Gold Fields Ltd (GFI) 2016 Q2 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Gold Fields' first-half

results conference call. (Operator Instructions). Please note that this call is being recorded. At this time I'd like to turn the conference over to Nick Holland. Please go ahead, sir.

Thank you, Ari . Good afternoon or good morning, ladies gentlemen, where you might be in the world today. Thanks for joining us to discuss Gold Fields 'results for the half year ended June 30, 2016. With me today are our CFO, Paul Schmidt; Nico Muller, who's the EVP for the South Africa region; Richard Weston, the EVP for the Australia region; together with Stuart Mathews, who is the VP, Operation; and, of course, Avishkar Nagaser, the Investor Relations Head.

Gold Fields had an operationally strong first half, with attributable gold production for the Group of 1.044 million ounces -- that's 1% up on the same period last year -- at all-in sustaining costs of $992 an ounce and all-in costs of $1,024 per ounce.

Normalized earnings for the period were $103 million, or $0.13 per share, compared to $8 million, or $0.01 a share reported for the first half of 2015. The increase in earnings was primarily driven by an increase in the US dollar gold price that was up 3% year on year, as well as good cost control, which resulted in lower net operating costs in local currencies as well as the impact of converting these costs at the weaker exchange rate.

I would say around about a third of that was the impact of real cost savings in local currencies, with the balance due to the weaker exchange rates, if you look at that total reduction in costs.

We've declared an interim dividend of SAR0.50 per share, which is double the full-year dividend for 2015. Now, that dividend is in line with our policy of between 25% and 35% of our normalized earnings, and that actually translates to 25%.

The Group generated net cash flow of $60 million for the first half compared to $1 million in the first half of 2015, and that's mainly due to the higher profit reported for the period. And I must just stress this is cash flow after interest costs on debt as well as exploration costs, so if you added those back you probably add back around about $25 million on exploration, which is primarily at Salares Norte in Chile, and also around about $37 million of interest on our Group debt. So if you wanted to compare that against other companies who don't show it this way, you could add those back to the $60 million to give you a more comparable number.

Net debt decreased to $1.155 billion during the first half of 2016. That was from $1.38 billion at the end of December, following the bond buyback and subsequent equity raising undertaken in the period. And it's interesting that in the period from the end of 2013 to now we've reduced our debt by around about $600 million, which has put us in a situation where our net debt to EBITDA ratio is now 1.05, from 1.38 at the end of December 2015. And the target that Paul and I have set for ourselves around about 18 months ago is to get to a 1-to-1 ratio by the end of 2016. We look as though we're in good shape to achieve or even beat that.

Turning to the regions, production at South Deep increased by 87% to 140,000 ounces, from 75,000 ounces in the corresponding half year in 2015, and that's driven by both increased volume and grade. All-in costs in local currency decreased by 19% year on year to SAR622,453 per kilogram. But if you look at it in US dollars, in fact, it dropped from just over $2,000 an ounce to $1,257 an ounce and that's more like a 40% reduction if you want to look at it in US dollar terms.

Good progress was made on a number of important activities at the mine. The conversion from lower-profile to higher-profile destress mining yielded positive results. And in fact low-profile destress mining is a thing of the past now, because that was completed subsequent to the half-year end.

Gold production in the Australia region for the first half of 2016 was 2% lower than the previous half year, at 466,000 ounces. That's due to lower production in all operations, except Darlot. However, all mines exceeded guidance. During the first half of 2016 $52 million of the exploration budget was spent, with 340,000 meters drilled during the period.

There have been encouraging results at all the operations and we anticipate replacing ounces mined into reserves at year end. In fact, if you look at the presentation deck, there are a number of slides I went through this morning at the stock exchange, which I think shows our increasing confidence in our ability to find additional reserves and resources at our four mines.

Attributable gold production from the West Africa region was 7% lower in the first half of 2016, at 311,000 ounces, due lower production at both Tarkwa and Damang. However, all-in costs for the region decreased by 9% year on year to $1,052 per ounce mainly as a result of lower net operating costs and lower capital expenditure. We expect to evaluate a range of options for Damang in terms of its need for recapitalization. We expect to make a decision and provide an update to the market before year-end.

Attributable equivalent gold production at Cerro Corona decreased, as expected, by 15% year on year to 128,000 ounces, mainly due to planned lower gold head grades as a result of planned sequencing of the mine and the lower copper price. In short, obviously, we have to take the entire pit floor down and that means that we mine some high grades and low grades across the pit floor. It's not a uniform grade across the entire pit.

