Gold Fields Ltd (GFI) 2016 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to Gold Fields' results for the 12 months ended December 31, 2016. (Conference Instructions).

I'd like to introduce you to a number of our management team that's here today. I mean, everyone knows Nick and Paul, our CEO and CFO. Nico Muller, Head of South Africa. We've got Stuart Mathews, Head of Australia. He's recently taken over from Richard Weston. And then we've got Richard Butcher, who's Head of our Technical for the Group. He joined us last year some time and he'll be helping with the Q&A as well.

And with that, I'll hand over to Nick to present the results.

Thank you. Thank you very much. I think before we get going, some very sad news. I got a call this morning at about a quarter to four that unfortunately we've had a fatality in the night, a tramming-related fatality, at South Deep. And this is the second fatality, unfortunately, we've had this quarter. We had one on January 1, would you believe. And we had a tramming-related fatality in the early hours of this morning.

So could I ask us all to stand for a moment, if you don't mind, and observe a moment of silence.

Thank you very much.

Obviously, safety is our number one priority, so clearly this is a setback to South Deep. And the first quarter is obviously going to be impacted by these events, but we'll talk more about that as we go through the presentation.

Well, let's go forward on this one, Avishkar, sorry. This is a new control here. Having a bit of a problem. Okay, that's going up.

All right. Super. Let's get cracking. Looking at the year under review, as you know, fiscal year end has just happened, December 31. Production wise, 2.146 million ounces. That's pretty much in line with the previous year, give or take a few thousand ounces. And initially we thought we were going to be lower than that. We did revise our guidance up, and it's good to see that we were able to hit the upper end of our revised guidance. Of course, you can see quarter four over there as well. That we've done 566,000 ounces for quarter four.

All in costs for the year, just over $1,000 an ounce. That of course includes all capital. If you look at all-in sustaining costs, it's around about $980. A lot of people just publish the all-in sustaining costs, so if you wanted to benchmark that against what other people do, that's about $980 for the year. So that's down on the previous year.

Cash from operations. This is after all interest, corporate charges, and the various other activities, including growth capital. $294 million. That's cash in the bank, compared to $123 million in the previous year, so a nice increase in overall cash.

Of course, the gold price helped us, $100 an ounce higher, compared to the previous year, but the nice thing is that we were able to capitalize on that, and produce the ounces at the right price to give the cash flow.

Normalized earnings. When you strip out all of the accounting, exceptional items, the non-recurring items, you can see over four times up, to $191 million for the year.

Dividend. We've declared a final dividend of ZAR0.60, so that brings the dividend to the year to ZAR1.10 and as you can see, that's a nice increase on the previous year.

We've said that we wanted to get our net debt down to 1 times. Paul and I put that objective out in the beginning of 2015, and we've got there at the end of the year. Debt's down to $1.16 billion, and that's even after spending close to $200 million on the first payment that we had to make on purchasing 50% of the Gruyere project in Western Australia from Gold Road. So we've hit that number, even with that additional expenditure.

So for next year -- or for this year, rather, I should say, we're giving the same guidance range as we gave for this year -- the upper revised guidance that we gave. We're still within that range. All-in sustaining costs are slightly higher than what we have been. A little bit of cost inflation, not a lot. Some currency movements, but in essence, we're talking about around about 2% to 3% up. That's not much.

And then all-in costs of course, given the growth projects I'm going to talk about, if you reconcile the difference, you can see that includes about $20 million for South Deep, $120 million for Damang. We announced that project, as you know, late last year, and $112 million for Gruyere. The $64 million dollars for Salares is actually reflected in there as growth expenditure.

So, if we move on, let's look at progress against our strategic objectives. You've seen these before, I believe, and we've said that these are the key things that we're looking to do to add value to the shareholders.

Growing cash flow and margin with an increase in the gold price. Well, you can see that our individual mines, if you back out interest, corporate interest, and you back out the growth expenditure, the mines generated close to $450 million. If you bring that back to a cash flow per ounce, it's just over $200 per ounce, which we understand benchmarks quite well against the median, certainly, of the large peer group of gold producers around us.

We made a 17% margin at a gold price of about $1,241, so in fact, we exceeded the target, because the target, remember, was a 15% at $1,300. We've been able to actually improve that with the good operational performance during the year. And as you've seen, a big increase in the cash flow, compared to the previous years, from the individual mines.

Obviously, deliverance against our targets is key. We get measured by a lot of shareholders and of course by analysts on that. This is the fourth consecutive year now that we've either matched or beaten our production and cost guidance on the Group. So we're starting to build a track record.

Similarly on dividends, the dividend over the last year -- last five years, in fact, has averaged around about 30%. That's in the middle of our dividend pay-out range, 25% to 35%. We've always said if we make the earnings, we'll pay the dividends. So that's the leverage that we'll give to shareholders. So we've honored that commitment as well.

