Gold Fields Ltd (GFI) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields first quarter 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 Nick Holland. Please go ahead, sir.

Thank you very much, Dillon. And good afternoon or good morning, depending on where you are staying. Thanks for joining me for this call to discuss Gold Fields' results for the March quarter of 2013. Also with me today is our CFO, Mr. Paul Schmidt.

This was certainly an eventful quarter for Gold Fields and I'm going to briefly touch on some of the highlights. And we'll leave some time for your questions.

The March quarter was the first full quarter that the operations of Gold Fields and Sibanye were effectively managed as separate entities by their respective management teams. Although the actual separation only took place and was finalized on the 11th of February 2013 with the distribution finalized on the 18th of February.

When you look at our results book, you'll see that the results for KDC and Beatrix, which technically form part of the Gold Fields Group until the unbundling of Sibanye Gold, are shown under the heading discontinued operations in the accounts. However, these results have no impact on the overall Group results as the contribution from Sibanye for the quarter was included in the distribution of the Sibanye shares.

We're not going to talk about any of the Sibanye results for those two months and you will notice that the commentary in the book also does not include any comments on those results. So if you do have any questions on Sibanye, I would respectfully request that you report them through to Mr. Neil Froneman and his team at Sibanye.

The Group's operational performance during March quarter was in line with guidance provided for the full year, if one annualizes the production results and also the cost results. The quarter also saw significant further progress on the restructuring and refocusing of the Group for cash generation, in line with the outcomes of the portfolio review completed in late 2012 and announced on the 14th of February 2013.

The envisaged on-mine interventions, which I referred on the last call, were implemented during the quarter or at the end of the previous quarter. And these included the closing down of marginal production at Tarkwa, St Ives and Agnew in order to improve the overall margins per ounce.

Looking at the results itself for quarter 1, attributable gold production declined by 11% from 534,000 ounces in the December quarter to 477,000 ounces in the March quarter, which was planned and largely the result of shutting down the marginal production that I mentioned earlier. The lower output, as I mentioned earlier, is also in line with guidance for the full-year if you annualize it.

Total cash costs were impacted by lower Group productions, partially offset by an 8% decline in net operating costs from $451 million in the December quarter to $401 million in the March quarter. And the net effect of the low production combined with the lower cost resulted in a 5% increase in total cash costs from $798 per ounce to $819 per ounce.

Notional cash expenditure, which includes the capitalized costs for projects in the growth portfolio, and is the true measure of the cost of producing an ounce of gold, decreased from US$1,355 per ounce in the December quarter to US$1,291 per ounce) in the March quarter. This decline was due to lower operating costs, referred to above, as well as reduced capital expenditure during the quarter, which was partially offset by lower production.

As a consequence of the above factors, the NCE margin for the group increased from 20% to 21% for the quarter. And both total cash costs and NCE for the March quarter are either below or in line with the guidance provided for the full year.

I'd now like to just focus briefly on the individual mines and then the growth projects. At South Deep, the project produced 63,000 ounces of gold in the quarter, similar to the previous quarter and that was despite the Christmas break, the impact of which is always felt in the March quarter. And although South Deep has implemented a new operating model in November 2012, the pre-existing longer Christmas break was honored. Next year a shorter Christmas break will apply under the new operating model. So in January we effectively only had about a half a month's production for South Deep.

The March 2013 quarter was the first quarter that South Deep operated for the full quarter under the new operating model. And the full benefits of this new way of working still need to be fully realized. Nonetheless, the trends are positive with record ore tons mined of over 200,000 tons during the March month. And bearing in mind full production in 2016, it's likely to be at 330,000 tons. So that indicates that with that kind of performance, we're almost two-thirds of the way there in terms of our tonnage upward. Certainly we're making progress.

In West Africa, Tarkwa's production declined from 187,800 ounces, as planned, in the December quarter to 170,000 ounces in the March quarter. And this was because of the cessation of ore stacking at the high cost South heap leach facility, which we announced in February of this year, together with a decline in grade to reserve grades, which is also expected. At Damang, production was unchanged at 44,000 ounces.

Worth noting is that after the close of the quarter, we had some illegal industrial action in Ghana, which saw us lose six days of production at both Tarkwa and Damang, and the impact of that is going to be around a 20,000 ounce reduction in production in the June quarter. Fortunately these issues have since been resolved and I can gladly report to you that production is back to normal levels.

