Gold Fields Ltd (GFI) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields third-quarter 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 are in the world today. Thank you for joining us to discuss Gold Fields' results for the third quarter ended September 2014.

On the call with me today I've got Paul Schmidt, our Chief Financial Officer. I've also got Ernesto Balarezo, who is our Executive Vice President and head of our operations in South America. And I've also got Willie Jacobsz, our Head of Investor Relations, and Taryn Harmse, our Group Executive Counsel for the Company.

So I'm pleased to report that despite the recent volatility in the gold price, during this past quarter Gold Fields delivered results in line with guidance for 2014. Now, that has enabled us to continue to generate cash, very importantly. That's one of the key objectives of the Company. And at the same time we've been able to further strengthen our balance sheet, which we've done every quarter this year. And I'll talk a little bit more about the details a little later.

Key features for the quarter included a strong performance from the international mines, all seven of which were cash generative, as well as the completion of the production critical safety related ground support at South Deep that we talked about for the first time in May this year, which has really impacted production quite heavily over around about four months to the end of September. Thankfully, that's largely behind us now.

In quarter three, we generated $63m of cash. This brings total cash flow from operating activities for the year to date, after taking account of capital expenditure, environmental payments, debt service costs and non-recurring items, to a figure of $182m for the year. In essence, the business as a whole after all of the bills have been paid has made $182m in three quarters.

Now, I believe that that positions Gold Fields as one of the strongest free cash flow generators in the gold mining peer group. We understand, looking at the comparisons, it places us at number three, we believe, for the year to date.

Now, this effort reflects our continued and firm commitment to generating a sustainable free cash flow margin of at least 15% at a $1,300 gold price. In fact, in quarter three, we achieved a free cash flow margin of 12% against a realized price of $1,265. I think if you recalibrated that price to $1,300, we essentially would have made the 15% this last quarter.

Now, this target of 15% free cash flow margin at $1,300 gold price also ensures that we have a safety cushion to withstand gold prices down to lows of around $1,050 per ounce. We had an eye on the potential of lower gold prices, and that's one of the reasons we incorporated this cushion into our planning.

Together with the achievement of the free cash flow margin, and despite the severe curtailing of mining related activities at South Deep because of the safety related ground support, Gold Fields remains on track to achieve its production guidance for the full year 2015 of 2.2m ounces of gold equivalent production.

An additional positive is that costs are now expected to be lower than guidance, with all-in sustaining costs 3% lower at $1,090 per ounce and all-in costs 2% lower at $1,130 per ounce.

Continued strong cash generation plus the sale of our holding in the Chucapaca project during the quarter enabled the Group to make further progress on another key strategic objective for this year, and that is to further improve the strength of our balance sheet by reducing net debt by a further $137m during the quarter, taking our net debt down to $1.498b at the end of the quarter.

Now, if you look at the year to date, that means that we've reduced our net debt from January 1 through to September by $237m, and that lowers the net debt to EBITDA ratio down to 1.33.

Looking at the individual regions across the Group, the four mines in the Australia portfolio reported gold production of 269,000 ounces at all-in costs of $990 per ounce. This brings total production for the year to date to 771,000 ounces in Australia at an all-in cost of $1,043 per ounce, and that compares to the guidance for the full year of 975,000 ounces at an all-in cost of $1,130 per ounce.

Over the past 12 months, since acquiring the Yilgarn South assets from Barrick in October last year, Gold Fields' Australian operations have produced more than 1m ounces of gold.

A key strategic objective of the Australia region continues to be significant investment in near-mine exploration. $65m of near-mine exploration at all of our mines this year is aimed principally at improving the mineral resource and reserve positions of all of these mines over the next two to three years. It's going to take us more than a year to achieve the goals we want, and I would expect that in 2015 we will be spending similar or slightly additional amounts on exploration to drive this objective hard over the next two to three years.

It's early days, but I must say we're showing early signs of success across the Australia portfolio. And that's not surprising given the orogenic nature of these ore bodies, which tend to continue to replace reserves that are mined every year. We want to try and get a little bit ahead of that, but that's going to take us two or three years, we believe, to get there.

