Gold Fields Ltd (GFI) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields fourth-quarter and year-end results. (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, Dylan, and good morning or good afternoon, ladies and gentlemen, wherever you may be today. Thank you for joining us to discuss the Gold Fields results for the fourth quarter and also for the full year ended December 2013.

With me today are Paul Schmidt, our Chief Financial Officer, and of course Willie Jacobsz, our Head of Investor Relations.

As you may recall, in mid-2012 Gold Fields embarked on a fundamental shift in its strategy, moving away from purely ounces of production to a primary focus on margins and cash flows. And to this end, and to sustain our business in the long term, we started a process to engineer a sustainable and structural shift in the Group's cost and production base. And this process continued through the December 2013 quarter, and the results that we publish today reflect much of the progress that we've made over the past 18 months.

However, let me start with a few of the key quarterly numbers and some of the salient features. Gold production up 21% on the previous quarter at 598,000 ounces, and this includes the first contribution from the newly acquired Yilgarn South assets in Australia, which contributed 114,000 ounces during the quarter. Normalized earnings, $14m compared to $12m in the September quarter, and the comparative period last year $127m, of course, with a much higher gold price.

Encouraging is the fact that net cash generated by our business, our core business, that is, before financing and any other acquisition costs, was up from $3m in the September quarter to $38m in the December quarter. This is despite the fact that, at $1,265 an ounce, the average gold price in December was 4% lower than the September quarter.

And this really has been the crux of our restructuring, is to return the business to cash generative after what has been a very difficult year, with the gold price having declined significantly.

We've declared a final and full-year dividend of ZAR0.22 and this dividend is in accordance with our policy, which is to pay out between 25% and 35% of our earnings. And this really is about midway between those two points on the curve and our policy remains unchanged, as it has done over the last four years.

Impairments of $672m have been incurred, principally in Australia and Ghana, and that's solely as a result of the lower gold price and higher discount rates used to discount future cash flows.

Just to clarify here, essentially, we haven't really had any significant technical remodeling of our ore bodies; this really represents a change in the economics as a result of the lower prices and the higher discount rates.

As far as costs are concerned, I'm pleased to report that we have continued to make good progress. In the December quarter, all of our mines except for South Deep, which is still a project in build-up, had costs below the gold price for the quarter, which as I said earlier was $1,265 per ounce.

The Group's all-in sustaining cost for the December quarter is $1,054 per ounce, and that's 3% lower than the $1,089 per ounce achieved in the previous quarter and a 24% improvement on $1,383 per ounce reported in the comparative quarter of 2012. And I think that gives you an indication as to how much has been taken out of the cost base, dropping from $1,383 in December 2012 to $1,054 December 2013.

In our opinion, all-in cost is the more appropriate number, as it includes all costs including all capital. So it doesn't leave any judgment as to what we believe is sustaining or growth. In fact, in this industry, we would argue all if not most of capital is in fact sustaining.

Gold Fields' total all-in cost of $1,095 per ounce for the December quarter reflects an improvement of 7% on the $1,176 per ounce achieved in the September quarter, and again a 32% improvement on $1,621 per ounce in the comparative quarter of 2012. Again, you can see a massive shift in the cost base from $1,621 to $1,176.

If South Deep is excluded, then the Group all-in cost is $1,040 for the December 2013 quarter. Now, I say that because South Deep is still a mine in ramp-up; it hasn't yet got cash positive. That does, however, indicate the robustness of the rest of the portfolio, which includes, of course, the Yilgarn South mines.

Based on the annualized results for the December 2013 quarter compared with the results for the yearend of 2012, we have through the course of 2013 eliminated approximately $450m from our cost capital and international projects and growth expenditure. Our costs are now approximately the same as they were three years ago, despite double-digit mining inflation in some of the past years.

I'd like to talk about specific interventions we've implemented at our mines in pursuit of cost savings and efficiency initiatives. At Lawlers and the adjacent Agnew mine, the services infrastructure and human resources have been consolidated, and the mine in a short period of time has now been operated as a single entity. The Lawlers processing plant has been closed and all material is now transported to the Agnew plant. During the December quarter, the combined Agnew/Lawlers mine produced 74,000 ounces at an all-in cost of $929 per ounce.

Granny Smith produced 62,000 ounces at an all-in cost of $888 per ounce. The Darlot mine, which was previously a loss-making operation, the third of the three mines we acquired from Barrick, achieved production of 20,000 ounces in the quarter at an all-in cost of $1,132 per ounce. On a consolidated basis, the newly acquired Yilgarn South assets produced 114,000 ounces at an all-in cost of $940 per ounce during the quarter.