Australia, at St Ives production was 102,000 ounces for the quarter, again down from 111,000 ounces in the previous quarter, as expected, and in line with our guidance for the full year. And this decline was due to the closure of the heap leach operations at the end of December. Again, these were very high cost operations, very low margin and we took the decision to close it.

Agnew produced 44,000 ounces down from 54,000 ounces in the previous quarter, which is in line with what we expected, given the withdrawal from the higher cost and lower grade Rajah and Main lodes, also announced in February 2013. And that's resulted in a significant improvement in the operating and NCE margins at Agnew.

In South America, Cerro Corona produced 77,000 ounces of gold equivalent compared with 98,000 ounces in the December quarter. Again this decline was expected and in line with lower gold and copper grades, which are now approaching those very similar to the reserve grades published in the recent declaration in 2012. In fact, that declaration went out as part of the annual report in 2013, March.

Wage negotiations in Ghana and South Africa are worth mentioning in that we move into negotiations in both of those jurisdictions. And as always, I think these negotiations will be challenging for us, particularly so in South Africa. In Ghana, wages make up around about 10% of our costs, we we're less exposed to wage increases there, but at South Deep they make up around about 40% of our costs.

Obviously I can't tell you at this stage what negotiations are going to look like. We haven't yet received the wage demands, but it's clear that we cannot afford to continue giving double-digit wage increases with declining productivity, which has certainly been the trend over the last 10 years.

And this is the year that we really do need to factor productivity into any kind of settlement in order that we can increase the size of the cake and not actually be bickering over how we divvy up a declining cake. That's the theme that I'll certainly be giving our unions and our negotiating team as they enter into the negotiations, which we hope will start towards the end of May.

Looking at the growth portfolio now, we've had a significant refocus of the growth portfolio, which reflects, we believe, the smaller size of the Company, the reduced cash generating ability for the present time at least while South Deep rolls up, and also the outcomes of the portfolio review.

Growth is nonetheless very important and greenfields exploration has been cut, but we'll still be spending $80 million in 2013. And we're going to be looking to spend that money in and around our regions, focusing on the Americas and West Africa in the primary purpose. And looking for opportunities for us to get smaller, higher-grade mines, which are more capital efficient and quicker to bring to production.

I believe that the focus in the past on very significant large deposits, in particular the porphryour type deposits, which are typically very big and capital intensive, are going to need a rethink in terms of the Gold Fields strategy. So we're quite happy to discover and develop much smaller operations, even those that might be 100,000 ounces a year. Provided they make money, it's not a problem for us.

The Near-mine exploration has also been curtailed from $65 million in 2012 to around $28 million in 2013 with the focus being on the most prospective short to medium term targets in and around our mines. And the key focus here is to make sure that we continue to replace ounces as we mine them each year and upgrade the quality of the portfolio at the same time.

In terms of capital and evaluation projects, also the expenditure here and the activities under review, as I mentioned earlier, and we're looking to reduce our spend in these areas as well. In fact, as we speak, we're looking at how best we can curtail some of our expenditure and channel it in those projects that are more likely in the short to medium term to be successful projects. And then taking a slow burn approach on the other projects.

What I will do now briefly is deal with where we are in some of these projects. First of all, Chucapaca in Peru, a project in which we have a 51% interest and are the operators.

As you're heard earlier, the feasibility study completed last year didn't give us a viable return and as a consequence we've gone back to a scoping state level. And this study is looking at various options, including the possibility of an underground operation, which will be a lot smaller, focusing on the higher grade as well as additional exploration on adjacent targets. And we're also considering the possibility of a smaller open pit. It's too early to comment on the likelihood of success in any of these particular options, but we'll keep you updated as the work progresses.

At the Far Southeast project in the Philippines, the focus remains on limited surface geotechnical drilling, as that's very important input into the pre-feasibility study that we had to conduct into the future. But predominantly on activities aimed at securing the Free Prior and Informed Consent from the indigenous peoples, which is a prerequisite for obtaining a Foreign (sic -- see press release) Technical Assistance Agreement, an FTAA, which allows foreigners to own a majority interest in Philippines projects. This process is expected to slow down somewhat due to the pending elections in the Philippines, scheduled for the last quarter of the year. So it's difficult to give you an indication as to when we hope to secure these permits.