The net debt I've talked about, we've achieved that goal already.

Deliver a sustainable South Deep. Well, certainly for the first year we've been able to achieve the targets and beyond that we set for South Deep and we went from a negative cash flow of $80 million in 2015 to a $12 million inflow in 2016, a modest inflow, but the turnaround certainly is close to $100 million year-on-year, so that's a good place to start.

We've said that we'll continue to look at opportunities to enhance the portfolio with quality assets. You've seen the Damang reinvestment case, which ticks all of the boxes for us. A good IRR at a $1,200 price and a breakeven price close to $1,000 an ounce. And also the Gruyere thing.

Now, what we've done over here, if you rebased the all-in costs for the 12 months, including those projects at full production, just to give you an idea on a pro forma what it would look like, that would have dropped our costs by over $60 an ounce. So that's the kind of thing we're looking to do in this Group, is to look at improving the overall quality of the ounces that we've got. It's not about ounces. It's about the margin and the quality of the ounces. And that in itself will translate into better cash flow.

So talking about cash flow, we've continued to show this graph since the change in the strategy, which took place around about over here, which also corresponded a drop in the gold price. And from there we said, look, we're going to focus now on cash flow. Let's make money. It's not about ounces. We've cut some marginal ounces.

But also, at the same time, we were able to add some production, as you'll see in a moment. But over that period, we've consistently really been able to add cash flow quarter after quarter, despite the gold price being a bit lower.

Here's the debt profile. I think the key takeaway here is look at the debt coming down, in absolute terms. Look at the net debt to EBITDA ratio coming down as well. You can see that that's a good improvement over time. Importantly, the work that we've done over the year has also pushed out our tenor, so we don't sit with any big liquidity problems in the short run. We've got flexibility in terms of repaying our debt. And we've got unutilized facilities of over $1 billion that are committed and available to us if we need them.

Dividends, I've spoken about. A nice pick-up in the pay-out ratio for the year.

Our strategy on M&A, a lot of people have asked us, what do we look at when we want to buy something. We're really looking for stuff that can give us this 15% margin, as you see over there. We want to be in a decent place. We want to try and consolidate where we are. If we can find additional assets in countries we're in, that helps us to leverage off the footprint that we have, the platform.

That's probably why you saw us purchasing the interest in Gruyere. It enables us to leverage off the good skills base we have in Australia and it should also lengthen the overall reserve life. And of course, Gruyere has a 13-year reserve life, so of course, that will help us to lengthen the average reserve life at lower costs in Australia.

I suppose one slight departure here is -- should be in production. So you might say, well, why did we buy Gruyere, it's a development project? But I think we looked at this and said, given where this is on the value curve at this point and the fact that it was a good addition to the portfolio in Australia. And the fact that it's becoming more and more difficult to buy stuff in production that's accretive.

We thought this was strategically a really good asset to buy and it opens up our entry into a whole new camp that is largely unexplored. So that gives you an idea of what we do.

Frankly, I must just say, given the fact that we've got the Damang reinvestment, we've got Gruyere, we've got Salares bubbling under, and of course we've got South Deep, we think that our deck is pretty full at the moment. And so I think the chances of us doing something exceptional -- or something additional in M&A I think would be less likely.

It would have to be something exceptional. It would have to be really more likely focused on something that was synergistic, in country that we're in. We'd never say never, but I think we have to have a more inward focus this year on the projects we've got on the table, because if we can deliver those, we've got a good story of growing cash flow into the future.

Just got stuck again here. Just need some help. It's just a bit of a glitch.

So let's look at the projects for the future and talk a little bit about that. The Damang reinvestment case that obviously extends the LoM. Gruyere, it adds life and it lowers the costs. We're talking about brownfields exploration between $90 million and $100 million. In Australia we've had good results out of that. And we'll talk about Salares. And, of course, South Deep. We've got a few slides at the end.

So just to remind you what we put out last year on Damang, the reinvestment case extends the life by eight years. We're going to be mining about 1.5 million ounces over that period of time, as you can see, over here, as we get into full production. You can see that production gets up nicely over there. The costs come down. And importantly, we don't see this as an end project at all. We see this as the start of adding something quite significant over here.

In fact, if you look at the unconstrained Damang, beyond this, there's potential for over 10 more years and 2.5 million ounces at depth. So once we get down there, it's a question of eating the elephant slowly and making sure that we can make a return on our money.

Some people have said, well, why did you do this? Well, at 28% return, at $1,200 gold, it's a pretty good return in my book, and of course we get a payback period of roughly halfway through the life.

