Gold Fields Ltd (GFI) 2015 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Gold Fields Limited First Quarter Results 2015. All participants are now in a listen-only mode and there will be an opportunity for you to ask questions after today's presentation. If you should need any assistance during the conference then please signal an operator by pressing star and then zero. 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, Dillon, and good afternoon or good morning wherever you might be, ladies and gentlemen.

Thank you for joining us today to discuss Gold Fields first quarter results for 2015 and on the call with me today I have Paul Schmidt, our Chief Financial Officer, and Avishkar Nagaser, our Head of Investor Relations.

Before we open the floor to questions let me give you a few brief highlights of the quarter and the review. Regrettably we had one fatal accident at South Deep in March where Mr. Kennedy Katongo lost his life in an engineering related accident. Our deepest condolences go out to his family, friends and colleagues.

In line with our plan for 2015 Gold Fields had a weaker first quarter of 2015 with the traditional Christmas break in South Africa compounded by mine scheduling at other operations. And this saw attributable gold production degrease by 10% quarter-on-quarter to 501,000 ounces. And the one thing I would share with you, however, is that this was within 1% of our plan. So essentially for quarter one we delivered the plan that was premised in the guidance we gave you for the year of 2.2 million ounces. So the weaker results for quarter one were not something that surprised us and were actually scheduled and planned.

Costs were well contained in the quarter with net operating costs decreasing by 10% quarter-on-quarter to $366 million. Of course unit costs were impacted by the planned lower production with all-in sustaining costs increasing by 12% to $1,143 per ounce and all-in costs similarly higher at $1,164 per ounce.

Interestingly, this is lower than what our costs were around about four years ago so I think it shows how much we've been able to absorb in terms of cost pressures over the last number of years and still keep our costs at that level.

As a result, we reported a normalized loss of $13 million for the quarter compared to normalized earnings of $17 million in December 2014.

It's worth noting that the normalized loss includes a negative deferred tax adjustment of $21 million related to the weakening of the Peruvian sol and relates really to the fact that our tax calculation in Peru is calculated in soles, whereas our books are actually kept in US dollars. So it's a deferred tax adjustment, which is purely a book entry, but of course in terms of generally accepted accounting principles and IFRS we have to report this in our earnings. So if there are questions on this after I've given this brief synopsis, then Paul is the expert here who can explain this better than I can.

Cash outflow from operating activities less net capital expenditure and environmental payments amounted to $29 million compared to an inflow of $54 million in the previous quarter.

Now obviously we've had a track record of six quarters in a row of producing positive cash and the reason we've not been able to repeat that this quarter is a function of the production scheduling over the course of 12 months compounded by the fact that capital expenditure is actually slightly weighted in the front part of the year, particularly at Tarkwa where we had to purchase 18 new trucks that cost us around about $46 million.

As I said earlier, this doesn't change our view of the forecast for the year and our guidance of 2.2 million ounces at the all-in costs of $1,055 an ounce still holds for the year.

Mainly as a result of the decrease in cash inflow from operating activities, net debt increased by $46 million to $1.5 billion at the end of March and our net debt to EBITDA ratio remains pretty comfortable at 1.4 times.

Now turning to the regions, the Christmas break directly impacted gold production at South Deep as did the knock-on effects of the four-month safety stoppage last year. And this resulted in a 25% quarter-on-quarter decrease in gold production during the first quarter.

Now I think it's worth noting that the Christmas break in South Africa actually results in us losing the first two weeks because we're off for that time and then when employees get back, we run our annual medicals as well as making safe on the ground. And in essence in South Africa you really only have a two-month quarter in the March quarter.

And of course allied to the lack of face flexibility given the mine stoppage for four months last year we knew this was going to impact certainly in the first half of the year.

In addition, the work to get the basics right continues, which is the mandate to the team at South Deep and that's ongoing and starting to gain traction.

These initiatives together with the groundbreaking three-year wage deal signed in April are expected to provide a stronger underpin for the second half of the year.

In essence what we've asked the team at South Deep to do is make sure that we improve the operating culture on the mine as a basis of providing a more sustainable foundation. That means we had to stop and fix particular areas of the operation and get the right discipline and culture in place. Often that has a short-term impact that will give us the benefits in the longer term.

Turning to West Africa, a decline in production at Damang was partially offset by an increase at Tarkwa but overall output for the West African operations was slightly down about 3% quarter-on-quarter. All-in costs in West Africa were, of course, we up by 15% to $1,299. It's mainly due to the $46 million of once off fleet replacement that we had to incur this quarter on 18 new trucks that came up for replacement.

If we look at Peru, lower gold and copper head grades were treated and this resulted in a 21% decrease in attributable gold equivalent product at Cerro Corona. Of course this was acerbated by the lower copper price compared to previous quarters.