At the Arctic Platinum project in Finland, the addition of the Suhanko North deposit brings the overall resource for the project to over 200 million ton for almost 1 million ounces of gold, 2.5 million ounces of platinum, almost 10 million ounces of palladium and a million pounds of copper and almost a half million pounds of nickel. Clearly a large, very prospective project.

The pre-feasibility study is close to completion and we'll make a decision on the way forward before the end of the year. And we're not so sure what that decision will be at this stage, but my primary objective here is to work out how we can (inaudible) this project for the benefit of shareholders, whether or not that means we develop it still depends on how we see those outcomes and the best way forward. We'll keep you posted on that.

And Yanfolila in Mali, which is a project in the southwest corner, or virtually on the border with Guinea. We got some really good news there in that our project has doubled its resource to 1.4 million ounces. That's also advanced to resort its stage during the quarter. And we're looking at this project in terms of whether it could be fast tracked to a development decision possibly by the end of the year.

Particularly given the fairly low technical risk of the projects, we do understand the ore body very well. We've drilled it out extensively, we've done over 100,000 meters of drilling. We've done also extensive metallurgical test work. We understand all of the characteristics of the ore.

So we're going to be doing some more in-fill drilling just to get closer resolution on the ore body, getting more of it into a proven and probably level. And then we'll do some additional work on technical environment with social impact studies. And we'll do all that work and see where we stand at the end of the year.

Of course, all of that is good as well, but we'll have to monitor political developments in that country because that will be key to any decision that we may take. Fortunately the location of the project is far away from the areas that have been subject to the unrest. We're about 400 kilometers southwest of [Dianke] and of course as most of you all know, most of the activity has taken place 400 to 500 kilometers north of Dianke. So we're a long way away from activities and other mines in the country have been virtually unaffected during the unrest. Again, we'll update you on this towards the end of the year.

I think a final word on the issue that probably concerns all of us beyond anything else is the gold price and of course the impact on our business. As you know, we have over the past six months been making a lot of interventions across our activities, which will stand us in good stead. In some respects it's been fortuitous that we've done all the things that we've done over the last six months.

Given the decline in the gold price, there is probably more work for us to do, but I believe that Gold Fields is in good shape to withstand low gold prices, potentially lower gold prices than where we are today. I think we can certainly withstand gold prices lower than spot and we're set up to do that.

Hard to predict where the gold price is going in the short-term, but we believe that the fundamentals in the long-term remain strongly supportive of higher gold prices. I think the important thing now is for us to hunker down and make sure that we can emerge from this tough period intact and with our operational leverage still available for shareholders in the event of higher gold prices (inaudible).

And with that, I'm going to conclude by thanking you for joining us today and leave time for us to deal with questions that you may have. Thank you.

(Operator instructions) Patrick Chidley, HSBC.

First question goes on two core packages, a little follow-up there on what the options might be. Can you remind us what the grade of the previous plan was going to be in terms of the larger open pit? And then can you maybe outline how big the higher-grade area might be that could be underground mineable and as just a little bit more detail about what might happen there?

Yes, the grade on gold equivalent basis, because there is a little bit of copper and silver in the deposit, is about 1.8 grams per ton gold, bearing in mind that we had around that 7.6 million ounces there.

So what we're looking at within that envelope there are some high-grade sections within that ore body. And we're looking at seeing whether we can develop a much higher grade than that underground operation. But we're still modeling that work at the moment, so we don't have the final results of that. But I guess we should be finished with that analysis in about a three-month period from here and then we'll assess whether in fact that still works, taking into account we still have enabling capital on the site and various other capital and whether in fact this operation can support what would be a significantly lower volume operation than what we were concentrating in the feasibility study.

The feasibility study, Patrick, was contemplating a 30,000 tons [per day] plant. So this would be a lot lower than that, but obviously much higher grade. And whether or not this is going to translate into a viable project with all of the technicals, it's too early I'm afraid to give you a view on that. But you'd be looking at much, much higher grade than what I've given you there for the original study.

So that's possible to actually drill it down to just a smaller resource that has a much higher grade, I don't know, underground mineable grades, is that so?

Yes, technically it could be possible. Now whether or not it's going to be economic, we still have to see. But technically we're stress testing it. We may have to do some more drilling to firm that up because I think we'd need a tighter resolution of drilling, particularly on the high-grade areas. And we're doing all that work. And that might be a start of a modular process where we start that and then we graduate to something bigger over time.

