Gold Fields Ltd (GFI) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields fourth-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 afternoon, ladies and gentlemen, or good morning, depending on where you are in the world today. Thanks for joining us to discuss Gold Fields' results for the quarter ended December and also the financial year ended on the same date.

On the call with me today I've got Paul Schmidt, our Chief Financial Officer. I also have Nico Muller, who's the Executive Vice President for the South Africa region. I have Avishkar Nagaser, who is our new Head of Investor Relations, also Willie Jacobsz who heads Investor Relations now for North America, and of course Taryn Harmse who is our Group Legal Counsel.

Before we go into the Q&A, I'd like to give a few salient comments and numbers, and then we'll dedicate as much time as we can for any questions you might have.

Starting first of all with safety, we reported no fatalities in the December quarter and saw a strong overall safety performance of our international operations. In fact, over the year to date, we reduced our total injury frequency rate by 18% compared to 2013. Regrettably, during the past year we had three fatalities. These took place in the earlier part of the year and all of them were at South Deep.

Our strategy continues to deliver sound results. In quarter four, our production was virtually unchanged at 556,000 ounces. For the year as a whole, production was up by almost 10% to 2.22m ounces for the 2014 year.

All-in costs fell by 4% during quarter four to $1,047 per ounce. And for the year as a whole, all-in costs were 17% lower than the previous year at $1,087 per ounce.

Normalized earnings for the December quarter were $17m, compared with $23m for the September 2014 quarter, resulting in normalized earnings for the year of $85m.

Despite a 7% lower average gold price during the December quarter and a 10% decrease in the gold price during the year, the Group generated positive cash flow from operating activities of $54m for the quarter ended December, and for the entire year 2014 we generated $235m. And this is before any asset disposals. This is the core cash flow from the operations. That's after all capital expenditure, after all taxes, royalties and other disbursements.

Our ability to operate successfully in the current low gold price environment is no accident. It is due to the significant transformation that Gold Fields has undergone over the past two years. The strategy has certainly yielded the results that we were looking for, and we hope that this will continue to yield positive results in the future, even if gold prices may decline.

Our improved cash generation enabled us to address two of our key strategic imperatives. We continue to make significant progress in reducing debt, which declined from $1.498m (sic - see press release page 3 "$1,498m") at the end of September 2014 to $1.453b at the end of December 2014.

The further $45m reduction in quarter four takes total net reduction in debt for the year to $282m. So that's what we've reduced debt by over the year, $282m, and it's lowered our net EBITDA to debt ratio -- net debt to EBITDA ratio, rather, to 1.3 at end December. Now, that's a key metric that is included in our loan covenants, and typically our loan covenants are at about 2.5, so good to see that we've got substantial headroom relative to those covenants.

In line with our policy, we declared a final dividend of ZAR0.20 per share, and that translates to 34% of normalized earnings. It brings the total dividend for 2014 to ZAR0.40 a share. And this makes us one of the few companies in our peer group to achieve strong cash returns and reward shareholders by paying dividends from these cash returns.

Turning to our regional performances, we need to start with South Deep. A number of issues arose during 2014 which highlighted the numerous challenges facing the mine. These included the ground support remediation program and a skills deficit in mechanized mining practices, as previously indicated.

Now, with the ground support program, just to remind people, we had to close around about 70% of the production down at the mine for around about four months. And as you can imagine, this has had a material knock-on effect in terms of our ability to get to the big open stopes that previously we thought we'd be able to achieve. I did indicate to you in November that this would have a knock-on effect in 2015, and clearly in these results and with the guidance given for 2015, you can see that this is evident.

In view of these issues, Gold Fields has decided to take a step back and get the basics right on the operation, and rather set the foundation to unlock the long-term value inherent in the asset. As opposed to trying to chase long-term targets, our main focus right now is to get better with what we have on the table in front of us.

Gold production for the quarter increased by 16% at South Deep to 48,500 ounces, mainly as a result of the resumption of full production after the four-month ground support program was completed during the September quarter. However, production for the full year was severely impacted by the ground support program, dropping production by 34% relative to the previous year and ending at 200,000 ounces for the year.

Management retains full confidence in the ore body and the world-class infrastructure in place to successfully exploit the ore body. Nothing's changed on that front, in our view. Many of the challenges, however, faced by the mine are related to the shortage of mechanized mining skills in South Africa and our competition with other players for this limited pool of skills. The skills do exist, but the pool is not large.