Looking ahead for the full year, as a result of better than expected performance at South Deep, we've increased the 2016 guidance for the mine to 289,000 ounces from 257,000 ounces. However, we've also increased our all-in cost guidance to $1,310 an ounce from $1,265 per ounce.

We've put in some additional capital both in terms of additional fleet that we've acquired as well we've accelerated our housing project and decided to build instead of use third-party financing.

For Tarkwa we've increased the 2016 all-in cost guidance to $980 an ounce from $940 an ounce. And that's mainly due to a $38 million increase in capital expenditure. We've decided to bring forward some capital strip at Tarkwa, which will provide greater flexibility and allow us to try and maintain current levels of production in 2017 and 2018.

Based on the out performance of the Australian operations relative to plan in the first half of 2016 we've increased the guidance in Australia to 925,000 ounces for the full-year 2016, from 905,000 ounces that we previously guided in February.

So, as a consequence, the 2016 production guidance for the Group has been increased from a range of 2.1 million to 2.15 million ounces -- sorry, it's been increased to a range to 2.1 million to 2.15 million ounces from 2.05 million to 2.1 million ounces. In other words, we've upped both the lower and the upper levels by 50,000 ounces. And if we were able to achieve the upper level that would pretty much put us in line with what we achieved for 2015.

All-in cost guidance for the year remains unchanged at all-in sustaining costs of $1,000 to $1,010 an ounce and all-in costs of $1,035 to $1,045 an ounce. The big difference really between those two numbers is the drill-out project in Chile at Salares Norte where we've set aside $50 million in this year's plan.

I think with that, Ari , we're going to turn it over to questions, which either myself or my colleagues with us today will endeavor to answer. Thank you.

(Operator Instructions). We do have a question from David Haughton of CIBC. Please go ahead.

Hi, Nick and team. Thank you for the North American update. I appreciate you've gone through this in South Africa, so thank you for taking the time (background noise).

South Deep has got some pretty good grades going through at the moment and I'm going to say that the underground mining rate is stepping up very nicely. Wondering if you could give us a little bit of guidance through the balance of the year as to where you might see that mining rate, given the change that you've been talking about, and how that grade might pan out.

I'm going to hand it over to Nico, David. He'll answer the question.

(background noise) David, good morning I suppose on your side. The grade did go up to 5.77 grams a ton. We expect the grade for the rest of the year to oscillate at around 5.5 grams a ton. And then secondary production, as Nick has said, we have changed our guidance to 8. -- to 9 tonnes of gold, which at this stage is our indicative number for the year.

Yes, so a nice healthy trajectory. And maybe if we're just looking a little bit further into next year, wondering what you're thinking the grade might be, whether we'd see it go back towards the reserve grade. You're currently mining somewhat above that and sequencing, obviously, is important in considering it, and what you can see as your goals of the rate of mining underground.

So, David, thank you for asking that question. In the long term we expect our grade to track in accordance with our reserve grade, you are correct. And then as far as production for next year and thereafter, as Nick has indicated before, we are currently reassessing our position and we have committed to come back in February to give the market an update of our near-term production profile. That will be, typically, the next five to seven years. And it's not possible for us to comment any further on that at this stage. We will come back in February.

All right. And with that higher CapEx guidance I presume that that's really only for this year, as you're doing the housing build yourself, or do you anticipate some of that to go into next year as well?

(Inaudible) Paul may make (inaudible), but all information pertaining to next year, including operating cost and capital, is something that we are in the process of reassessing, so I'll just stand by the (multiple speakers).

Yes, it will all be in the February guidance.

Yes, fine, but the housing, do you expect to get done this year only?

No, this is over a five-year period the housing (multiple speakers).

We're going to see exactly how we can going to expense it over the balance of the five years.

Okay, good. I didn't understand whether it was just a near-term project or a longer term. It sounds a little bit longer term.

Yes.

Yes.

Okay. Tarkwa has been getting -- it looks like you're going to have to have a bit of a catch up in the second half and I'm just wondering whether that's going to be grade driven or volume driven.

Look, I think it's going to be a function of both, David, because it depends where we are in the different pits. We've got around about four to five pits that contribute and depending on the mining plan and sequence that'll impact the volume and the grade. But again let me just reiterate we're very confident that we're going to achieve our guidance for the year on the production. So quarter three has started really well and, yes, I think Tarkwa is in good shape. I've got no concerns. I think we can make those numbers for the year.

Okay. Just moving over to Granny, getting some very nice grades coming through and I'm just wondering whether you can see that as sustainable, or if it's just near term as a consequence of where you are in the sequencing of the underground.