The other thing is there are other ore bodies in the area of interest that we might look at and there's another interesting exploration play within two kilometers of what is actually Canahuire. We refer to Canahuire as Chucapaca, but Chucapaca has actually got about four or five targets and there's another target that we're looking at drilling, which may also provide some additional flexibility. So there's a number of options here, but I can't give you any guarantee that we'll be successful at this stage on any of them.

And just the ore there, is it refractory or not?

Well it is first -- no, there's an element of that there and that's why we have to put it through a two-stage processing. It's got copper, it's got silver, so recoveries are not easy. You don't get sort of 90%-95% recoveries, you're getting much lower recoveries because of the refractory nature of the ore body, so it does make is somewhat more complex, together with the fact that the material is quite harder depth.

So the processing is complex. We have to float first of all and then we have to process the gold that's in residue through a CIL. So we actually recover golds in concentrated form memory, cover golds in CIL form, in bar form. So the process is complex and we'll have to look at that.

And a final question is just on the regional consolidation opportunities. Are you considering any sort of consolidation deals maybe around your current operations?

Look, I think (inaudible) is looking for opportunities for consolidation if it makes sense. And again, it's always down to where you get a sensible deal with the vendors. I think with the tightness in the gold market and balance sheets under pressure, funding drying up, I think people will be more amenable to that as time goes by. But we'll see. You've got to be opportunistic with these things and there's no guarantees.

(Operator Instructions) Igor Gladyr, BMO Capital Markets.

I have a few operations related questions. The first one is on Tarkwa. Was the closure of your south heap reach operations, how should we think about the expected heap reach stocking rates going forward?

Well I think you should look at the historical rates that we had on the north facilities, at least for the next year or so. And that means that we're staking at the order of about 8 million tons a year. We believe that we can continue to do that on the north heaps.

The south heaps were much smaller than that, so 8 million tons will go through the heaps going forward, and we'll still be putting about 12 million tons through the CIL plant. And we'll certainly be doing that for 2013 and 2014.

We are looking at different options of processing in the future. We've been considering whether we move to another CIL plant. At this stage that work has not been concluded and we continue to evaluate those options. But for 2013 that's what you should be thinking about.

And just moving on to South Deep, as the operation ramps up to full capacity in 2016, what sort of tonnage and grades can we expect between sort of in 2013 through 2015?

Well, I think you've got to basically look at a steep build-up in 2014 and 2015 between where we are now. We've said guidance this year is going to be around 313,000 ounces for this year. The year thereafter will have a fairly significant increase and then another big increase in 2015. So you should probably be looking at a linear relationship between what we're saying this year and 2016. That's probably the best way to characterize it.

Tons this year, we're looking to average reap tons each month of somewhere around about 170,000 reap tons a month for this year. And then next year that'll average over 200,000 reap tons. And then for 2016 you'll get up to the 330,000 reap tons. And the grades at full production, we're looking at around about 5.3 grams a ton, about 5.3 to 5.4 grams a ton, depending on where you are in the ore body as the time and special compliance to where you are. So that's what you'd be looking at full production in 2016.

And just on Agnew, sort of what's the expected milling and grade ahead of plans for lower tonnage and higher grades?

Yes, we're doing around about 60,000 tons a month -- 50,000 to 60,000 tons a month out of Agnew because now we're only mining the high-grade [chem] load and that's at around about 9 grams a ton. So that's what you can expect going forward. We've brought back all the other mining. So this is quite a nice little gem to have in that although it's getting deeper, we're down to around about 900 meters. It's a high-grade ore body, very low costs. And as you're looking here at a mine that is going to be one of the cheaper operations in the group with that kind of profile.

Tanya Jakusconek, Scotiabank.

I just wanted to ask two questions. My first question is on the update and my second one is on M&A. Just on South Deep you mentioned the wage negotiations that are going on and obviously focusing on increasing productivity. Maybe you can remind me of what the productivity right now is at South Deep and what is our target for improved productivity there?

Well, the way I look at this is to say right now we have around about 3,700 employees producing, as you've heard, around about 170,000 to 180,000 tons of reap per month. And at full production we will have 5,000 employees producing 330,000 tons a month.

And you might ask, well how are you going to get to that level of productivity? The reason is that we've got a lot of people already that are part of the services of managing the twin shot system plant, the back four plant, the tile dam, all of the surface administrative functions. All of those are now fixed, we have everybody we do need. So the only thing we need from here on out is to put more people into the trackless mining area to man the additional fleet and all of the associated loading and tramming.