We now have put in place a strong senior management team with South African mechanized mining experience, headed by Nico Muller as Executive Vice President for the region. Nico was previously in the platinum industry and has extensive experience in mechanized underground operations.

In addition, we've retained a small part of the Australian team that was brought in during 2014, and they will remain to assist with ongoing mentoring, training and coaching, with the view of getting a skills transfer as quickly as we can.

Key focus areas in 2015 for South Deep are upgrading the skills of operators and associated maintenance crews in the trackless sections, and here we're talking about a nucleus of between 500 and 600 people. That really is the key area where we need to upgrade skills and where we believe that there's a scarcity of these skills.

We need to improve our fleet management, so that we can improve both availability and utilization of our equipment. A big focus will be on planned maintenance systems and making sure that we have skilled artisans, diesel mechanics, etc. We need to improve the underground working conditions, so that we can actually leverage off this significant face that should be available as we continue to open up the ore body further.

Lastly, we need to optimize the installation of our support, and in particular we need to move to a robust one-pass support system which will then obviate the need for us to come back and do secondary support or do remediation, like we had to do in 2014. We want to do it right the first time and avoid having to go back to fix.

The knock-on effects of these stoppages last year will have a material effect on 2015, but we nonetheless forecast a 15% rise in production to 230,000 ounces in 2015.

I think it's fair to say that 2014, although a very challenging year, should be seen as a low point in the cycle of South Deep, and we believe we can only do better from here. We expect the efforts of the new team to start to come through in 2016, when we forecast that given the current price environment in South Africa and the rand per kilogram price that we currently see on our screens, that we expect South Deep to move to a breakeven position some time during the course of next year.

Moving to Australia, where our portfolio of four mines had another strong quarter, they achieved a free cash flow margin of 20%. Production for the quarter was 260,000 ounces, with all-in costs of $930 per ounce. Calendar 2014 was the first full year of the inclusion of the Yilgarn South assets, with the region achieving in excess of 1m ounces of production at an all-in cost of $1,015 per ounce.

Cerro Corona continues to be a solid performer, with gold equivalent production stable at 84,600 ounces for the quarter. All-in cost was lower than the September quarter, at $682 per equivalent ounce of production.

Production and all-in costs from the West Africa region was similar to the September 2014 quarter at 181,000 ounces, and the cost being $1,126 per ounce. Both these mines are performing in line with our best expectations. At Tarkwa, gold production decreased by 4% to 133,000 ounces and all-in costs increased by 4% to $1,142 per ounce.

The success of the turnaround of Damang is evidenced by the December quarter results, with production increasing by 12% to 48,000 ounces, while all-in costs was down by 13% to $1,082 per ounce. We believe that there is a lot more to come out of Damang, and we're focusing a lot of our efforts in 2015 in looking at opportunities in and around the original Damang pit and further around on the lease.

Looking ahead, our Group guidance for 2015 is for virtually unchanged production of 2.2m ounces. All-in sustaining costs are expected to be $1,055 an ounce and all-in costs $1,075 per ounce. And I would add that these cost estimates are lower than what we have achieved in 2014, which in turn was lower than the previous year.

Thank you for your time. I will now open the floor -- or the lines, rather, for questions from either myself or any of my colleagues who are here today. Thank you very much, Dylan.

(Operator Instructions). David Haughton, Bank of Montreal.

Good afternoon, Nick and team. Thank you very much for providing the update. I guess the biggest news there is South Deep and a much slower ramp up than what we had anticipated before. I understand all of the comments that you had said about the destress and staffing and all that kind of stuff, and I guess I'm struggling to see where it goes beyond 2015. It's a phenomenal ore body, but I'm just wondering if you -- can you give us an insight as to what kind of path we can see beyond 2015?

I'm going to ask Nico Muller to address this issue, David, and then if there's any follow up we need to add, we'll go to that.

Thank you, Nick.

David, I think we have to adopt a more cautious approach in terms of forecasting or giving guidance further into the future. There's so much work that we have to do to fix the base right now. The one thing that I am encouraged about is that the mining mix is going to change in that we are going to see an increasing contribution from long-hole stoping, which provides not only a greater percentage, or a greater return per blast so that you go up to between 4,000 and 10,000 tonnes per blast, but it also is typically associated with higher grade.

