Gold Fields Ltd (GFI) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields Q1 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.

Thank you very much, Dylan, and good morning or good afternoon ladies and gentlemen, wherever you may be in the world today. Thanks for joining us to discuss Gold Fields results for the first quarter of 2014.

On the call with me today is Paul Schmidt, our Chief Financial Officer, as always, and Willie Schmidt --

Willie Jacobsz.

Sorry, let's correct that, sorry folks, Willie Jacobsz, as always as well, our Head of Investor Relations.

Let me start with a few key quarterly numbers and salient features. Obviously, no fatalities in the first quarter is something we should not underestimate and we hope that that is the new norm for Gold Fields and its current guys.

Gold production for the March quarter was 557,000 ounces, which is in line with our guidance for the full year. Remember back in February, we said that production for the full year would be 2.2 million ounces. So as you can see, the 557,000 is tracking that. Notably, if you compare this to the same quarter a year ago, we're 17% higher. Our production a year ago this quarter was 477,000 ounces, and now we are 557,000 ounces. The increase is largely as a result of inclusion of the Yilgarn South assets purchased in Australia in October of last year.

At $1066 per ounce, our Group all-in sustaining cost increased by only 1% from the $1054 per ounce in the December quarter. And this also was 18% better than the $1303 per ounce achieved in the March 2013 quarter from last year. So really good to see production up from a year ago sizably, 17%, and cost down 18% over the same period. At $1114 per ounce, the all-in cost, which includes everything increased by only 2% from $1095 in the December quarter. And again, this is 25% better than a year ago in March when we had $1476 per ounce. So major transformation in the Group over the last year, which translates into around $450 million a year of savings that we've managed to realize.

I'd also like to emphasize that the all-in sustaining cost was 5% better than our guidance for the full year, which was $1125 per ounce and the all-in cost 3% better than the guidance for the year of $1150 per ounce.

It's all about cash today and the Group generated $54 million in cash flow from operating activities after taking account of net capital expenditure, environmental payments, debt service costs as well as non-recurring items. This is a 42% increase on the previous quarter, which generated $38 million of cash determined on the same basis.

If you look back a year ago again to the March 2013 quarter, even though the gold price for that period was 21% higher at $1625 per ounce, we had a cash outflow in that period of $46 million. So as you can see, despite the significant reduction in the gold price, the steps we've taken to recalibrate the Company to the lower price has meant we've had $100 million swing in our cash flow from March a year ago to the March quarter today.

Free cash flow margin of 13% was achieved in the March quarter. And that's up from the 11% in the previous quarter, and we give detail as to how that's calculated if you look on page 7 of our results book, which is of course also on the website.

Net debt reduced by $49 million from $1.73 billion at the end of December to $1.68 billion at the end of March. And that's in line with the strategy of aggressively paying down debt with the cash that we generate, along of course with paying dividends in accordance with our policy of 25% to 35% of normalized earnings. So if we make the earnings, we will certainly pay the dividends. And we remain on track to achieve our full year guidance of $1125 per ounce all-in sustaining costs and $1150 per ounce all-in costs with attributable production of 2.2 million ounces, we've reaffirmed that guidance today.

During this quarter just passed, the Group continued to focus on improving our execution and delivery across the Group, and particular attention was focused on improving our margins and cash flow, as you can see from the results, reducing our net debt. Rebates in South Deep to de-risk the build-up plan and look to breakeven on this operation either later this year or during the first part of 2015.

Damang has also managed to replicate very good performance in this quarter as compared to the previous quarter. And I think it's fair to say that we have now consolidated the Damang turnaround and we expect this to continue over the balance of the year. The newly acquired Yilgarn South assets have largely bedded down and have been successfully integrated into the Group. And I think we by and large realized that most of the synergies now and that's reflected in the current costs that we have. But with the pickup in brownfields exploration, as we look to also provide for the future and not just cash flow for today.

I'd like to briefly touch on some of the interventions over the last quarter. Firstly on South Deep, we fundamentally changed the way we manage and execute the project. With the implementation of a comprehensive transformation process to underpin the production buildup and achieve cash breakeven as I mentioned earlier as soon as we can. This is really focusing on improving the skills and mechanized mining culture of the operation, which in turn we believe will improve productivity, availability of equipment, and also debottlenecking the infrastructure underground, all central to ensuring sustainable improvement in performance.