David, it's Richard Weston. We consider that those grades would continue, but I'll let Stuart Mathews, VP Operations -- he used to be the General Manager of Granny Smith -- to talk about it.

Yes, the grade coming out the mine is quite pleasing. We're actually mining a lot of good grades out of zone 100 and zone 90 has come off a little bit in grade. But we've had a bit of an upside with some positive gold reconciliations on our hanging-wall stopes, which is sort of the peripheral of zone 100. That's really the contributor there.

Okay. And Nick had indicated in his opening remarks that you're feeling pretty confident about replacing reserves. And I guess with Granny if you are getting some positive reconciliation -- I'm just thinking out loud here as to whether you'd be factoring some of that into your reserve calcs going forward.

We never factor into our reserve calculation any mine core factors. They can easily go the other way. But, look, Granny Smith has a history of reconciliation close to 100%, very close to their grade control. It was very close to the reserve number. That's been for the whole history of the mine, so we're fairly confident that it'll happen again.

And on the reserve side at Granny Smith we expect to do -- to repeat exactly what we did last year. We'll get an uplift of around the 450,000 ounces to 500,000 ounces after depletion.

Okay. Thank you very much, guys.

Thanks, David.

Thank you. Our next question is from Richard Hash -- Hatch, apologies, of RBC. Please go ahead.

Thank you. Morning, guys -- or afternoon. Just a quick one. Can you just talk me through a bit more about Damang. Sorry to keep asking the question. I just want to just get your thoughts on it. Maybe I was expecting to have an update at the end of this half. What's taking the time for you to make your decision? Is it how you balance the cost of the pre-strip with your net debt to EBITDA forecasts?

And then, just secondly, can you just remind me, you're targeting 1 times net debt to EBITDA by the end of the year. What sort of range are you happy for that to oscillate in between?

Yes, look, Damang, the reason it's taking a bit longer maybe than the market would have liked is that we're having the whole thing independently peer reviewed. So we've brought in a team to look at the geological models and to make sure that we're not missing anything in terms of understanding the different domains, lithologies in the ore body, etc. So they've gone through that process.

I want to be sure, in particular, that the stuff is there and it's been extensively drilled. Sometimes you can get interpretation of differences when you put the geological model together, so we're having that externally reviewed. And then we're also having a consultancy review of the mining plans that we've put together, helping us to optimize the mine plans and help us to build a mine schedule.

Then we're having it internally signed off by our Group technical services, which needs to happen, and then of course the executive will go through it and then the Board. So these processes all take time and my view on this is let's get it right, as opposed to let's have it quick. But I'm pretty confident that we're close now and I suspect in the next couple of months we might be able to give you information on that.

But just to remind you, we're focusing really on the high-grade core underneath the original Damang pit that we mined very successfully for a number of years. We stopped mining there in 2013 and we got to the bottom of the pit. We know that underneath that there is a large high-grade core of, who knows, about 4 million ounces or so, at 2.5 grams a tonne. It's in the reserve and resource book, so I'm giving you public domain figures here.

And that's the area of opportunity that we want to get into. So it is going to be quite an intensive capital strip, but once we're in there, there's certainly an opportunity for us to look for a long-life operation here. So we're nearly there, but we're tackling this carefully and diligently.

And then on the debt side I'll defer to my colleague over here.

Richard, I think we've been asked this for a while, but 1 times net debt to EBITDA would be a number we're comfortable with. Obviously, if it's going to be lower it will be even better, but 1 times has always been our comfort level.

But I suppose if you were going to invest in a couple of projects then are you comfortable with it nudging above 1 times in the near term (multiple speakers) comes back on line when those projects start delivering cash flow --

Yes.

-- or EBITDA, I suppose?

Yes, we're happy to go up. We've been as high as 1.5 and pulled it back depending on where we are in the investment cycle. But we've said, long term, 1 is the number, but short-term blips are no problem either.

Yes, fair enough. I suppose one last question just while I'm thinking about it. South Deep, you guys I think are doing a very good job with it. It's clearly a difficult asset that you've done a very good job and have certainly turned the corner over the last three quarters with it. What do you think you need to show the market for the market to be more confident with the asset, because clearly it's not going to -- it still receives a great deal of skepticism? So what's your view there and what do you feel that you need to do?

Well, Richard, we'd love the market to tell us what they'd want to see. That's maybe the better way to answer it. You tell us.

