Gold Fields Ltd (GFI) 2015 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Gold Fields Limited second-quarter results conference. (Operator Instructions).

Thank you, Dylan. And good afternoon or good morning, ladies and gents, wherever you might be in the world today. Thanks for joining us to discuss the results of Gold Fields for the second quarter of 2015 and, of course, the half year.

On the call with me today I've got Paul Schmidt, our Chief Financial Officer, I've got Nico Muller, the Executive Vice President of our South Africa region, Avishkar Nagaser, Investor Relations, and Taryn Harmse, our Group General Counsel.

Operation and -- operational and financial highlights for the quarter are: gold production up 7% to 535,000 ounces, Group all-in sustaining costs down 10% to $1,029 an ounce, all-in costs 9% down at $1,059 an ounce. Normalized earnings were $22m, compared to a loss of $13m in the previous quarter.

Importantly, we had a $59m swing in net cash flow to an inflow of $30m in quarter two from a net outflow of $29m in quarter one. And just to remind you, in quarter one it wasn't that it was a poor quarter.

We had mine scheduling that skewed production towards the second, third and fourth quarters. And we didn't want to disturb that schedule and get out of sequence, so we honored the mining profile that was determined by the engineers on the mine.

And at the same time we also had some of the capital that was front-ended in quarter one, and, again, that's just timing of capital. So on a year-to-date basis we're pretty much in line with where we expect to be in terms of our production, and we're below in terms of where we thought we would be on our costs.

Free cash flow margin was 9% in quarter two despite a slightly lower gold price in the June quarter. Net debt reduced by $22m to $1.5b at the end of June rounded. That's a net EBITDA net debt ratio of 1.44. That's well within our covenants. But we do have an objective to continue to pay down debt and target a ratio of net debt to EBITDA of one to one by the end of 2016.

We paid a dividend in line with our policy, albeit a modest dividend of ZAR0.04 per share. Now, the recent fall in the gold price is of concern, although of course it has bounced overnight and today. The interventions nonetheless taken at Gold Fields over the last three years have ensured that there is no need at this stage to make any structural changes in the business.

We've taken all of the hard hits. We've restructured the business. We had a headcount reduction across the Group of around 15%. And we cut marginal production and greenfields exploration that we didn't think was adding value.

We've also sold virtually all of the non-core investments bar Arctic platinum project, but everything else is out. And we concluded the Woodjam project literally just the last week.

We remain firmly focused on delivering on our plans in terms of both cost and production irrespective of the gold environment that we're in, but we won't divert our attention from what we call the non-negotiables of our values, being safety, health, environmental stewardship and stakeholder engagement.

I'm pleased to report the improved production across the Group, with Granny Smith, Tarkwa and Cerro Corona in particular outstanding performers. While production at South Deep was 7% higher quarter on quarter, this was negatively impacted by safety-related stoppages following the fatal accident that regrettably occurred during the quarter, as well as management-induced stop-and-fix interventions to get both safety, productivity and work practices better than what they are now. This of course has impacted production, as you would expect.

Encouragingly, there have been positive trends from South Deep emerging over the last number of months, as we see the rate of ore production, de-stress and new mine development climbing slowly. A three-year wage agreement entered into with our unions at the mine was another positive, and we have started to fill critical skills positions at the mine. We've probably completed around about 75% of what we needed to do.

In addition we've acquired 27 new category-one machines to our fleet. That's in essence drill rigs, loaders, trucks, which is expected to result in improved availability of equipment in the second half of the year.

However, as we've stated before, 2015 at South Deep is more about the inputs than the outputs, and a large part of our work is focused on three key areas: people, fleet and mining method.

Principally due to this deliberate focus to fix the base for a sustainable long-term future, full 2015 production at South Deep is now expected to be approximately 6.5 tonnes of gold compared to the previous estimate of 7.1 tonnes of gold.

However, we're maintaining full-year production guidance of around 2.2m ounces as the lower production from South Deep is offset by better than expected performance at Tarkwa, St. Ives, Granny Smith and Cerro Corona. The cost guidance of all-in sustaining costs of $1,055 an ounce and all-in costs of $1,075 per ounce remains unchanged.

While delivering on South Deep remains our key focus, it is worth emphasizing the strength of our international portfolio, which during quarter two produced 496,000 ounces at all-in costs of $984 per ounce, generating net cash flow after all the bills had been paid, including taxes and capital, of $101m for the quarter.

And with that we'll now take questions. Thank you, Dylan.

(Operator Instructions). Howard Flinker, Flinker Co.

Hello, everybody.

Hi, Howard.

I have two questions for you. One might be a tough question. The first one is what caused the other category of expenses to drop? There was a category called other and it dropped somewhat significantly.

Okay. And the second one?

The second one, did I read somewhere that in your exploration you think you could find gold within properties or adjacent to your properties around $20 or $25 an ounce, something like that?

Yes, I'll take the second question, Howard, and then Paul, our CFO, will respond to you on your first question.

So what we were saying is that our strategy has been very focused on brownfields exploration on our mine sites, because the best place to find gold is where you're currently mining it. And we know that our leases are very prospective.

Not today.

Well, we've looked around outside our leases too, and we think there's opportunities as well. Now, it's quite strategic because we've got spare process capacity, Howard, so if we can find deposits that we can economically truck ore from outside of our lease and fill the capacity in our plant, it might be good business.

So that's a strategy we're looking at. We're talking to a number of people. It might be tolling arrangements. It might be acquisitions. It might be joint ventures. Let's see where we go, but that's the idea. Hopefully, that gives you better perspective.