Now part of this transformation process has been the introduction of a team of mechanized mining specialists from Australia, around 15 in total, and from all disciplines, all the way down to double boom rig operators at the face to people specializing in performance management. South Deep employers and their representative organizations, I must say have largely embraced the change, which is comforting to know and I think this helps us to make sure we have a unified team. It's early days, but the signs are encouraging and I'm sure that over the balance of the year, we'll see further improvements in South Deep.

Having said that, of course these changes do come with temporary disruptions, particularly as we reposition the operation. There has been some senior staff changes as well. And that unfortunately has been at the expense of short-term momentum in production as well as reductions and destress mining and development, which compound the effects of the Christmas break that's felt in the March quarter.

Just to remind you, even though South Deep is a continuous operation, we still shut for around 10 days just before Christmas until new year, and typically, you have a slow start as the people take a few days to bank safe and get their productivity levels back to where they were. So seasonally in South Africa, the mines here tend to have a lower March quarter, unusual, and we've not been any different to that.

As a consequence though, really of the transformation intervention, we restated our guidance for the full year to around 10% lower than the full year guidance of 360,000 ounces for South Deep. In other words, 360,000 ounces we now expect to be around 10% lower than that. But that would still be significantly up from the previous year, around about 10%.

The good news is that destress is still expected to be on guidance, at around 55,000 square meters. And that's critically important to continue to provide the momentum for the buildup plan. And we are confident still that we can achieve our all-in cost for the year of $1350 per ounce.

This transformation process should gain traction through the June quarter, and in the second half of the year in South Africa we tend to have also less public holidays. And so we are hoping for a stronger second half compared to the first half with all of these interventions we're putting in place.

Turning to Australia, this is the second consecutive quarter of good performance from the Yilgarn South assets comprising Granny Smith, Lawlers and Darlot, which were acquired from Barrick in October 2013. These assets contributed 115,000 ounces of gold production out of the total Australian production profile for the quarter of 245,000 ounces, annualized at about a million ounces a year, and helped to really reduce the all-in cost for Australia to $1,100 for the quarter.

The integration of the Yilgarn South assets, as I said earlier, has been completed and the synergies largely realized. That said, we've doubled the exploration budget in Australia to $50 million a year, and that's focused on brownfields exploration at all of the mines as we look to upgrade our reserves and resources in this very important region at the end of this year.

Turning to Damang, during the March quarter, it further consolidated its turnaround as I mentioned earlier. And in addition to that, it reduced its all-in cost by 12% to just $1,100 per ounce from $1,261 achieved in the December quarter. And this was the mine that was hemorrhaging cash during the course of 2013, so very, very substantial turnaround and the credit to the team in that region. They've also increased production by 3% to 46,700 ounces and the mine is now being restored to sustainable profitability.

The restructuring of both Tarkwa and Damang have been completed, so we have had further start productions of around about 600 across these operations, and the all-in cost for the West Africa region as a whole has reduced by 8% quarter-on-quarter from $1,132 per ounce to just $1,039 per ounce.

Disposal of the project portfolio does deserve some mention. We've indicated that's in line with repositioning in the Group. We look to sell some of the projects in our extensive portfolio of projects across the Group. So far we've managed to dispose off the Talas project in Kyrgyzstan, that's been done. And negotiations are well advanced for the disposal of one of the other key projects, and we hope to be able to give you more news during the course of the quarter.

On some of the other projects, things are moving slower and I think it's fair to say that conditions for disposal of projects at the moment are not easy. And it may well be that we have to hold off on this. We've contained our holding costs on these projects to a minimum, so there is no issue with us holding on to these projects from a cost perspective, and we'll wait for the right time for us to reconsider all these and some of these projects if we're not able to do sensible disposals at sensible prices.

So, I think with that, that's probably enough of an introduction. We always like to use much of this call as possible to answer your questions which either myself; Paul, our CFO; or Willie Jacobsz, Head of Investor Relations will [intend] to answer.

So Dylan, with that intro, I'm going to hand it back to you for questions.

Thank you, Nick. (Operator Instructions). David Haughton, BMO Capital Markets.

Good morning, Nick, and thank you very much for the update. I have a question for you with the Australian operations. Now that you've had it for, I guess this is the second full quarter, how are you going with your cost saving targets? Initially, your main target was going to be the synergistic benefits of Agnew and the neighboring property. But have you been able to find other cost savings?