So the mine is incredibly leveraged to the extra volume that we're going to be mining. And that's really the magic of South Deep.

So it's all volume related then?

It's all volume related. It was sitting with already 80% or so of the costs that we'll need at full production already. And that's why the unit cost is so high because we've had to actually manage our systems. You have to on a 24-hour basis and you need two shifts to do that. You have to man all the man all the [tower] facilities, none of that's going to change at full production. So it's a function of the volume that we'll be getting.

And this is my second question on M&A and you mentioned that with this lower gold price you're hunkering down. And you mentioned maybe 100,000 ounce per year production seems to be sort of targets that would make sense for you. So would it be safe to assume that any M&A that you're looking at, Nick, would be in the couple hundred million dollar range versus bigger acquisitions at over $1 billion?

Yes, I think it's going to be very hard in this market to be looking at those kind of deals, particularly given the valuations of all of our Companies. And I think the difficulty of doing those kind of deals with these valuations.

So you're right, given our mid-tier status now, Gold Fields is now number 11 in market capitalization, we think that we should be fishing in that kind of pond and I think there's a lot of value in that area. Certainly things have got cheaper. I think there's going to be more companies in distress and they're going to be looking for big brothers to help them out. And certainly bigger than where they are.

But that's the type of range, maybe a little bit more, but billions of dollar range, I think at this stage that's going to be very unlikely for us.

Can you just remind me what your availability is on your lines of credit and so forth? I mean we have your cash and your debt balance, but just remind me what we can do in addition.

Paul is here.

We've got about just over $600 million of available US facilities and there's probably about $1 billion of range facilities as we speak today.

And I'm assuming that there would be a minimum requirement of cash that you would like on your balance sheet for working capital? That you would like to maintain?

We're keeping our cash fairly consistent at the moment, in and around if you're looking at dollars, around $500 million, between $500 million and $600 million. We've done that surely for the last five years most probably if you look at it. If we have any surplus cash we always use it to pay down debt.

No, I'm thinking of this more from an M&A standpoint, that whatever M&A you would do, number one you would use cash. And number two, you would look at obviously your availability on your lines of credit, but obviously you would want to keep a minimum amount of cash on your balance sheet.

Well, I suppose it just depends where we are as to the exact amount we'd want to keep on the balance sheet. There's a safe minimum we're allowed to keep for each of the operations at any given time. So it's not going to be a minimal amount. There's still going to be a couple of hundred million dollars that I'd like -- (technical difficulty) four hundred million dollars I'd like to keep as available because you never know when you need it.

One of the things we're doing, Tanya, is we're, with the gold price going down, even though we've done a lot of rationalization in the Company over the last few months, cutting exploration, cutting projects been -- you've heard all of them. It was fortuitous we did all of that before the gold price went down, but we still believe we need to do some more.

I'd like to attract more headroom for us in the event that gold for whatever reason drops to say $1,300 and stays there for a period of time, we want to make sure that we can emerge from that without any damage to the portfolio and still leave us with some flexibility to be opportunistic if things come along. But could be cheaper than normal.

Yes, just looking at the numbers that you provided, I mean you could do something in the $500 million to $600 million range if you saw the opportunity.

Yes, I think if it was really good value, we would do it, but I'm not going to do any M&A unless we can see a clear path to value. It's got to be demonstrable value on the table and we couldn't do things just for strategic reasons. It would have to be based on value.

Typically if there were assets close to ours that were available that were synergistic straight away, that becomes the obvious choices to do. And we'll see how things pan out in this space. I think we're going to see asset sales increasing over the year.

And the assumption would be to use cash, Nick, right?

Look, preferably we want to use cash. Now with these kind of equity valuations, you've all seen the price to NAV consensus valuations. I don't have to tell you that we prefer if we could to use our cash. Except if something was significantly cheaper than even we were and then we'd consider using other options. But that wouldn't be my first prize at all.

Sir, we have no further questions. Do you have any closing comments?

I'd just like to say thanks to everyone for joining us today. And let's hope that the gold price recovers, but if it doesn't, let's make sure that we do all the right things to emerge from this difficult time stronger than what we were before. With that, I want to wish you all a great weekend and I look forward to seeing you all soon. Thank you so much. Bye-bye now.

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