Let me try from a corporate perspective here or company perspective. Let me just say right now we're trying to get the basics right. That's what Nico's mandate is; get the basics right and let's look for continual improvement. That's what we've done over the first two years that he's been here and with the team that he's assembled, get the basics right.

Then I think we can build confidence to look ahead and basically communicate to you and the market what we think South Deep can do. We've still got some work to do to formulate our thinking on this and, again, we're stress testing a lot of the work that's going in. But in February we've undertaken to give an update as to what we think South Deep can do and by when. So more than giving the numbers for this year, at this stage we're not really going to do now, but in February, once we've got more confidence that we really do understand the issues then we'll give more.

That's in fairness to a new management team that I brought in here literally two years ago. And a lot of the team that they brought in have only been here six months to 12 months, so it's a complex operation and we need to give them time to build the confidence so -- now, that's why we've said wait until February and then we'll give you more of an update. But I think look at the trends, now, the trends are positive, so that gives you an indication that we're heading in the right direction I hope.

Yes, it does. Yes, thank you, Nick. And then my last one is your revised guidance. If we keep the mine running at the same mill rate, I don't know whether you feel that you were running it a bit hot in Q2. But on the same kind of run rate of 600,000 tonnes for the quarter and keeping it flat at about 4 grams, it looks like you'll push through your production guidance and beat your revised guidance. Do you have a view on that? Do you feel that you're going to have a bit of downtime perhaps in Q4, or you should be --

Richard, we're just going to stick with the number we've given. And we're putting a number down that we believe we can achieve. Let's leave it at that.

Okay, thank you.

Thank you.

Thank you. Our next question is from Tanya Jakusconek of Deutsche Bank. Please go ahead.

Good afternoon, everybody, it's Tanya from Scotia.

I was going to ask you about that.

I don't know, but I'm still with Scotia for today. Well, thanks a lot again for having a call for the North American audience. We really appreciate it. I have a few questions, since a lot of them were asked by David. But I just wanted to come back on how the next part of the year shapes up.

I know Q3 we will only get the operating results and then, Q4, the financials, but how does the rest of the year shape up? Is Q3's overall supposed to be better than Q2 and then a stronger Q4, or is it a more even split? I'm just trying to get a sense of how South Deep or how Tarkwa perform.

Yes, Tanya, don't really want to get into quarterly estimates here, because we're setting up our guidance to the market on an annual basis, so I don't want to move to quarterly updates. I prefer to stick to annual, but what I can tell you is for all of the operations we're confident of the guidance numbers, even with the ones that we've updated Australia and South Deep. So if you don't mind I prefer not to get into whether we think quarter three is going to be higher than quarter two and whether quarter four is lower. We're confident on the numbers we've given you for the year. If you don't mind, I'd like to leave it there.

Okay. Perhaps then maybe we can talk about your all-in sustaining costs and how have they performed versus your budget for the year in terms of what have you gained from FX and oil versus your internal budgets, just to give a sense on that basis.

Paul.

Tanya, if you have a look at the update we gave to the market on the six months -- six-month numbers about three or four weeks ago, we said that the net operating cost, which, to a large degree, is the main contributor of the all-in costs, we said there had been quite a big decrease in our net operating costs of around $82 million and the -- a third of that, as Nick said earlier, relates to actual decreases in cost and the balance two-thirds related to currency swings, obviously, converting the rand and the Aussie dollar stuff to US dollars.

But in terms of the guidance for the year I think we're well on track to getting our all-in and our all-in sustaining costs. That's why despite the increases we saw at South Deep and at Tarkwa, we still kept the guidance for the bigger Group. And a lot of that is based on -- in terms of guidance is based on converting at the weekly exchange rates that we saw in the first half. However, where we are sitting now a lot of them are going to pull back fairly much to the exchange rate that we gave in the guidance, that we gave in February. So potentially by the end of the year we might have similar exchange rates, but we're still on track for our -- for all-in costs and the all-in sustaining costs that we gave in February.

So if I was take that $82 million, take two-thirds of it, divide by your production for the six months, that would be the dollar-per-ounce gain I would see from FX and oil?

On the net operating cost, which is the bulk of your -- bulk of AIC and AISC.

Yes, okay. All right, thank you. That's very helpful. And then maybe coming to Damang, because I'm just wondering if anything has changed in your thought process at all, Nick, with the higher gold price. I understand we have this big pre-strip. Maybe you can remind me of the size of the strip -- pre-strips that we need to do, either dollar-wise or tonnage. And has anything changed within the modeling of Damang that has made you rethink how you're going to approach this?