During the December quarter, both Damang and Darlot implemented a range of operational improvements, which have significantly reduced their costs and enabled them to return to profitability.

Damang produced 45,000 ounces at an all-in cost of $1,261 per ounce in the December quarter. This compares to 33,000 ounces produced in the previous quarter at an all-in cost of $1,727. In other words, we've seen around a $500 an ounce decline in all-in costs. We believe that the performance of Damang during the past quarter is a good platform, and that the interventions we have made in the past quarter have given Damang a new lease of life.

At Tarkwa, the north heap leach operation stopped at the end of December and will be reflected in the results of 2014 onwards.

Let's talk about South Deep briefly. During 2013, South Deep continued its positive build-up trajectory, with gold production improving by 12% to 302,000 ounces in 2013. Importantly, the critical destress mining increased by 24% over the year and is now more than double of what it was two years ago. South Deep is also continuing the process of right-sizing the cost base in line with the mine's production profile, and its cost performance in the December quarter reflects the work that we have done to date.

South Deep's all-in cost for the December quarter was $1,436 per ounce. This is 10% lower than the previous quarter but, more importantly, 35% lower than the March 2013 quarter, when it was over $2,200 per ounce. I think this gives a clear indication that South Deep is getting closer to cash breakeven as it builds up its production.

Over the past six months, we've done a comprehensive review of the build-up plan for South Deep, and we've today provided information on the revised ramp-up schedule for the mine. The outcome of this review that was announced on August 22 last year is that South Deep is expected to ramp up to a steady state production run rate of between 650,000 and 700,000 ounces per annum by the end of 2017, at an all-in cost of around $900 per ounce.

During 2013, we also saw the rationalization and prioritization of all capital expenditure and where appropriate the deferral of non-essential capital expenditure, and that remains a key focus for 2014. Capital expenditure for 2013 was reduced by $230m from $970m to $740m. In fact, it was significantly lower than the $1.2b we spent in 2012. This is expected to fall below $700m during 2014.

We also completed the break-up of the growth and international projects division and the commensurate reduction of all GIP related expenditure from approximately $281m in 2012 to $162m in 2013, and a projected $46m in 2014. As you can see, a very, very substantial reduction from what we spent in 2012. We've reduced our exploration portfolio to only a handful of the best projects, all in the Americas, and relocated responsibility for these projects to our regional management.

This is not to say that we have abandoned growth in Gold Fields. In fact, growth is important, but we believe the key growth metric that we should be looking at is not a growth in ounces but a growth in cash flow, and that really is our mantra going forward. We want to grow the cash flow of Gold Fields. If we can do that with more ounces or less ounces, we're quite neutral on that, but the important thing is we want to grow the cash flow.

I think the days of just wanting to grow tonnage and ounce profiles are over, certainly for us; we want to grow our cash. If we can grow our cash, we can pay more dividends and we can certainly then look around for other opportunities if we want to grow the portfolio, but this is the first and most important platform for the future.

An important change in our portfolio in the last year is we've changed the geographical footprint of the Company significantly. In February, we unbundled Sibanye Gold into a separate company. The fact that Sibanye is doing as well as it is is a great comfort, as that is exactly what we envisaged when we conceived the strategy to unbundle it and give it to our shareholders. Neal Froneman, the CEO, is doing a commendable job, and we believe that this strategy has created value for our shareholders.

In October, we finalized the acquisition of the Yilgarn South assets in Australia.

Lastly, as a result of these two transactions, the Sibanye deal and the Yilgarn South deal, Gold Fields is today a very different company from what it was in 2012. We now source 43% of our production from Australia, 31% from Ghana and 13% from each of Peru and South Africa.

Before I end, I'd like to make a few comments on our balance sheet. Our total outstanding debt is $2b, and after cash our net debt is $1.7b. Based on our December results annualized, our net debt to EBITDA is 1.5.

Important is to mention that we have a conservative debt maturity ladder. 49% of our debt is a 10-year bond with no covenants and a fixed coupon of 4.8%, and that matures in October 2020. A further 35% of our debt, or some $700m, has a maturity date at the end of 2015.

Whilst this is not an onerous maturity schedule, we continuously look at ways in which we can position ourselves better. We also have around $750m of committed headroom, should we need it. And just to remind you that that 1.5 times net debt to EBITDA is well within our debt covenants ratio.

Finally, other changes that we will see in 2014 include that from quarter one Gold Fields will exclusively report its costs in accordance with the new World Gold Council definition for the all-in sustaining costs and all-in costs. And we'll be no longer reporting cash costs, which in any event we believe is misleading, and notional cash expenditure. So from quarter one 2000 (sic - "2014") onwards, you will only see those cost metrics as we actually identified back in August and in November.