At St Ives, early capital development has commenced on the newly discovered high-grade Invincible deposit, with a view to getting first open pit production by the middle of the year. And remember, this is an open pit deposit with grades between 3 and 4 grams a tonne, and that compares to the average grades we've been mining at St Ives from open pits over the last five years or so of between 1.5 and about 1.8 grams per tonne. So it is going to make a difference to the mine.

At Agnew/Lawlers, access development has also commenced into the new high-grade underground FBH deposit, where first production is also expected around about the middle of next year. Now, just to orientate you, this is a deposit that is adjacent to the Kim Lode which we've been mining for the last eight years or so, and we're looking at really good grades here, double-digit grades in FBH. So I think we're going to continue to see good results coming out of Agnew/Lawlers.

At Granny Smith, exploration results during the quarter provide further support for the replication of numerous deeper lodes in the Wallaby underground deposit, and we'll continue that work into 2015.

If I could go across to Africa and into Ghana, Tarkwa's year to date production of 425,000 ounces at an all-in cost of $1,045 an ounce is on track to better its 2014 production guidance of 520,000 ounces at an all-in cost of $1,100 per ounce.

The expansion of the Carbon in Leach plant from an annual throughput of 12.3m tonnes to 13.3m tonnes per annum has progressed well, and this program is expected to be completed by the end of December. And this expansion should enable Tarkwa to increase its steady state production to around about 550,000 ounces per annum.

Now, this expansion was very cost effective. It really entailed some modifications to the backend of the plant, getting some additional piping in place to the tails facility, and I think we're going to end up spending less than $10b in expanding the throughput by 10%. A very good project for Tarkwa.

Turning to Damang, it further consolidated its return to profitability with another strong performance, and this has now been three quarters in a row that we've seen a sustained turnaround at Damang. With a year to date production of 130,000 ounces at an all-in cost of $1,210 per ounce, Damang is also on track to exceed its 2014 guidance of 165,000 ounces at an all-in cost of $1,240 per ounce. So I think we'll end up beating both the production and cost targets there, and I think 2015 is looking reasonably good for Damang, as we've mentioned before.

Cerro Corona, our copper/gold operation in Peru, had another outstanding quarter with gold equivalent production up by 10% to 85,000 ounces at an all-in cost of $718 per equivalent ounce. And Corona is on track also to exceed its production guidance for the year of 290,000 at $865 per equivalent ounce.

I'm delighted that Ernesto could be with us today, who has come from Lima. And after the call, if you have some specific questions for him on the operations, this will be a great opportunity for you to ask him directly.

Finally, let me deal with South Deep. Gold production at the project decreased by 18%, as expected, during the September quarter. This was mainly as a result of the ground support program that was announced in May, where a significant part of the current mine's production was knocked out as we had to close down the access ramps, and some of these access ramps were the only way that people could get to the workings. Thankfully, that program is behind us, as I've mentioned, and all of the production critical areas have been reopened.

I must say I think that the fact that we only limited the decline in production at South Deep by 18% I think is a great achievement from the team, given the constraints they operated under, and we certainly hope that South Deep will come back strongly.

As I said, the production critical support has now been completed, and access to the production areas was reestablished at the start of the current quarter that we're in now. However, this program, of course, delayed destress mining and the opening up of a number of long-hole stopes that were originally planned to be mined in the December and March quarters ahead of us. And the other thing that it impacted is backfill of old stopes, which of course is an integral component of the mining cycle, and so we have backlogs there that we need to catch up as well.

While we expect that this will have a commensurate knock-on effect on output, we think that production will gradually ramp up or improve over the next couple of quarters, as new areas are opened up, and we're certainly trying to get back into some of the open stopes as quickly as we can.

Now, the impact of this delay, and it's around about a six-month to eight-month delay if you take into account the full knock-on effects on the open stopes and destress, are still being assessed, and we'll have a better idea of what 2015 is going to look like for South Deep when we give our guidance for 2015 in February. And we're still working through that, obviously, and we'll be able to give you an update as to what next year will look like in February, when we announce our results on February 12 next year.

The Australian team of consultants at South Deep continue to contribute to the upskilling of our people and are helping us to develop a truly mechanized mining culture at South Deep. Particularly pleasing is that South Deep is now starting to attract talent from the highly sought after, albeit small, South African mechanized mining skills pool.

