilling because we basically have done enough to give us a high level of confidence in the ore body.

At the Arctic Platinum project, based on the work done to date, we're in the middle of a pre-feasibility study -- indicates a viable project. We're going to complete that pre-feas, determine the next steps, and best evaluate how we can bring the value that's inherent in this project to account.

The Yanfolila project has had significant exploration success over the last year and we're doing a pre-feasibility study review on that during the course of 2013. And we'll see where this goes.

The point I want to make on all of these projects is we're going to continue to advance them. But we now realize that to try and build all of them, or advance them significantly together is going to be demanding, particularly on the new gold fields and our view at this stage is we need to prioritize. We need to try to pick out the winner in the portfolio and put our efforts in doing that. And if we can get one of these projects into a construction decision within the next two years or so, I think that will be a great outcome. And it's all about then setting objectives for ourselves that we believe that we can achieve in the new slimmed down gold fields.

Our fourth commitment is a continuation of our dividend policy as articulated in 2012, which is a commitment to pay between 25% and 35% of normalized earnings as dividends. And as you've seen in the dividend declaration we've just made, we continue to comply with that promise.

The third -- fifth principle is our enduring commitment to the sustainability of our business by creating shared value for communities, governments and other key stakeholders and ensuring that we have societal as well as regulatory license to operate. And I can't overemphasize the importance of that in the mining industry over the next 20 years.

And don't forget that being sustainable means we also have to be profitable in the first instance.

With that, I've given you a lot of information today. I'd now like to leave some time for questions, which either myself or my colleagues with me today will endeavor to answer. Thank you very much.

(Operator Instructions). Our first question comes from David Leffel of Deutsche Bank. Please go ahead.

Good morning, everyone. Nick, just I wanted to ask you at South Deep you guys did implement, I guess, a new scheduling rotation employee engagement process. Where are we with that, I guess to working routine, schedule and payroll package for those employees, and how is that going?

Yes, we've implemented the new model, David. So South Deep, as from November 21 is on a 24/7 operation. It's a four-by-four roster, so employees have four days on or four shifts on and four shifts off. And then they oscillate between night shift and day shift.

We've also restructured all of the incentives and we've taken away some of the historical allowances that people got just by coming to work. There wasn't proper line of sight between those allowances and production. And now we have a greater proportion of pay that is variable. And if people perform and get their call, they can earn bonuses which are double their base pay. So we're looking here at 3,500 employees that are skilled or semi-skilled, are paid more than their compatriots in the conventional mines in the gold industry.

It's a very different operation, as you know. It looks like and behaves like any mechanized underground operation you'd see in Canada or in Australia. And that's all in place. We had to do quite a lot of training, so we had disruptions in this last quarter and that's one of the reasons we didn't see the benefits. And that didn't surprise me because I think it's going to take around about four to six months for this to bed down. So I would think by middle way through the next quarter, not the March quarter, the one thereafter, we'll start to see the benefits of this coming through. So quite exciting that we've been able to get that in place, and I think it's exactly the momentum change we needed at South Deep.

And what sort of challenges have been in place to make to this new scheduling arrangement, just to help me understand what should be the result in the next four to six months, in your view?

It's really getting people to adapt to the new working arrangements. It's optimizing the travel time, getting people underground. We're looking also at transporting people now underground to reduce that time. It's making sure that everyone understands what they have to do in their shift. The fact that it's now 12-hour shifts and our people are working longer, making sure that they have the break, that we do proper fatigue management, etc. It's a whole new way of working and it doesn't just happen on the first day or the first month. It takes people some time to get used to the schedule. But I'm sure, within another month or two we'll start seeing benefits already.

And I guess one final question is this mine still does have another year of significant CapEx. How are the contractors impacted by this change in your gold fields' employees' scheduling?

Yes, they're going to be working with us on that. And it's all going to be aligned with the total operation on the mine. As you know that we are using contractors to do a lot of the development below 95 level. We're using our own employees above. But everyone is working together on this, and we're all aligned and in sync.

Do the contractors are working switched over to the 12-hour work schedule?

Yes.

Okay. And then, Nick, I guess a second one. This is a new company going forward. I was going to look it up. You've been CEO of Gold Fields now for probably five plus years. Can you give investors some sort of perspective from yourself what you hope to -- what's your -- we heard the presentation, but what you really want to accomplish in the next couple of years and what you see, if anything -- your horizon period, given the difficulties for any mining company these days.

Well look, what do we want to achieve? I think what we've just told you about over the last half hour and what's written in the book I think gives you a measure of what we've achieved over the last year, in that we have taken a very hard look at ourselves, at the industry. We have decided to pull back over-ambitious targets, which I think all of the industry has had. I think we've been industry leaders in making everyone focus on cash generation and managing all-in costs. So I want to continue to make sure that we see the benefits of all of that, and that we get much more interest back into the gold industry, which let's face it, if you look at how the gold equities have performed over the last five years relative to the gold price, I think it's been very disappointing for all of us and that's not sustainable for the industry.

So going forward, I want to make sure that we continue to get our international operations to perform as well as they have over the last year. We've got a high standard of safety at those operations and at South Deep. Interestingly, South Deep has gone two years without a fatality, 3m fatality free shifts, 6m fall of ground fatality free shifts. We've gone LTI free in most of our operations for well over a year. So I think we've now achieved a high level of safety performance. I think that's important as an underpin.

And I want to make sure that South Deep delivers. That is the most important commitment to our shareholders is to get South Deep to deliver its potential. I think if we just do that there is a quantum change for this Company. If we just keep the international operations performing well and we get South Deep to deliver and nothing else, I think there is already a significant value proposition for investors in this Company. And of course, we still have the potential for one or a number of brownfields expansions. We still have the potential for a whole slew of projects, one of which could come through. We didn't have a project portfolio five years ago. Today we've got one. We've got projects bubbling under.

Now if you look at our presentation, David, you'll see that we have around about eight projects either at advanced drilling, resource development or feasibility. We didn't have that five years ago, so we've got a real pipeline of growth now. So I think the future looks bright and I'm convinced that we're going to get one of those away in due course. But South Deep is critical for our delivery and maintaining our good performance and cash flow from the other international operations.

Sorry, Nick. Can I ask one last question? For the restructured Gold Fields, with the current composition of your Board, the size of the Board, should we expect to see some -- I would hope some dramatic changes to bring it more in line with international sort of profile, as opposed to maybe the South African profile that it had previously?

We're a South African domicile company and our Board must reflect the demographics of the country we operate in. Having said that, Dr. Ramphele has departed, as you may have seen yesterday. And also, Sello Moloko has taken chairmanship of Sibanye Gold so already we're two less. Obviously we need to evaluate with the Board the future composition. But I think we have to be mindful of the fact that the Company is now smaller and possibly all of the structures in the Group need to reflect that. And we'll give consideration with the Board as to what we think is the optimal size of the Board.

Okay. Thanks so much, Nick. Doing well.

Thank you, David. Take care.

(Operator Instructions). Gentlemen, it appears we have no further questions. Do you have any concluding comments?

Dylan, thanks. I just want to thank everyone who dialed into the call. And for those of you in North America, we hope to see many of you at the upcoming Nesbitt-Burns conference in Miami, a very large conference. And I want to thank everyone, once again, for listening to us today. And if there are any further questions, of course Willie is here. And if you want to drop him an email or me an email, feel free to. We'll endeavor to answer the questions.

Thank you, everybody and have a lovely day.

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.