Yes. Well certainly David, we've merged Lawlers and Agnew and we are now running only one process plant. That has saved us around about $3 million to $4 million a quarter in terms of running one mill and filling it up as opposed to running two mills that are not fully full to capacity. Across all three mines, we reduced the staff complement by 15% because we didn't feel that we needed all of those people. And also the (inaudible) of Barrick, we only took around about 18 people and they were carrying substantially more overheads.

So, I think it's difficult to compare it on a like-for-like basis. But I think we're round about 10% to 15% lower on our overall costs than what Barrick were when they owned the mines. So, you probably have to look back through the comparison against Barrick. So, pretty much we realized I think most of the benefits in the short term. There are still opportunities for more shared value and shared services type functions between the mines, but I don't think that's going to be that material. I think we by and large bedded down most of the synergies.

At Granny Smith, as you can see, which was the flagship of those three operations, that makes up round about 60% of the production from the Yilgarn and that's coming in under that $900 per ounce. And as my understanding is that's quite a bit lower than what they were operating at under Barrick. That comes back to realizing the synergy. So I think you should look at what we've got now and if you wanted to use that as a projection going forward in terms of costs in production, this is probably a reasonable base to use to project that forward David, hope that helps.

Okay. Yes, it does. So that you know what we see in the current quarter is good for a go forward basis and typically it might be looking at the dollar per ton kind of basis. It's very hard as you may recall comparing to Barrick's cash cost, because Barrick had applied their hedge book against that, and you don't have that buffer.

Thinking about the transfer of the miners from Australia, I presume from big operations that we've just been talking about going over to South Deep, does that -- is there a read through on the need to retrain some Australians for your existing operations there?

To retrain Australians in --

Well, if you've -- yes well, if you've transferred Australians out of your Australian operations into South Africa, then the question I guess is --

No.

Have you depleted some of the skill base that you've got in Australia?

No, because some of those people actually didn't come out of the operations. Some of those people came from outside. The biggest issue was the GM of Agnew, Garry Mills, came out to be the GM of South Deep. And so, we had to replace him and we found a capable replacement that started in January. But of the balance, some of them were internal and going down to people like [John Boedrill] with operators, some were outside but no, it hasn't been a big issue. In fact, we've laid off people as I've mentioned earlier.

And one of the benefits of having a million ounces of production out of WA and the people we've got is that we've got a good talent pool that I would think that we can use in the future for South Deep without impacting the viability of our skill base in Australia. So no, I'm not concerned about that. The biggest challenge of course was to replace Garry which we've done.

Right. With your strategic redirection of moving away from Greenfields and in favor of in-production ounces, you had mentioned that difficulties obviously of selling the kind of projects that you've got in portfolio. You have already had some achievements there and I guess negotiations are underway. But on the other side of that equation, have you been actively looking at in-production ounces as acquisition targets?

Yes. We continue to look at opportunities, David, across the world, and it's difficult to tell you whether we think we'll be able to achieve anything or not on that. But yes, we continue to hunt for I'd call it really bolt-on opportunities of the scale probably not much more than what you're seeing in terms of the Yilgarn. I don't think we'd be looking for major transformational deals, we'd be looking for deals essentially in areas where we're operating if possible so that we can leverage off the same regional cost base and leadership. But let's see. We do like the Americas, Canada is an area we quite like. We like Peru, Brazil and Mexico we think are interesting.

In West Africa, Burkina Faso and Mali are interesting areas. And we like Australia, we like the work ethos in Australia and in fact we've got a strong base there already, there is opportunities to build on that. Somehow we wouldn't be averse to that either, but all of this has to be opportunistic and the chances of getting things done, it's always low probability, but let's see.

Thank you very much, Nick.

Sure. Thanks, David.

(Operator Instructions). Howard Flinker, Flinker & Co.

Hi Nick, hi Willie.

Hi Howard. How are you?

I have three questions. One, what's your -- what was your exploratory expenditure in the current quarter against the same quarter last year?

We'll pull out those numbers, but it's round about a quarter of what it was. If you add up --

Exploration feasibility was --

Three numbers, yes, and associates, just give us a second Howard, we'll just pull it out.

It's $45 million as opposed to $12 million.

Yes, so it's about, it's down three quarters, two-thirds to three-quarters down.

$12 million against $45 million, is that what I heard?

Yes.

Yes.

