Gold Fields Ltd (GFI) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields' Q2 2013 conference call. All participants will be in a 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 call is being recorded. I would now like to hand the conference over to Nick Holland. Please go ahead, sir.

Thank you, Dillon. And good morning or good afternoon to everyone, depending on where you are in the world today. Thanks for joining us on the call to discuss the Gold Fields results for quarter two, 2013. On the line with me I've got Paul Schmidt, our CFO, Mike Fleischer, General Counsel, and of course Willie Jacobsz, Head of Investor Relations.

In a format that many of you will be familiar with, I'll talk first through the significant points of our results. And then I'd like to do a brief overview of the new acquisition we announced in Australia, in Johannesburg this morning. We'll have a little bit of time for question because we need to finish in 45 minutes. So I will try and give you the highlights and leave as much time as I can for questions.

As you will see from the title of the presentation that I did in Johannesburg this morning, the main theme in Gold Fields today is to restructure and position this Company to survive at a $1,300 gold price. And that is, to a large degree, what this quarter has been about. .

But before I return to some specific actions that we've taken and we'll continue to take, let me give you some of the highlights of the results.

Despite being in line with guidance for the year, the results for the quarter ended June '13 were indicative of the challenging environment faced by the global mining industry, which has affected all of the operations in Gold Fields around the world. And the big issue, of course, is the decline in the gold price.

The main feature of our results for this quarter was of course the fact that we posted a net loss of $129m, compared with net earnings of $27m in the March quarter. The realized price for the quarter was $1,372 per ounce, 16% down on the $1,625 per ounce that we realized in the March quarter. That's a $250 per ounce delta.

The lower price, combined with the fact that our production for the June quarter was 451,000 ounces. That was 5% than the 477,000 ounces reported in the first quarter. That resulted in a 21% decline in revenue, to $637m, compared to $805m in the March quarter.

Now that decline in production related almost exclusively to Tarkwa and Damang, which both were hurt by industrial action early in the quarter, which in fact we reported upon in the previous quarter. If you adjust to that, we were basically back to the same production as the previous quarter, and in line with guidance, even at the lower level of 451,000 ounces.

Then of course, there was a once-off impairment of $127m, which relates largely to our decision to stop the marginal mining at Tarkwa specifically. And that relates largely to a decision we've made to close the North heap leach operation by the end of 2013, and also the fact that we've decided not to proceed with the expansion of Tarkwa through the construction of another carbon and leach plant, which has meant that effectively, a large proportion of the equipment on both the south and North heap leach operations would be rendered redundant and needed to be impaired, along with inventories within those heaps.

So we've taken that hit now, and we'll position Tarkwa as a CIL-only operation by the end of this year.

Now in terms of any other further asset impairments, they still need to be assessed at year end, when we have our new life-of-mine plans put in place, and of course our new operational plans, which will be done at $1,300 per ounce. And that compares to what we used for the 2013 operational plan and the 2012 life of mine, which was $1,500.

We need to get those technicals done. We need to see what the production profile looks like. And then we'll decide on any asset and reserve impairments. At this stage, I can't tell you what the outcome is going to be. But it could be that further marginal mining is curtailed in the Group, as we reposition Gold Fields to be sustainable at a $1,300 gold price.

Other key issues that are affected our results this quarter is the fact that South Deep is still cash negative. We need to obviously restructure South Deep as soon as we can. And I'll talk more specifically about South Deep in a few moments.

Damang also is another challenge, being cash negative. And we have a strategy for that too, that I'll cover.

We passed the dividend for the half year, on the basis that we only pay dividends if we make the earnings. We haven't made the earnings, and I'm also concerned about gold price volatility. Let's assess how we do in the second half of the year and decide at the end of the year whether any dividend is merited. But in the first instance, we have to make earnings to pay dividends. We've all said our policy is to declare dividends out of earnings.

Turning to costs, we've done a lot of work on our costs. And in particular, I'm pleased that our all-in cost, or NCE, which includes capital expenditure for the Group, has declined to $1,239 per ounce this quarter, compared to $1,291 in the March quarter. And that's substantially below guidance. And it gives you an idea of the cost reduction measures we've taken to restore profitability in Gold Fields.

Interestingly, our NCE for this quarter is the same as what it was 18 months ago. In other words, we've been able to absorb all of the inflation of cost pressures of the last 18 months.

Turning to some specific cost measures, what have we done? In the corporate office, we've reduced our corporate office from 106 people to 56 people. That's a decline of 50%. Our corporate G&A is now $10 per ounce for the Group. We've also announced that we've reduced the size of the Board, from 12 to 9, so the Board has come to the party as well, in terms of helping us to reduce our costs.