Also, from quarter one next -- or this year, rather, Gold Fields will report in US dollars only, as we believe that it is now appropriate to unitize our reporting in US dollars, given that we have a global portfolio of assets.

Thank you very much for your time. I'll now open the line for questions and either myself or Paul will do our best to answer your questions. Thank you very much.

(Operator Instructions). Patrick Mann, Deutsche Bank.

Hi. Good afternoon, guys. Sorry, just two follow-up questions. On the depreciation, it was obviously up 24% from the previous quarter, and that was attributed to the acquisition of the Yilgarn South assets. Quite a detailed question; where do you see that going next quarter, given that we've had the large impairment at the end of this quarter? Are you expecting it to remain so high or should it take a step change down again?

And then one more question. Just no impairment at South Deep in this round of impairments, is it possible that it could be impaired? Have you done an impairment test and could you just give a bit of color on that? Thanks a lot.

I'll talk to both. I'll talk to South Deep first. South Deep has got quite a lot of headroom in terms of the impairment calc, so I don't see any impairments of South Deep in the foreseeable future. Of all our assets, I think it's one of the ones with the biggest headroom.

In terms of the depreciation, yes, with the impairment of the assets in Australia and Ghana, we must probably expect in the region of about a 10% decrease in depreciation from what you saw this quarter.

Great. Thanks so much.

James Bender, Scotia Bank.

Thank you. Hi, everyone. I know, Nick, you mentioned that you will no longer be providing total cash costs as guidance, but just to help us out for 2014, would it be possible for you to give us a ballpark of what the 2014 total cash costs would be?

No, we're not reporting it. As we said back in August, we want to move off cash costs. We don't believe it's an appropriate measure and we are driving ourselves towards all-in costs, as I understand the other members of the industry through the Council have agreed to. So we won't be providing that in the future. We gave significant advance warning on that, and we believe best indication of costs is the all-in cost and all-in sustaining cost so that's what we're going to be reporting.

Fair enough.

Thank you.

Thank you.

(Operator Instructions). Brian Nunes, Gramercy.

Hi. Good afternoon. Thank you for the call and congratulations on the results. Just a few questions, if I may. Your forward-looking guidance of an all-in cost of $1,150 per ounce for 2014, is that still taken at a 15% -- planning a 15% free cash flow margin, so I can assume you're planning on a $1,350 gold price?

Yes, what we're doing is we're striving to get every asset to make a 15% cash flow margin. Now, obviously some of them make it and some of them don't make it. Clearly, South Deep, we'd like to try and get it as close as we can to breakeven. Mines like Damang, we're losing money, so just to get them positive I think will be a good start. Darlot also was losing money, so to get that positive would be a good start.

So, on a blended basis, we don't get every asset to 15%, but we get Australia pretty close to that, we believe, at that price, and also Tarkwa. But that's really the target. On a blended basis, we don't quite achieve it, but we're moving towards that. So I think that should indicate to you why the numbers don't quite back calculate.

Yes, we're using used this $1,300 gold price, but I think the one thing you must remember, that in our all-in and all-in sustaining cost we have share-based payments. At Gold Fields we issue shares and that's not a cash expense. So if you back that up, our actual cash number is a little bit lower than that and it comes closer to the 15% at a $1,300 gold price.

Understood. Yes, okay. Thank you. And then, if I see the exchange rate you're using there is a planning exchange rate of ZAR9.50 to the dollar, given that I would expect a lot of your -- for, say, South Deep and even in Ghana, a lot of -- no, let me just take South Deep. A lot of the operating costs in terms of labor are rand based. If you see a weaker rand, would that benefit you?

Obviously, in terms of a weaker rand, we benefit in terms of the revenue line. For South Deep, on the operating costs line probably 95% of the costs are South African sourced. The only exposure that they have is to some of the capital fleet that comes in from Europe. But yes, a weaker rand would definitely be advantageous to South Deep in the short term, and in the long term we would have advantages.

Okay. And then, could you give a little bit more color on what you did with the Damang asset? You've gone through this review on how you plan to utilize it going forward. It seems like you're going to continue forward. But maybe if you can just give a bit of color of what you're actually mining at the pits and -- I'm just not clear on that, if you could.

Yes, sure. So, if you can recall, Damang was made up of three principal ore sources. It was the Huni, the Saddle and then Juno were the three sources. And our original plan was to try and come up with a big bang consolidated approach to that ore body and see how we could tackle 6m to 7m ounces in the ore body. We realized that at a $1,300 gold price, that strategy isn't going to work because of the strip ratios, in particular, and that the best strategy for us is to actually mine this ore body incrementally as we go.