So I think what we are going to do is we're going to focus this year on addressing all the current operational shortfalls, and we are also going to take the time during the year to rebase our views on future increased production. I've got absolutely no doubt that it will increase from 2015 onwards, but I think it would probably be not in our best interests to try and judge at this point the exact numbers for the years after 2015.

Okay. With that increased emphasis, then, on the long-hole stoping method, do you have the right equipment at this stage or do you need to bring more equipment on site? And how are you going for the training to undertake that technique?

So, first of all, as far as the type of equipment that we have, I think I believe that we've got the right type of equipment on site. With regard to the numbers, at this point the view is that any investment in further expansion of the underground fleet would revert us back into over-congestion, and it would also complicate our efforts to optimize the use and the maintenance of the current fleet.

So we do not foresee a significant increase in the fleet size for this year. We will retain the -- if there is an opportunity where we do see that there is operational efficiencies improving, we will have a discussion with Nick. If there is an opportunity for us to increase our output and we believe that we are making good progress as far as improving operational excellence, we will no doubt infuse additional fleet units if it can assist us in expanding our output.

As far as the training is concerned, I think that we have potentially had an overreliance on external capacity and expertise as far as training. South Deep has got a 70-year life. It's a fully mechanized operation. And I think that we do have the means -- I've done it personally and the members of my team from other operations have successfully implemented very, very competent training facilities at the mines that we have operated before, and I can't see any reason why we can't do the same at South Deep.

I think what you will see in a number of years' time is South Deep being a lead supplier of skills into the industry. It is a core requirement. It's a core skill required. And we will probably spend the first number of months during 2015 to develop a very robust internal training strategy, and then we will roll that out in the latter half of the year.

The one thing that I'm encouraged by is that we do have the infrastructure, the brick and mortar that exist at South Deep. I think what we need is the curriculum as well as competent trainers. That's the areas where I see we have a shortfall, but I think both of those issues are not insurmountable.

And with a greater emphasis, then, on long-hole stoping, can you see that there's sufficient capacity from a destress point of view and logistics point of view to be able to double or triple the kind of production rates that we've seen in 2014 over the next four, five years?

Okay. So we're going into the future again. I certainly don't see a doubling of production over the next two years. I don't think that's possible. We're currently producing around 100,000 tonnes a month. If I look at the operation and all the inherent weaknesses at the moment, I know that we are at the bottom end of the curve. We can do a lot better.

And can we do double production? I think in due course, perhaps not over the next two years, but I can fully appreciate a significant increase, even to double the current output going forward. Exactly when we will reach that position will be the focus of our energy this year in rebasing the growth plan for South Deep.

All right. Well, switching over to some assets that appear to be outperforming expectation, Granny Smith, I was fairly surprised to see the kind of level of production that you've got in 2015 being forecast. It's fairly clear that 2014 was an excellent outcome. So I guess the inference that I'm drawing from that is that you've got the confidence to maintain the throughput, and more importantly the kind of grades that we had seen recently, in 2014, going through 2015, and I'm just wondering how long that kind of good story could continue.

Yes, David, I think Granny Smith has performed exceptionally well under our ownership, for a number of reasons. We've first of all been able to improve the mix of the in-situ grade. So, in other words, the areas we're mining are just inherently higher grade. But more importantly, there's been a big focus on dilution.

Now, given that this is a room-and-pillar operation, there's quite a lot of ground that you can leave behind. So it's very important that we optimize our stope designs and we minimize external or skin dilution as well as the internal dilution. The team have done a hell of a good job on that, and we've reduced dilution by about 15% from when it was under the Barrick ownership. And that's probably worth at least a half a gram or three-quarters of a gram alone.

Those two areas have helped. Just by doing some fairly easy process modifications in the plant, we've been able to improve throughput. We've changed some cyclones to smaller cyclones because we've stopped tolling, so smaller cyclones are more relevant now. We had them in the store, and we've improved the recoveries just by doing that and automating some of the process flows through the plant from 88% to 93%. That alone is probably worth 25,000 ounces a year, the recoveries.

So that's the reason we've done better, because under Barrick ownership, Granny's used to do about, what, 240,000, 250,000 ounces a year. So we're pretty confident that we can continue to do above that. Zone 100 is the area we're getting into in 2015. There's obviously going to be a lot of development that's necessary for us to ramp that up, and there's no reason for us not to believe that it's going to continue to improve.