Looking at the regions, we've now devolved more full accountability and responsibility to the regions to deliver their plans. And they, in turn, are in the process of looking at all their cost structures. And I think there will be further savings in the regions, over and above what they've already achieved.

Total Group employees have reduced by 9%. That includes contractors, for 1,784 over this year to date, down to 17,700. And if you look at permanent employees, excluding contractors, we're now down to 9,900, having reduced our workforce by 400 people, or 5%.

The biggest impact in our region so far has been in Australia, where they have reduced their total employees by 23%, down to 1,286. And I believe that we're going to see other restructuring in Ghana, as well as South Africa, as we need to restore profitability and cash flow at some of those operations.

If we look at marginal mining, that's been reduced. I have said this before. A lot of these initiatives were put in place towards the end of 2012. We shut down the South Ives -- St Ives, rather, heap leach operations. We closed those at the end of last year. They produced about 35,000 ounces a year. We also stopped the low-grade Rajah and Main lodes at Agnew. And that's allowed us to focus on the high-grade Kim, and that's had a positive outcome on both production and on costs.

We stopped the South heap leach operations at Tarkwa already. That was stopped at the end of the year. And, as I said earlier, we're now re-doing our reserves and our mine plans at $1,300 to see what the rest looks like.

But the one key decision we have made is to definitely stop the Tarkwa North heap leach operations, as I mentioned, as part of the rationale behind the impairment. And that's going to mean that Tarkwa will revert to a CIL-only operation. It makes no sense for us to continue placing material on the pads and getting reduced recoveries of around 55%, when we can take the same material and put it through the plant over time, and get 97%.

So we're going to pull back our mining operations, drop them from about 140m tonnes a year to 100m tonnes a year. We're going to shut down the heap leach. And that will drop our production for Tarkwa, we anticipate, to somewhere between 525,000 to 550,000 ounces for 2014. And that will be a reduction from 630,000 ounces that we were hoping to do and still hope to do this year. I believe that this will be positive in the long term, and will turn Tarkwa into a more profitable operation.

In terms of growth, we have rationalized a lot of our growth activities. We continue to do so. Exploration has been cut, from $128m last year to about $70m this year. International projects have been cut, from $153m to about $74m, a halving. And there's been a commensurate reduction in the numbers of employees.

I don't think we're done on the growth activities. And I still think we're going to have to pull back more, as we look to mothball or reduce the burn rate on certain projects, or alternatively put them up for sale.

On Far Southeast, we were successful in getting approval from the indigenous communities for a free [prime] informed consent process, which is enshrined in the legislation in the Philippines. And we're now hoping to get our FTAA, or our license, which allows foreigners to own a majority interest in Filipino assets during the course of 2014.

At Chucapaca, we're looking at the potential for a smaller, but higher grade, underground operation, together with our partners, Buenaventura. All other spend is being severely curtailed. And we hope to finish that scoping study by the end of the year.

On Yanfolila, we'll complete a scoping study by the end of the year, at which time we'll make a decision whether that project should be sold or whether we should actually take it to the next stage.

Arctic Platinum has been put up for sale. And we have a process that has already started. Similarly on Talas in Kurdistan, Woodjam in British Columbia in Canada, those projects are all going through a potential sales process. I can't tell you the timing or the outcome, as to whether or not we'll be successful. But again, as a minimum, if we can't find buyers for these at a reasonable price, the projects will be mothballed.

We're looking to save around about $230m in 2013, relative to the guidance we've given you, which is entailed at about a $20m reduction in operating costs, $120m saving on capital, together with about $85m, probably more like $100m by the time we're finished, on growth projects and exploration.

And that's enabled us to reduce our cost guidance from cash cost down to $830 per ounce from $860, and NCE down from the guidance of $1,360 to $1,240. We are reaffirming, however, our production guidance of 1.83m to 1.9m ounces we gave in February of this year.

I'd like to just mention a few points on some of the operations before we close off and ask questions. At South Deep we have a new operating model that is bedding down, whereby we're working 24/7 on that operation. And we've seen a record of improvement in reef tonnes development and destress, which is opening up the ore body at depth.

However, I must say that despite the positive trajectory, we're not quite at the level of buildup we need to be, to support full production in 2016. And we're reevaluating what that buildup profile is going to look like, whether it's going to be a year later or beyond that. And at the same time, we're now restructuring the operation because we believe that the cost base is out of sync with where the operation is. And we expect that restructuring to be largely completed by the end of the year.