Here's the hard part of the question. If you're shooting for $20 or for $25 because mother nature doesn't always co-operate --

Yes, look, we're not necessarily shooting for that. I don't know where that number came from, but --

I thought I saw it in one of your releases. I'm not sure if I saw it correctly. If I didn't, please correct me.

No, I don't think we said it would be that cheap. I think it will be potentially more expensive than that.

Well, then my point is even more acute. Why do that when there are sound operating companies with experienced management selling for $4, $5, $10 an ounce of gold in the ground and nothing for its silver, or stated another way, $1 or $2 for silver and nothing for its gold?

And these are not Howie Flinker going out and getting a shovel and saying I think I found something somewhere in Mexico. These are experienced people. So my question is are you being too narrow minded and stubborn to look next door to where you have instead of looking outside?

Yes, look, we could look outside. But, Howie, one of the things we've decided is standalone operations -- we would only be interested in in-production assets. I don't want to go and buy projects that we've still got to try and build and often have major overruns. I'm interested in near-term cash flows with the team here. So --

Well, there are some of either. There are some of either. I'm glad I own some of them.

Great. But that's not our business model. So our business model is to buy in-production like we did in Australia. We bought in-production assets. We bought 500,000 ounces of annual production at $270 an ounce, and we're going to get a payback at the end of the year, which is two years. So that's what we're interested in.

It's tough to repeat those. But we used to do all that stuff, Howard, and the problem is we didn't have enough focus. We were all over the place in terms of looking at different things and that's why we had a portfolio that was spread over the world, and we didn't do justice to it, so we're getting focused again.

You might be focused in the wrong direction if there are operating companies with $5 and $10 an ounce and you're shooting for acquisitions at $270. That's my point.

Point taken, Howard. Thank you. Paul's question?

Howard, the other costs decreased from $10.1m to $8.6m and the bulk of it is the [rehab] costs. And the main reason it would have decreased is because of the weakening of the Aussie dollar and the rand when they get converted into US dollars, but it's only down by $1m. It's not a big number, $1.5m. It's tiny.

I thought I saw a $4m or $5m or $7m (multiple speakers).

No, it's $10.1m to $8.6m quarter on quarter.

My mistake. Okay, thanks.

Andrew Byrne, Barclays.

Good afternoon, Nick. Just a bit of an idea of -- in the presentation this morning you intimated that there's an awful lot going on in Australia on the exploration side on potential M&A.

Is it possible you could just flesh out, A, what your existing capacity is at the moment and the capacity utilization there; and then looking ahead three, four years, what type of production base would you like to have in the region?

Well, the spare capacity we talked about, Andrew, was on the process side where we're using about 60% of what we've got across all the four mines. So we've got 40% of unutilized capacity.

If you look at Granny Smith we've probably got around about 1.8m tonnes; Darlot we've probably got about 300,000 tonnes; Agnew we've got around about 600,000 to 700,000 tonnes; and in St. Ives we've probably got around about 1.5m tonnes. So that's all spare capacity.

So we're working very hard, obviously, on the lease and spending $85m a year, and our budgeted exploration meters this year are 456,000 meters, which is like double of what we've ever done before. But we're saying let's look beyond the boundaries of the lease and see if we're not successful on brownfields, or even if we are, can we find other things that might be better that we can sequence better.

I don't know what the three- or four-year profile is going to look like at this stage, Andrew. We haven't got figures that we are able to release to you, but the first and most important objective is to try and keep the production at critical mass at the four mines compared to where they are now. So that's why we're aggressively spending on the exploration.

So I'd like us to be able to keep where we are if we can. Obviously, we want to try and keep the costs where they are as well, or even lower, so we'll be going for grade. Like Invincible at St. Ives is giving us an open pit that has a much higher grade than what we've seen before in pits of that scale.

Leviathan was probably as big an open pit in terms of tonnes, but it was half the grade that we're getting at Invincible. So I can't give you definitive answers yet, but as a minimum we want to try and maintain the production profile and improve the costs by focusing on grade. And if we can fill some of the capacity over time, even better. Does that help you?

Yes, yes. No, that's great. Thanks.

(Operator Instructions). Justin Chan, GMP Securities.

Hi, gents, I'm just taking the focus to South Deeps for a minute. So in the first half you produced, call it, 2,500 kilograms; and so to reach your annual guidance of 6,500 kilograms, that implies approximately 4,000 kilograms the second half of the year. Just comparing to your run rate of 500,000 tonnes at roughly 4.5 grams, do you expect grade to lift in the second half, or will most of the change be in tonnage?

We expect improvements in both. Volume improvements will be due to seasonal variations between the first and the second year, and also as a consequence of an increase in the number of long-hole stope contributions, so we can have a significant increase in the number of long-hole stopes.

We are also expecting productivity improvements through some of the operational improvements that we are bringing into effect as well as the 27 units of new capital fleet that we've acquired. Thank you.

Okay, thanks, guys.

(Operator Instructions). And, sir, it appears that we have no further questions. Do you have any closing comments?

No. I'd just like to say that it's nice to see a little bump in the gold price and obviously that's flowed through to the equities. But we probably could expect more volatility in the gold price and the market.

So I think we've just got to keep focused on delivering on our production commitments and our cost commitments, doing it safely, and the markets will determine what that is worth.

But thanks and we hope to talk to you again soon. Thank you, Dylan, and goodbye.

(Operator Instructions).