Tanya, what I would say to you is we're running the base case on $1,200 gold.

Okay.

That's the base case. We do an upside case on $1,300. We're stress testing all of those numbers to make sure we understand also what the peak cash outflow is. I think the numbers still are provisional. We haven't given any numbers previously on what this might be, so I wouldn't want to come out with provisional numbers at this stage until we've finished the work.

But nothing's changed in our thinking with the higher gold price. I think the higher gold price certainly helps. I think the one thing that I must remind the audience of is that the development agreement in Ghana that we concluded earlier in the year has definitely been a tailwind here on the basis that the taxes have come down from 35% to 32.5%. The royalties will come down from the beginning of next year from 5% to 3%.

We've also got the removal of certain levies on fuel and various imported equipment. So all of those are helping the investment case, even at $1,200 gold. So we're stress testing the final numbers and I think that we should be in a position to make a formal announcement on this really, as I said earlier, hopefully, eight to 12 weeks from now tops.

Okay, so nothing technically that you've come back and needed more time from a technical standpoint to look at in terms of challenging conditions or other?

No, we haven't seen anything in the main pits that would worry us too much and, if anything, the peer reviews that we're doing are helping to crystallize our thinking. And taking more time has been good to make sure we haven't missed anything here.

Okay, perfect. And then just my last question, coming back to exploration, and I appreciate it, Nick, is there one project that you want to highlight for us where you're quite excited about and we should be focused on?

Look, I think the only active projects we have in the Group outside of the brownfields exploration in Australia is, of course, Salares Norte in Chile, in the Atacama area, which is host to a number of really good ore bodies. It's an epithermal high sulfidation system. We're in drilling mode still. We're doing some studies. We've put out an initial resource that you may have seen, which we updated last year and we'll update it again this year.

So it looks like an interesting project, but there's still quite a lot of work to do and we think it's worth spending the time and effort. We've put $50 million aside in our budget, so in those all-in costs there's $50 million there for Salares Norte. And we'll give you an update, I'm sure, by the end of the year. But so far it's looking encouraging.

The $50 million, Nick, is that all for exploration drilling?

Most of that is going into exploration drilling. You know there's a range of issues that's obviously fixed cost. There's a [cam]. There's various option payments and various other things, studies as well. We're doing some studies around what we've found so far. But around about 60% of that is going into the ground.

Okay, good. Look forward to getting more of an update there and seeing you in Denver (multiple speakers).

Tanya, sorry, it's Paul here. Just the numbers I gave you, they were the six months 2015 to six months 2016. If you wanted relative to guidance then I could get back to you.

Yes, please. I'm interested only in the 2016 first half.

So guidance relative to actual?

Yes.

Okay, we'll come back to you and tell you what was real and what was exchange rate. Okay, I'll get back to you.

Thanks, Tanya. We'll see you in Denver in -- well, it's actually Colorado Springs.

Colorado Springs, yes. Thank you.

Thank you.

(Operator Instructions). Our next question is from Charlotte Mathews of The Business Day. Please go ahead.

Hello again, Nick. I know you've said previously that you're interested in acquisitions. Are you still looking? If so, where are you looking and how much money have you got to spend? Would that be the $1.3 billion of refinanced credit facilities, or should I miss off your existing debt from that?

Yes, look, we're looking around in a range of different places, Charlotte. I think strategically I don't want to say too much more about what we're looking for, where we're looking and how much we have to spend. I think depending on the opportunity we'll obviously figure out if we really want it and it's worth having. We'll figure out how best to finance it. But until we've got something tangible on the table I really wouldn't want to say too much more, except that this is opportunistic. It'll happen when it happens. It's not a strategy we're relying on. The rest of the Group is in good shape, as you've seen, and if we can add something that lowers our costs, that provides upside for us to create, if not, we continue with where we are. So if you don't mind I don't really want to say too much more than that.

That's fine. Thank you.

Thank you.

Thank you. Mr. Holland, there are no further questions. Would you like to make some closing comments?

I think just to say that, obviously, we've got the second half coming up and, clearly, there's still work to be done to make sure that we hit the numbers. This team is very focused on hitting the numbers, because if we do that it'll be the fourth consecutive year that we've achieved our production guidance and surpassed our cost guidance and the team is very motivated to achieve that. That's our commitment to the shareholders and we hope to be able to give good news at the end of the year.

And with that I want to thank you for dialing in and we look forward to seeing you all, hopefully, later in the year. Thank you so much.

Thank you. That concludes today's call. Thank you for joining us. You may now disconnect your lines.