The key short-term deliverable for South Deep is to get the operation to breakeven. And that's what we want to try and achieve as soon as possible. And at the same time, we're going to reassess the longer-term trajectory. And what is the best cash generation model for South Deep? And it might be that we'll look at a different production profile, to make sure that we can turn this wonderful ore body into a long-term sustainable cash generation operation.

At Tarkwa, I mentioned already that we're going to stop the heap leach operation. And that work should be completed and implemented by the end of the year.

At Damang, we've closed the original pit during the period of the last quarter, and that's mainly on the back of safety concerns. You know we had some rock falls in the pit, so we closed that about three months early. So we're now looking at all of the extensions of the original Damang because the original Damang pit is now gone.

The extensions are to the south, at Juno and to the north, at Huni, but more in particular, the Huni Saddle which is a piece of mineralization that is adjacent to the old Damang pit. And that has the same style of mineralization as original Damang, being the conglomerate large lodes that we were seeing at Damang, which were giving us good grades. So we think that's pretty much a replica of the original Damang.

We've done a lot of stripping there. We've now exposed ore. The early indications are the grades are improving. And we're looking now to get Damang, in the short term, to get as close as possible as it can to breakeven. That's meant that we have deferred a significant proportion of capital, principally on a new tail stand that we think we can defer for the moment. There's no immediate need to do it. And at the same time, we continue the work to upgrade our 16-year-old plant, which is in dire need of some maintenance and upgrades.

In particular, we've put in a new secondary crusher system, to deal with the fact that we have much higher -- much harder ore, and virtually of it is now harder ore, as opposed to the past, when we had a mixture of fresh hard ore and softer oxides. And we're also looking to put in a pre-leach thickener, to augment the intensive leach reactor that we've put in, that will help us to improve gravity recovery of gold, but also recoveries in the back end of the leach circuit and reduce also reagent use and improve water balance.

We're also adding an eighth leach tank to provide more flexibility. And we think the combination of all of these measures will help Damang restore a processing profile of between 4m tonnes and 5m tonnes a year, because currently we're doing around about 3.3m tonnes a year. So we're about 20% to 25% off the base that we want to achieve. And certainly, if we can get to 5m tonnes, that will be a significant improvement from where we are. We think we can get there. It's going to take a little bit of time.

The other thing we're doing is we've now put a dedicated project team together for Damang, to look at how best to bring to account a world-class ore body of 4m ounces of reserves, 8m ounces of resources. And what does that profile look like at a $1,300 gold price, and how do we make money, importantly. We think we'll have that work finished by February. I'm very optimistic that we'll find solutions here, albeit that it may not be that we can recover the full 4m ounce reserve. But it's not about ounces, as we keep saying. It's about how we make cash.

On Corona, in Peru, the operation continues to perform exceptionally well. The challenge for that team is to keep doing what they're doing. More importantly, on the long term, we've decided to suspend, for the moment, taking our tails down up to level 3815, which would have provided capacity for another 30m tonnes. That will obviously impact our declared reserve. But at the same time, we were only going to use this many years out. And we can save life-of-mine capital of between $300m and $372m, including about $12m just in the current year, by adopting this strategy. At the same time, we can also retain the optionality of going back to a 3815 raise in the tails down, and getting that 30m tonne.

Turning to Australia, I think it's safe to say that both Agnew and St. Ives are delivering good production and costs. And the weighted average NCE for the region there is about $1,100 per ounce. We want to try and get that down some more, by improved productivity and cost efficiencies. But it has to be said, that's come down from an average of around about $1,400 a year ago. So I think the team has done a great job. And those assets are certainly profitable at the current price.

I just want to turn briefly to the acquisition of the Barrick Yilgarn South assets we announced this morning. Just to bear in mind, we concluded a $300m deal to buy the three mines that make up the Yilgarn South package. That's Granny Smith, Darlot and Lawlers. That's in W.A., the same place we operate Agnew and St. Ives. This represents a really good consolidation opportunity for us in that part of the world.

So the price is $300m, less around about $30m for expected working capital adjustments between now and closing, which we anticipate around about another month. So what are we buying? We're buying 2.6m ounces of reserves, 1.9m ounces of resources beyond that. Cost of acquisition for in-production ounces -- remember, these assets produced about 450,000 ounces last year alone, at all-in costs of about $1,137m.

So what are we paying? We're paying $104 per reserve ounce or about $60 per resource ounce. And on a comparison with deals done in Australia over the last few years, now this comes in at the low end of the -- at the curve, in terms of the cost per ounce for in-production ounces, not just for development assets. Remember, these mines are producing today.

We can settle all of it in cash, if we want to. Or alternatively, we can elect to pay half in shares. We haven't made up our minds yet on that. We'll make that decision at closing. A couple of conditions still to achieve before we can go unconditional, but we don't anticipate any problem in achieving that.