So what we're doing now is we're mining the Juno area. That's probably the focus of about 40% to 50% of our mining. And then we'll be mining judiciously into the Saddle area, into a very different style of mineralization that has high grade but shallower bands of mineralized zones, and we need a different approach to that, and also getting into Huni. And that is going to give us, we believe, a much more sustainable cost base. And we'll learn more about the ore body as we get into it.

And ultimately, to bring forward some of the resource that's gone in reserve -- we have a reserve of 1m ounces and a resource of about 6m -- we would need to do a push-back of the original Damang pit at some point in time. But we believe that's at least five years off, and we've got enough ahead of us to economically mine, at around $1,300 gold, 1m ounces over the next five years. So that's going to be our approach, and then also to look at satellite pits along the trend and give ourselves more flexibility and options as we get into the pit.

So, as we learn more about the Saddle area, as we learn more about Huni, we may adjust our plans going forward. But for now, we want to make sure that we generate cash, that we maintain a profile that gives us a reasonable contribution of gold so that we can cover all of our costs, and that we can make a return sufficient to at least provide more exploration dollars and give some money into the central coffers.

So this will be very much, I think, an interim phase, but in the worst case scenario we're comfortable we have five years, but we'll continue to look for ways to optimize the ore body and see how we can bring forward more ounces.

So this is now our strategy, really, of saying how do we digest this elephant in smaller bite-sized chunks, as opposed to trying to develop it all in one big bang, which I think at these prices is going to be too risky.

Right, right. No, thank you for that. That's good. Two more questions, if I may. The $720m due -- I think that's due February 2015, GFI joint venture holdings -- no, no. That's not that. Sorry. What is the $720m? You've got -- it's a revolver that's coming due. What is your drawn -- $720m at GFI joint venture holdings is drawn; it's a loan drawn. Which asset is that serving? Is that serving the South Deep asset?

No, I think you've got it wrong. If you're talking about the $720m, that's a dollar facility. It's got nothing to do with South Deep. It's one of our offshore borrowings. And it expires in November 2015 and we have the option to invoke a one-year extension to it as well, which obviously we most probably will take up. So in reality that will only be due and payable at the end of 2016.

Okay. So that's the $720m maturity that Nick referenced earlier?

Yes, that's correct, yes.

Okay, one-year extension. Okay. And that's held, is that, with a bank, or is that --?

No, that's a syndicated bank loan. We have 16 banks in our syndicate and they lent us those two $720m facilities that we had. We initially had a $720m revolver and a $720m term. We subsequently changed the $720m term to a $100m term and a $620m revolver.

Got it. Got it. Okay. I can update my notes on that. Okay. So that actually is not due February 2015, it's November 2015?

November 2015 is right, unless we enforce the one-year extension, yes.

Got it. Got it. And then, just to the last question, if I may. In South Deep, you had a couple of -- you were going to -- part of the -- I'm a desk guy, so I'm not a geologist. Sorry about this. But the part of the issues with ramping up South Deep was the availability of the underground fleet and putting in new workshops, and there were a number of workshops coming online during this year. Is that still on track and to be met? Do you see that debottling?

Yes. We've got a brand new workshop on 93 level that we expect to commission this time next year, at the latest. In fact, we've finished blasting it out and we'll be spending the rest of this year just doing the support and the equipping of the workshop. So we're well underway to make sure that that's being commissioned.

But we're not waiting just for that, we're also debottlenecking all of the existing workshops, to make sure that we can actually improve the space that we have for maintenance of our fleet. So that's all on schedule and we're seeing improvements on that.

Great. Okay. Thank you. No further questions.

(Operator Instructions). James Bender, Scotiabank.

Hi again. I just have a follow-up question on the previous question on the foreign exchange. I just want to confirm that you said that 95% of the operating costs there are in rand. And then my follow-up question is whether you have any hedges in place.

No. We had some currency hedges which expired at the end of 2013. We have none at the moment on the rand/dollar or on the Aussie dollar/US dollar.

And the 95% was correct, I heard that right?

Yes, that's correct. We're saying circa 95% of operating cost is rand denominated, not influenced by dollars at all.

Perfect. That's it from me. Thanks.

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

Well, I'd just like to say thank you, everyone, for dialing in. And for those of you that we may see around the world in the next couple of months to go, I'm sure that we'll have an opportunity to hear more of your questions. But thanks for your time, everybody, and have a great day.

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