And this was in line with mine sequencing and where we are in the pit. And the production plan for the March quarter mirrors what we actually saw in the performance this quarter. And the rest of the year we believe is going to track the guidance we've given to you earlier.

All-in costs per gold equivalent ounce were marginally lower $671 per ounce.

Gold production at the Australian operations was down to 241,000 ounces for the quarter with lower production at all of the operations except St. Ives. St. Ives had a really good quarter recovering, I think, from some of the previous quarter's production issues and is good to see that they made nearly 100,000 ounces during the quarter.

All-in costs for the region increased by 14% to $978 US per ounce, still below $1,000 US per ounce, mainly due to lower gold soles and the gold inventory charge to costs largely at St. Ives given the processing of large stockpiles that we mined previously at Neptune in the previous year. That was partially offset by lower operating costs and lower CapEx.

Given the lower production for the quarter that was planned and pretty much in line with what we expected it to be, we have no hesitation in maintaining our previous guidance for 2015 of $2.2 million attributable gold equivalent ounces at all-in costs, all in sustaining costs rather, of $1,055 per ounce and all-in costs of $1,075 per ounce.

Thanks for your time and I'll now open the lines for questions. Please forgive my voice. I'm just suffering from a cold. So myself and the team will answer the questions.

Thank you, Dillon.

Thank you, Nick. (Operator Instructions). Our first question comes from Adrian Hammond of Standard Bank.

Afternoon, gentlemen; I have three questions please. Firstly, grades pretty much declined almost everywhere across your group and just to get a sense of the impact of the mine scheduling you discussed, could you give us an indication of whether these grades are recovered yet? That's the first question. Secondly, on South Deep do you foresee any major stop and fix scenarios in the next couple of quarters and what do you think -- what are those stop and fix scenarios going to be addressing exactly? And then thirdly, what do you think may have transpired of the Mining Charter review with the courts at the moment in South Africa? Thanks.

Well, I think in terms of the Mining Charter I'll answer the last question first. The Minister has put out his speech on the 31st of March where he gave his assessment of how he thought the mining industry had done in terms of all of the elements of the Mining Charter and that's I think available for you to peruse. He's obviously not talked about ownership given the agreement with the industry to seek parity in the courts in South Africa. But certainly from our perspective all I can do is reiterate what we've said in our annual report which we issued on the 31st of March and that is that we've complied with our obligations in terms of the Mining Charter from ownership down to all of the other issues including housing etcetera.

It remains to be seen how long the process is going to take in terms of the declaratory order because obviously there's a dialogue going on between the Minister and his advisors as well as the industry and its own advisors about the nature and content of the papers to be filed so the time frame on that is unclear at this stage. In fact, the Minister has already indicated that the date of end April was not achievable. Clearly we passed the end of April already so it's going to take some time and I can't give you a definitive time frame on that.

In terms of South Deep, it's hard to see what the impact might be of any further stop and fixes, as we fixed the culture on the operation but clearly the mine is very focused on ensuring that the second half of the year is appreciably better than the first half and of course that the current quarter that we're in is going to better of course than the first quarter, which was clearly well below anything that any of us would like. So I think we just need to see how things go and the fact that we should get some more open stopes available in the second half will help.

The guidance for this year of 228,000 ounces is definitely going to be a stretch for us to achieve given these stoppages but I think if it's a choice between getting the guidance and continuing the stop and fix we'll continue the stop and fix but the team is very motivated to try and achieve the guidance so we'll see where we are in the next quarter and give you a further update on that.

In terms of the grades on the different operations, as you know, Adrian, we don't give quarterly guidance. We've given you guidance for the year of ounces of production and all in costs. All I would do is say that clearly you know, grades move around. Cerro Corona, we can start there. We expect grades to be higher over the balance of the year. Clearly they need to be in any event to achieve the production plan and we expect them to. We expect Tarkwa to be able to benefit from getting into some high grade pillars [temporarily] so that will benefit the rest of the year.

Damang has certainly been in a low in quarter one. You know, 1.2 grams is a low for Damang so they'll see better grades from here.

Granny Smith I think as well as we get more into zone 100, we should see grades hovering between six and 6.5 grams a ton. And Agnew should also pick up to between six and 6.5 grams a ton. Those are the sort of ranges we've been in and there's no reason to believe that we're not going to be back in those sort of ranges over the balance of the year in accordance with our schedule.

Again, I'll reiterate the performance this quarter is in line with the plan. This is what we expected to do. Thank you.

Thanks.

Kane Slutzkin, UBS.