So why are we doing this? First of all, we believe it's a competitively priced acquisition. It's in production ounces that we believe can be cash generative today. It enables us to consolidate Lawlers and Agnew, which are contiguous to each other, and to create potentially a consolidated low-cost mine. Remember, Agnew is one of the lowest-cost producers in Australia. It's got milling capacity. We might be able to shut down the Lawlers mill and process all of our material at Agnew, reduce the cost quite significantly. Overhead structures can be further rationalized.

The two ore bodies we believe merge at depth. And certainly there's an opportunity for us to consider a link drive between the two mines, which would only be about 740 meters, and see how we can operate this potentially as an integrated underground complex.

We've also got the ability to leverage off the regional structure we already have in Australia and also, more importantly, the strong skills base we have and replicate the kind of work that we've done very successfully at Agnew and St. Ives, and replicate that at these three mines. The style of mineralization is similar, orogenic style of narrow veins and shoots that you can never really have a large reserve ahead of you.

But as you've seen at St. Ives and Agnew, since we bought those mines, we've added around about 7m or 8m ounces in reserves. We've mined about 7m ounces. And we started off with about 2.3m ounces. So we've added significantly to those assets over time. We believe that we can do the same to the three mines that we bought, certainly in the case of Lawlers, with the synergies. And with Granny, we're very excited about the geological potential at Wallaby North, which is the underground operation that they're currently mining. We think that it certainly extends at depth.

So more work to be done, as we look to integrate that within Gold Fields. We expect to close this deal, as I've said, in about a month from today. And we look forward to welcoming the thousand permanent employees and some 300 contractors into the Gold Fields fold, and for us to turn this into another exciting region in Gold Fields. This will make Australia a million ounce region within Gold Fields. It will make us the third largest gold producer in Australia. We believe it's a stable jurisdiction. We believe it's a jurisdiction that has good skills and good potential. And this would turn Australia into about 42% of Gold Fields' group production.

And I think, with that, I'm going to leave as much time as I can to deal with questions you might have. Thank you very much, Dillon.

(Operator Instructions). Our first question comes from [Nashir Yaztan] of [Blue Bank Kuller]. Please go ahead.

Hi there. That should be (technical difficulty). But anyhow, I just had a couple of questions about -- could you please give us an update about (background noise) and how often (technical).

Sorry, Nashir, you are disappearing. We can't hear your question. Can you try again?

Sure. Is that better?

Much better, yes.

Yes. Could you please give us an update about your bank lines and how often the covenants are tested? And are there any ideas about renegotiating them?

It's Paul Schmidt speaking. In our covenants, it's a 2.5 on net debt to EBITDA. As we stand at the moment, if you annualize the six-month result earnings, we are sitting at 1.05 net debt to EBITDA. So we are quite comfortable in our bank covenants. And no, we have no inclination to try and renegotiate our covenants, like some of our peers have had to do. We're not in any -- not close to breaching any of them. We've got huge headroom at the moment.

And this latest acquisition you have made, this $300m, is this -- I think there's an option for you to pay 50% --?

Yes, there's an option to do it at 50% in shares and if you do it like at that, it will actually be accretive to our net debt to EBITDA matrix. There is a report that came out today from Moody's which is to say that they view this transaction neutral. But they are quite comfortable with our debt position, etc. So it came out this morning on the wires. You can read that as well.

Can you give us a bit more color, in terms of the rationale for this deal?

The rationale for the deal is, first of all, it's very competitively priced. If you look at deals like this, where you're buying in-production ounces for $100 an ounce, you can't discover and build mines anywhere near for that. And here you've got ready-made infrastructure, plants, facilities on site, with developed ore bodies available to mine today, not sometime in the future.

Secondly, the significant synergies with Agnew, in terms of the Lawlers operation that we think adds significant value as well.

Thirdly, on Granny Smith, the potential for significant life extension at Wallaby North, the underground operation, as we're seeing the same style of mineralization extend further at depth. And in fact, the grades at depth of both Lawlers and Wallaby North part of Granny Smith look as though they're higher. And it looks like the mineralization loads are bigger and wider. And I said that bodes well, I think, for the future. So we see good potential for these assets, way beyond what we've paid for.

Can you just give us an idea about your (technical difficulty) cost and your cash cost? (Technical difficulty).

Sorry Nashir, your line is breaking up. It's a very bad line.

Oh, okay. Let me just leave the floor to somebody else. Thank you. Thank you, gentlemen.

Thank you very much.

(Operator Instructions). We have a question from Leon Esterhuizen from CIBC. Please go ahead.