And we were fortunate in persuading Nico Muller, who was formerly the Chief Operator Officer of Royal Bafokeng Platinum, to join Gold Fields as Executive Vice President for the South Africa Region, and he's joined us on October 1. He's recognized as one of the top mechanized mining experts in South Africa.

In closing, I want to briefly refer you to two corporate developments during the quarter which are detailed in our quarterly results book. There's a tax dispute over South Deep's capital allowance, and Paul Schmidt who is here can give you more details on that if there are questions. It is set out in the book, but he's here and he's the expert in this area so he can answer questions on that.

And also, just to remind you about this week's announcement of a joint working group by SA gold mining companies to try and find a comprehensive solution to the occupational lung disease issue that's been a legacy problem in this country for some time.

Well, thanks for your time. I'm sure that you've got some questions. So I think, without further ado, let's open up the lines for questions, and either myself or my colleagues with me today will endeavor to deal with the matters you want to raise.

Dylan, with that, I'll pass it back to you.

(Operator Instructions). Patrick Mann, Deutsche Bank.

Hi. Good afternoon, guys. Just a question on South Deep. If the ground support hadn't been necessary, do you feel that you would have been on track with the revised guidance that you gave us earlier in the year, or have you encountered anything else that might have put that at risk regardless of the ground support conditions? Thanks.

Yes. Look, what I would say, Patrick, is up to Easter we had really built up good momentum at South Deep and we were starting to see a really good buildup. And unfortunately, with mines like this, when you pull back their momentum and their rhythm it takes a while to reestablish it. So I think up until Easter it was really looking good, and so the decision that I had to make with the team to pull back the mining and fix the ground support was obviously a heart-wrenching decision, particularly when you were seeing momentum getting up there.

And yes, of course, we've lost the balance of the year, really, compared to where we were going to be. Impossible to say, Patrick, but what we've got to try and do now is reestablish the momentum we had, that we saw around about March, April, before we pulled back in May, and that's going to be one of the key objectives going into this quarter and into next quarter.

Okay. Thanks a lot.

(Operator Instructions). Mike Jalonen, Merrill Lynch.

(Technical difficulty).

Howard Flinker, Flinker & Company.

Thank you. Hello, everybody.

Hello, Howard.

Hello, Howard.

I just want to comment; it is very rare for a company to deliver lower revenues and higher profits. Even if you exclude the lower stock payments and exclude the foreign exchange benefit, you still had slightly higher profits. That is highly commendable and is a pretty encouraging sign. I just wanted to pass that on. In any industry, I see that extremely rarely, less than one out of 100 times.

Howard, we really appreciate that. And one of the reasons the revenue was lower is that we couldn't sell all of the concentrate at Corona, but Ernesto is with me today and he might want to comment on what he expects to do on that concentrate that wasn't sold in this quarter.

No, it has already been sold. And we had some problems with the port. We sometimes have those. But the problems have been solved and we are aiming to get everything out by the end of the year, everything we produce.

One thing about gold is that it's not oranges or eggs. It doesn't decay next week so you can sell it tomorrow.

Yes.

That's why people save it. Adjusted for your dispositions and your acquisitions, in either ounces or metric tons, how much did actual production decline year against year, third quarter against third quarter, just roughly?

In fact, Howard, if you look at the same quarter last year, I think we're up almost 20% on our production because of the acquisition of the Yilgarn South assets. And also I think --

Yes, I know.

If you look at our all-in costs, I think we have managed to keep them pretty much in line overall. So we've been able to increase the production and we've been able to absorb inflation and improve the cash generating ability despite the lower gold prices. But all of this I think you (multiple speakers).

Yes. I understand Yilgarn. You and I discussed it one time at lunch. It was a great purchase. It was really cheap. But if you take out Yilgarn or the Aussie assets and measure what you had before against what continued, can you remember what production was year against year? Excluding acquisitions and dispositions, what would it be?

I think we were reasonably flat, Howard. I think the -- if you do the reconciliation, I think most of the increase was from Yilgarn. But we have to remember that we also shut down the heap leach at Tarkwa --

Yes, I know.