Just a quick one from me is just could you maybe just confirm what the CapEx profile is looking like at Tarkwa and Granny Smith for the rest of the year? So it was Tarkwa had that sort of once off but how does it -- does it sort of trend back to the normal level for the rest of the year? I am just trying to see how you get to the [$660 million] for the full year, just trying to sort of -- I'm a bit light on that number so if you could just maybe comment on that?

Yes you can actually derive it by looking at the profiles of the different operations but we haven't given that capital guidance by mine but it's factored in the all in costs and I think also if you look at the breakdown in the book. You know, in the book we give you a breakdown of the operations in terms of operating costs, capital etcetera for the quarter so if you work back from what the likely operating costs are and use that as a basis to annualize and work back taking off the all in cost estimate, now you can work back to what the capital figures are per mine so we don't provide that guidance. Now, we manage these operations on an all in cost basis so that's why we focus on giving you that information so I think Avishkar can probably call you afterwards and try and guide you through how you can use the book to derive the numbers you need.

All right, guys, thanks .

(Operator Instructions). We have a question from [Chip Amasale] of The ResourceFund.

Nick, I am just actually trying to get my mind around the share value distraction that's happening at South Deep. I mean this mine when we (inaudible) try to propose to shareholders for $4 billion US. This thing was going to be a 1.2 million ounces a year. We are down to 200,000 entire year ounces per year. I mean can you really take as what have been the issues? Has the mining matter been wrong? What is it? Did we over capitalize on this project? What exactly went wrong here?

Okay first of all, I don't know where your 1.2 million ounces comes from but it's certainly not--

Well, it comes from [Ian Corcoran]. Go look at Ian Corcoran's two previous presentations when you guys were buying South Deep today.

Okay well look, I mean he's not here anymore and I wouldn't want to sort of talk of his behalf but the guidance that I've given under my tenure as CEO has been up to 750,000 ounces a year so those are the numbers that I've been previously giving. I think the question here is it's all about the mechanized mining skills and the mechanized mining culture and the ability for us to actually ramp up this mine.

And we did get to a stage where we were up at 300,000 ounces a year back in 2013. But what we realized is that the way that we were mining was not sustainable and in particular the way that we were supporting the faces we were opening up was also not sustainable. And what I want to achieve is for us to get to whatever production level we can get to and achieve that sustainably so I wasn't comfortable that the way we were mining the ore body was going to be sustainable over time.

And that's the reason we've pulled back and said hang on a minute, what is the key issue here? And one of the key issues is just the lack of mechanized mining skills we've had on the operation and so that's been the big focus for us now is to get the right skills in, put the basics back in place and make sure that this great ore body can be delivered into a good operating mine. Now that's going to take longer I'm afraid.

While is that's cost a lot of money, Nick. That's my issue; please appreciate that and be sensitive to that front because that cost a lot of money.

I'm extremely sensitive to how much money it's cost. I think about it every day. Thank you.

Brian Nunes, Gramercy.

Thanks for the call. Just wanted to get an update. I met with some of the management earlier in April, just wanted to get an update on the hiring of the skills for the mechanized mining at South Deep and I think there was a skill shortage that you identified and you were looking to other industries to acquire those skills and wanted to get an update on how you're progressing on that.

Yes so the team at South Deep has identified that we probably need somewhere between 170 to 200 people in the mechanized section, both as operators and as maintenance artisans including supervisory skills, so we're in the process of looking around. We're not really going to find those skills in the gold industry so we're looking around other sectors within mining to get those skills and there's not a large pool of mechanized mining skills available in South Africa and that's been one of the things that we've been struggling with for a number of years but we are probably almost about halfway through recruiting or identifying and in the process of recruiting, about half of what we need. But the process is slow. I think it's probably going to take the rest of the year for us to get the right team in place for us to be able to have the right skills vertically across the mine for us to sustainably get this mine working in the right direction.

So okay. So that's the next question. How does that, if it's going to take the whole year, was that factored into your budget of your targeted ounces in mining?

Yes.

Okay.

Yes what we did is we've used by and large the same sort of productivity levels we've been achieving in the previous year to determine this year's budget but, as I said earlier on the call, one of the things that we're doing to change the culture and get a better operating culture on the mine, we're having to stop and fix as we go and so that's the only risk in terms of achieving the ounces for the year. It may require us to take longer to get the right disciplines in place but it's not about the people because we were planning to achieve the same sort of productivity levels as were getting last year.

Okay thank you.

Sure.

(Operator Instructions). We'll wait a moment to see if we have any further questions. Nick, it would appear we have no further questions. Do you have any closing comments?

No I'd just like to thank everyone for calling in and just apologies for my gruff voice as I try and recover from a cold, so hasn't quite been as eloquent as I would have liked in my previous deliveries but thanks for all the questions, folks, and we look forward to catching up again soon and chatting more about Gold Fields' prospects. Thanks for all of us from our side.

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