Okay. Second, if you exclude the Aussie operations, would your production of gold been down about 30,000 to 40,000 ounces year-against-year?

Yes, well it's gone from 477,000 to 557,000, so that's a delta of 80,000. So yes, we're down around about 35,000 ounces and one of the key reasons for that is we've closed down the heap leach operations at Tarkwa, so Tarkwa's production is lower. South Deep, quarter-on-quarter this year versus last year is down all round about 5%, that's not a big change because of the seasonal effects of the Christmas break. But I think if you normalize for Tarkwa, that's the main contributor to the reduction.

No, I was just wondering what it was so that in my mind I can tabulate industry-wide supply, which is shrinking.

It is shrinking for sure on a normalized basis because you take Tarkwa, this year it's going to do 520,000 ounces, last year it did 632,000. So when you are talking 100,000 ounces down and that's 25,000 a quarter and that's almost all of the delta, once you adjust the Yilgarn assets. And as we've said, that's the function of dissolutions getting lower as you get deeper into the pits and it doesn't make sense economically to keep that going. It's got nothing to do with the grades, it's just a function of harder material but that is the main delta year-on-year.

And in the Aussie operations, if you know what they produced last year in the first quarter, what was the change from your ownership and production this year?

I don't have that information. But I think the annualized production that Barrick was doing, maybe David might know this was somewhere between 400,000 and 450,000 ounces out of these assets. But as you said, it's very different cost structure because they tended to account full currency hedges against costs and that makes it difficult to compare it, yes.

And finally, I noticed your taxes, they are almost a 100%. What was that? Did I see it right?

Paul, do you want to --

Yes, you did because the bulk of our interest costs are not tax deductible, nor is our exploration. And the interest costs were quite substantial. So if you start adding that back, you get you know when we normalize, we get to 30% tax rate when you take out that. But we've got a lot of non-deductible expenditure, not at the mine but in the Group level now. The financing sits in the offshore vehicle, certainly not tax deductible nor is any of the exploration costs deductible either.

Is the exploration not deductable because it's in a country that doesn't allow it or is the exploration also in an offshore vehicle?

That was in offshore vehicle, they are not actually, remember if you don't have a income producing asset to knock it off in the same thing, so they are all in different vehicles. So there is no tax base with them at the moment. Only once they become producing can we start getting tax credits for it.

Oh I see and none of your exploration is in say Australia or --

Not the exploration that you see on the exploration line there, no. That is all in Mali, in Canada, in the Philippines where we don't have actually a producing mine.

Yes, I understand. Okay, thanks.

Thanks, Howard.

You're welcome.

(Operator Instructions). James Bender, Scotiabank.

Hi good morning, Nick and team. I just have two questions. My first one is, you mentioned that the production guidance for South Deep is expected to be 10% lower and the overall guidance is unchanged. So does that mean that you that -- is that a rounding thing or is that just that you are offsetting the production with the other assets?

Yes, look I think if you look at the first quarter for example, we did 557,000, which if you annualize that even with a lower production at South Deep, we've actually done better. And we're seeing good performances in particular from Granny Smith and Tarkwa. So, we are confident that the 2.2 million is still a good number even with a downgrade at South Deep.

Okay, perfect. And I noticed that there were about 20,000 ounces at Cerro Corona that were unsold this quarter. Is that expe/tge cted to be sold in Q2?

It was sold three days off the quarter and they couldn't get a ship into the harbor at Salaverry only once we cross the rail at the harbor can we account for the sale. So that was done three days after quarter, so yes it was sold.

Okay. And my last question, your corporate G&A other than share-based payments, that's within other expenses, is that correct?

No, the corporate G&A is accounted for under operating cost. We allocate all our corporate G&A into the mining operations. The other cost, the bulk of that is the initial financing cost of the $1.4 billion facility that we amortized over the life of the loans that sits in that number. And in terms of an accounting standard change, our rehabilitation cost is accounted for under other, it doesn't appear in the amount. That's the two numbers that make up the $11 million.

Perfect, thank you for that. That's all for me.

Thank you, James.

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

Just to thank people for dialing in and as always, if there are follow-up questions that you'll have once you've studied the results in more detail, we realize that it's still early morning in some parts of the world then please feel free to contact either myself or Willie, who I think you all know well, and we will get back to you as soon as we possibly can to clarify any other issues. And with that, I just want to thank you for your time today and wish you a good day. Thank you so much and good bye.

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