The other nice thing that we're seeing, David, is the lateral extensions as we get deeper tend to be bigger. So one of the programs we're doing is some step-out drilling on both zone 90 and zone 100 of Wallaby, to see how we can understand that better. The exploration program continues at depth and we're seeing the potential for zone 110, zone 120, up to zone 130, and we're going to be spending a lot more time proving that up over the next year or two. So I think Granny Smith has got many good years ahead of it, David.

Whereabouts does the infrastructure go down to? What zone have you got the decline to?

So we're down to zone 100. That's where we are now. And we've got drill platforms that are going into these other areas, underground drill cuddies that are cutting into these other areas. So clearly, if we want to go down further, we're going to have to optimize the way that we mine and consider whether we need to look at a different kind of infrastructure to access the levels 130 and below, but I think we're some years away from that still. We've got a lot of good stuff ahead of us.

All right. Moving over to Tarkwa, if I may.

One more question, David. We just want to give others a chance as well.

Okay.

We'll deal with this last question, sure.

Righty ho. What kind of -- it looks like the mill's outperforming nameplate expectations. Should we expect that to continue, or do you anticipate harder ore to negate that?

No. Well, the harder ore's not a problem because we've got secondary crushing facilities, but I think you should be thinking about 13.3m as a steady state. Now, from time to time they can do a little bit better, but 13.3m tonnes is what you should be modelling for Tarkwa into the future.

All right. Thank you, Nick. I'll leave it there.

Thank you, David.

David, if you have additional questions, please contact myself or Avishkar and we'll help you with those, okay?

Righty ho. Thanks, Willie.

Goodbye.

(Operator Instructions). Tanya Jakusconek, Scotiabank.

Great. Good afternoon, everybody. Just wanted to come back to South Deep. I'm just trying to understand. I appreciate there's a lot of work to be done at this operation. Maybe we could just go through some of the critical milestones that we need to do for this year to stabilize or put the appropriate stabilization infrastructure in place. That's my first portion.

Secondly, what exactly are the training programs in place for this trackless area, these 500, 600 people that you're focusing on? And as you're training and getting the mechanized mining skills, what programs do you have in place so, once you get the people there, that they're not poached to other mining companies because it's a limited pool?

And then maybe on your long-hole stoping and thinking about the mining method, you can kind of give us a sense -- from a North American perspective, we know what a long-hole mining stope mining cost is, but maybe what you're envisioning in your cost structure for long-hole stoping. Thank you.

Okay, Tanya. Nick here. I'm going to ask Nico to deal with the issues around training in particular. He'll give you some more color as well on the dimensions of our open stoping. But just to come back to your first question, I think most of the infrastructure that we need is in place, but that's not the issue. We've got the basic infrastructure in place. The bottleneck really at the moment has been skills and availability of equipment.

So, again, it comes back to your second question is how robust and relevant is the training going to be. So I think Nico should probably devote most of his time answering that question for you.

I think the question was what training is in place. So the way I look at training is there are various levels of training. What we do have in place at the mine is the base training, i.e. to ensure that our operators can operate machines safely, so at least you know where the emergency stop is, you know what the correct procedure is to operate the units, you understand the fire extinguisher, how to park your vehicle and so forth.

Having said that, at the moment, having just touched on one or two of the curriculums, the concern that I do have is that some of the training material is outdated and relevant to similar, generic type of equipment, but not tailored to the kind of units that we currently have on the ground. So there's some refreshment, some update required.

Secondly, it's like I tell people, once you've got your car license, you're probably not going to be Schumacher on the F1 circuit. And so there is another level of training which involves developing the competence to optimize the use of the equipment. None of that is in place at South Deep at present.

And so we require a refreshment of existing curriculum, tailored to our current fleet, as well as an expansion to promote the improved performance of the use of the equipment.

As far as the dimensions of the long-hole stopes are concerned, typical height of a long-hole stope ranges from 15 to a maximum of 45 meters. That's just in terms of the capability of our equipment. The average dimension in current practice is around 17 meters height and a 17 meter width of long-hole stopes.

Okay. But what does it cost you? Like $40 a tonne, $50 a tonne?

Okay. So, apologies, I'm not in a position to actually answer that right now. So we've got here the all-in costs. I'm not sure that I -- it's not something that I've necessarily had time to touch on specifically, the unit cost.