So Tarkwa was off. So I think if you rebase Tarkwa for the heap leach and take that out, we would have been flat, so we were slightly off there. Damang, I think we were similar. South Deep is off, but I think you'll find South Deep and Tarkwa is probably offsetting each other. And then St. Ives and Agnew, between them, I think are fairly similar. So all in all, I think the portfolio ex the Yilgarn South assets was reasonably flat.

I forget who -- did IAMGold buy the rest of Tarkwa? Was it IAMGold?

Yes, we bought it back from them. So the government owns 10%. We own 90% of Tarkwa and Damang. So the government's got a free carry of 10% in Ghana.

I thought you said you closed or sold Tarkwa.

That was the heap leach.

We closed --

Oh, the heap leach.

The heap leach operation we closed. We said that we would be closing that at the end of December last year. We did so. So that knocked out around about 120,000 ounces a year. And the reason we shut that is because recoveries had declined, we were getting deeper into the ore body, and it didn't make sense to leach them; it made more sense to process them at the CIL plant.

So that was 120,000 ounces a year. So from the point of view of industry wide demand and supply, that shutdown reduced production by about 4 metric tons?

Yes.

Okay.

I think the other thing, Howard, is we moved away also from thinking about ounces to cash, and I think if you look at the Group this year we're making a lot more cash than we were last year.

Yes, we made -- Howard, for the quarter last year we made $3.1m as opposed to the $62.5m, with a lower gold price. So we've done well.

$62.5m was after payment of principal on debt, correct? (Multiple speakers) something before that?

Yes. I'm just comparing debt service costs, not debt repayment. So it was $3.1m from operations as opposed to $62.5m this quarter, almost a $60m increase with a lower gold price.

So that's including (multiple speakers).

Yes. No, no. I thought the $62.5m came after the quarterly payment of principal. Am I incorrect?

No. It's including debt service, but before principal. It doesn't include the principal repayment.

Oh, I see. Interest but not principal. Okay. I misunderstood.

No problem.

Okay. Nice job, guys. Thanks.

Thanks very much, Howard.

Patrick Mann, Deutsche Bank.

Hi. Sorry. I was on mute there. Sorry about that. I just had a follow-up question, quickly. The South African gold industry has to renegotiate wages this year, or next year, rather. How are you guys feeling about that? I know that your NUM majority and obviously being a mechanized mine you've got more skilled, better paid employees, but do you foresee any difficulties at your operation? Is AMCU making any headway or trying to? And can you just remind us of the situation there, please? Thanks.

Yes. NUM represents around about 70-odd-percent, early 70% of the workforce, OASA represents around about 10%, and the rest of our employees are not affiliated at this stage. So we don't have AMCU on the mine at this stage, but it's obviously no secret that they are aggressively trying to recruit members across the industry, including at South Deep. So we can't discount the possibility that they will be a union that is recognized at South Deep, but right now they're not.

In terms of the wages, it's far too early to conclude on where the wages are going to come out, except to say that we expect this year to be as challenging as all of the prior years. I think they always are a challenging situation.

Now, one of the benefits of gold in this country, Patrick, is that we negotiate as a collective, as opposed to platinum which negotiates independently. But that said, although it's a strength, I think we're all expecting difficult times on the wage negotiations.

I think, though, you have to get a steer from some of the settlements that have been made in this country by the public sector and also private sector. That would give you an indication as to what is likely. But we certainly, as an industry, don't have the capacity to pay significant wage increases that may be asked for and sustain the operations.

So I think it's going to be tough, but usually we end up with a solution. Whether or not we're going to need a strike to get to a solution remains to be seen, but I wouldn't discount that as a possibility.

Great. Thanks.

(Operator Instructions). Nick, we have no further questions. Do you have any closing comments?

Well, thanks very much for joining us today. I think that you've seen our results for the quarter. Importantly, they are in line with guidance. And we are certainly aiming to finish the year off on a high note and make sure that Gold Fields can achieve its guidance for the full year, which would be the second year in a row that we've achieved or over-achieved on our guidance. So that's our commitment that we want to achieve, and we want to do it safely and healthily for all of our employees.

So thanks once again for your participation today, and we look forward to catching up with you soon. Thank you and bye-bye.

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