Hi, guys. Nice deal you've done in Australia, very, very cheap, as you say. But can I just touch on South Deep? It's disappointing, I guess, that we're sitting here again with another downgrade on South Deep. And it's just not getting to where it's supposed to be getting. But I'd like to know why exactly this is the case. Well, since -- we've had a mine visit there, what, two months ago? And the guidance was reconfirmed at that point. The new shift structure was brought in especially and particularly to get to these targets that were set before. And we were a couple of months after that, we're just, again, taking a step back. I wasn't on the call this morning, I'm sorry. But if you could just give us a little bit more color on what's happening at South Deep. Why is it not getting to where it's supposed to be?

I would respectfully disagree with you. I don't think we're making any steps back. I think we're making steps forward. Now if you look at the reef tonnes that are going up, if you look at the results this quarter, if you look at the destress, again, we've had a 40% increase in destress. The new operating model is settling down. It's taking longer to realign people to the new working structures. We'd hoped that it would bed down within three or four months.

We're now sitting, obviously, at the end of June. It's taking a bit longer. But there is nothing to suggest that the ore body is going to give us a different answer. There is also nothing to suggest that this mine can't build up to a production level that's at or very close to what we've indicated at this stage. The key issue here is it looks like it's just going to take longer. And some of the issues that are plaguing us are things like equipment availabilities that are not quite at the levels we need to have them at. That's hindered us, in terms of moving underground material that we've broken, moving it to the ore passes and getting it out of the mine.

We've found that some of the ore passes have been insufficient for us to get the ore out. In some cases, we had ore passes that have hung up. We've had some seismic events that have affected certain of the ramps in the mine. That has also affected the logistics. So we're getting more ore passes, Leon. We're going from six ore passes to nine. That plan is coming in, in stages, between now and March next year. That's going to help to alleviate the backlog on the ground.

Equipment availabilities are improving steadily. And staff are becoming more accustomed to the new operating model. Unfortunately, these things are just taking longer. And I want to flag now that I think it's, again, going to feed through to a profile that will build up over a longer period of time.

But the fundamentals of the build-up plan we believe are still intact. I just want to make that point, in case there's any misunderstanding. Thank you.

Thanks for that, Nick. If I can just push a little bit more on this. When you started the presentation, you said that you're going to have to cut back at South Deep, that the cost structure there currently is too high. Now everything you just said sort of indicates that it's just a little bit behind that you would get there, and that you just need to sort out these intermediate problems. You also, I think before, were guiding for an all-in cost in the order of $900 per ounce, if I'm not mistaken. So if we're still aiming for that and we're still going to get there, but just a little bit later, why are you then now looking at cutting back costs of the labor force at South Deep?

Because I think we're staffed up for volumes and goals that we're not quite at yet. So what we're now doing is we're looking to right-size the operation to where we are. And in the future, if we need to bring back people and contractors, etc. we can do that. My immediate priority is to get the operation to cash break even as soon as we can. And once we've achieved that, then we can look to bring people and costs back into the system.

But I think we put costs into the system, investment into the system when we haven't actually yielded the outputs yet that we've got because of issues I've mentioned. I think Paul wants to add to that.

Yes, I think, Leon, it's also -- you understand we're in a $1,300 gold price environment as well. And it's crucial that all operations in the Group make cash. And this decision was made to ensure that South Deep returns to basically cash neutral and goes cash positive. We've geared up for a higher production level. It's not there yet, so we said, well you've got to change the cost base to meet the current production level.

Well, thanks, guys. I'm sure there's still a hell of a lot more detail there. But I just -- I speak for everybody else I guess, just hoping that South Deep gets there eventually.

Yes, absolutely. We're fully committed, Leon, to make sure that we deliver this mine. I can assure you of that. Thank you.

Okay. Cheers.

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

I don't think so, Dillon. I just want to thank everyone who did join us on the call today. And we look forward to talking to you again in future, either face to face or on the telephone. And if any of you would like to correspond more with us and get more information, please feel free to email Willie Jacobsz. He's here to get your mails and to filter them through to either me or any of the other management members. We really would like to hear more about your questions. And in particular, for those who weren't able to ask all the questions they wanted to today, please take up this opportunity. And I'll also endeavor to speak to you individually, if there's any specific questions, beyond what we've heard today. I'd be very happy to do that, to try and clarify issues.

But with that, we want to thank you for your time. And have a great day. Talk to you again, soon. Bye-bye.

Thank you very much. Ladies and gentlemen, on behalf of Gold Fields, that concludes this conference. Thank you for joining us.

Thank you, Dillon.

You may now disconnect your lines.