I can try and help just by saying if you look at what we're doing now, answer this in a slightly different way. There's about 25% of our mining is open stopes, and an open stope typically will give you between 8,000 and 10,000 tonnes in a blast, whereas a conventional bench or drift might give you 10% of that, so 800 tonnes. So it's all for the same cost. So if you look at the current cost structure, there's about 25% that's open stoping, about 15% to 20% that's destress, and the rest is bench and drifts.

Where we're going to is to get to around about 70% open stoping, which will give you the commensurate change in the volume, with destress being about 20% and bench and drifts probably 10% to 15%. So you'll get basically the extra volume at the same all-in cost. Most of the cost's already in the system, so you'll find that the extra volume that comes from the change in mix will actually be quite profound in terms of its impact on our operation.

And that's always been the business thesis for South Deep. It's getting bulk mining done at reasonably low cost because of the volume that comes through against the fixed costs. So it's difficult to envisage what it is today, because that extra volume all comes through with very limited extra variable cost, Tanya. But we're not in a position to give you specifics now as to what an open stope costs. It's not something we've reported.

Okay. Well, maybe just for my thoughts, to understand, in your cost guidance for 2015 for South Deep, what sort of equipment availability have you forecasted and maybe what sort of productivity have you forecasted? And when are we going to get to where you feel comfortable with this training that we have the skillsets on the productivity and the equipment availability?

So, just in terms of the assumptions that we've used in the guidance, we've used the exact same productivity and efficiency parameters that we achieved in 2014. So we have -- it may be a conservative approach, but we have assumed no increase in productivity or efficiency, and that is because it is hard to improve these things given the current position that we are in.

There is a number of things that we have to correct in order for us to achieve improvements in productivity, and that is not only the skills of the operators and the technicians maintaining the equipment. It's also related to underground water management, ventilation temperatures, work methodology, organizational discipline.

I expect us to start improving productivities and efficiencies during the course of this year. It has not necessarily been accounted for in the guidance. And I would be exposing us if I tried to make any assumption, just having joined the Company recently. I think we will probably discover the answers to these questions during the year, Tanya.

Okay. Can you just maybe remind us what your productivity is and your equipment availability is today?

So equipment availability ranges between 55% and 65% for the drilling [LFD] classes. Productivity, if I can quote meters per rig per month, I'm not even sure that I want to quote it because it's pretty dismal, but it's probably between 40 and 60 meters per drill rig per month, which on a global standard is pretty low. In Australia, Canada, performances probably range between 250 meters, even up to 300 meters per month when things go well.

Yes. Yes, okay. Well, that helps. Thank you very much.

(Operator Instructions). Andrew Byrne, Barclays.

Hi. Good afternoon. Two questions, if I may. The first one is just on the long-hole stopes in terms of the mining. What are you targeting as the exit rate at the end of the year as a percentage of the mix? I know previously that we've been looking for 50%, but I think that's been thrown out the window. What is it that you're looking for there?

And then the second question is I think a lot of the issues that we'd had with productivity that we see at South Deep, we've seen similar situations at Bulyanhulu with Acacia, African Barrick Gold. We've seen them bring in Burnstone as contract miners and those rates ramp up exceptionally fast over a six-month period. Is that at all something that you'd consider if you don't start to see improvements through this year?

I'm not sure I got the second question.

Basically, if you don't start to see improvements in productivity as you move through the year, would you at all consider bringing in a small set of contractors from offshore, if necessary?

So, okay, let's talk about the exit rate. I think this year we are going to be at an exit rate of 50%, based on our current planning.

And then, as far as the introduction of offshore mechanized expertise, it is something that we attempted in 2014. The issue that we have is a political one. We have met significant resistance politically from our unions, the government, [instrumental] government, to the extent that we've had some of the work permits -- the work permit renewals refused.

Over and above that, I am not sure that I believe that it is a long-term sustainable method for us. We have numerous examples in South Africa where we have very successfully introduced mechanization, and I cannot see why it is not possible at South Deep with a very aggressive and rigorous approach to developing those skills.

And I'm not talking about purely the operator and maintenance level skills. I'm talking about the management skills. I believe that we've appointed the top tier management that all come from mechanized operations. And I believe that we have got internal -- that we've got the capacity to develop ourselves as the premier mechanized operation in Africa, actually. I think that's very possible.

Okay. Thanks very much.

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

No. I think, Dylan, thanks to everyone for dialing in. Thanks for all of the questions. And we hope to see as many of you as we can, face to face, on our travels and various functions.

So thanks once again, everyone, and we look forward to seeing you soon.

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