So that project has started reasonably well. We've got our contractors all mobilized. We've got the bulk of the fleet. And I think the first month or two, we're really tracking where we want to be at this stage, but of course, it's early days.

Moving on to Gruyere, again, just to remind you, we purchased these two blocks over here in pink or orange. The main project, of course, is Gruyere over here. And that represents a reserve of around about 3.5 million ounces. Annual production of 270,000 ounces at all-in sustaining costs of about $690 per ounce, once we get into production.

Capital, of course, is $507 million. The is shared 50-50 between Gold Road and ourselves. And we would envisage that this project should get into production towards the end of 2018 or very early in 2019. And again, I think we've started well. We've now taken over the operations of that project from February 1. And we're making really good progress in awarding all of the various packages that need to be put in place for us to start all of the bulk earthworks for the plant, for the tails dam and we'll get into the mining next year.

Importantly here, we don't have a big pre-strip. Unlike some of the other opportunities, we go down 30 meters or so and we're into the ore body. So the pre-strip here is going to be quite minimal and we'll get early ore once we get into the ore body. I think the rest of the terms of the deal you're pretty familiar with.

Exploration in Australia, we've said that over the years we've been quite successful in replacing what we mine. The average discovery cost over the last 15 years has been AUD80 to AUD100 an ounce, per mineable ounce -- that's per ounce you put into the mill, not per ounce you put on to the reserve statement -- which is pretty good business if you look at what you pay for those ounces into the market. And of course, you've got the infrastructure and the people there to do it.

So over the last year of course, we've drilled a lot over the four leases. And I must say, we got really good results, particularly at Granny Smith and St Ives. Those two mines in particular, you'll see when we put out the reserve and resource statement, that they have more than put back what they've depleted in their reserves, which is really where we want to get to.

We've got work to do at Agnew. And Darlot we've made a strategic decision that given where the mine is, that this is probably better in somebody else's hands than in our hands, so we are going to commence a process to dispose of Darlot. We think there is good exploration potential there, but we've got enough on our plate.

And with what we have to do on the other mines, and with Gruyere, we think this makes sense for us to look at a way of creating some value by disposing of this operation. So you'll probably hear something more about that in the next couple of quarters.

I'm not going to dwell on these slides, but just to give you an idea, I talked about the exploration success at Granny Smith was very good. And we're seeing at the Wallaby underground mine, which is a series of gently-dipping lodes, that we're seeing the ore body being replicated at depth.

Zone 110 to Zone 120 is the prospect that we've done quite a lot of work on over the year, and you can study some of these drill results yourself, but they're pretty good intersects and we're seeing that this is growing all the time.

And if you look at above this, we've been seeing footprints of about a kilometer by a kilometer -- that's the kind of size of the lens. And we're starting to see that this is getting up there and could replicate what we've got above. And each of these lenses could potentially be about a million ounces in situ, of which we could recover something around 60%, so a good opportunity there.

It doesn't stop there as well. Go down further to Zone 135 and again we're seeing good results. That's starting to build up into a good position.

Over the last three years, since we've owned the Granny Smith operation, we've doubled the resource from 3 million ounces to 6 million ounces. So I think that's quite a good result in that period of time. So money well spent and we're confident that we can convert a significant part of that into a mineable reserve.

Obviously, there's other things here. We've got some old pits. If you fly into Granny Smith you'll see -- as you come in, you'll see three old pits full of water. Those were the initial starter operations of Granny Smith and one of them is Goanna. And there's potential here for a pushback. We've done some drilling.

And why this is quite important for us, is that there is an opportunity for us to fill surplus capacity in the plant. The plant has a nominal capacity of about 3.5 million tonnes a year. We're putting through about 1.5 million tonnes, 1.6 million metric tonnes. So to the extent that we can find additional ore on site, or even off site, to put that through at marginal cost, it'll be good business for us. So this may be a couple of years away, but the confidence in this is growing.

In addition, there's an underground potential as well. This is all pretty close to where the process plant is. Easy trucking distance. And again, we're building up a nice position here. So we should be able to tell you more about Goanna and Windich over the year to come. Hopefully, as incremental feed into the process plant and use up some of that capacity.

On the lake itself -- we've got a salt lake here, called Lake Carey. It's like St Ives. We've got a big salt lake there called Lake Lefroy. Lake Carey's a bit different, though, in the sense that it doesn't have the hard crust that you have on Lake Lefroy and so there's been very little exploration done on here. So as a consequence, we've had to build causeways on here to try and get the drill rigs in.

So it's gone slower but we're making more progress now. And we've identified something here that's quite interesting. And it was an anomaly called Northern Fleet, but with a lot of the air core drilling that's been done, it's now turned into something that's mineralized. We've got something here that's about eight kilometers by four kilometers that, as we've put holes into it we're finding stuff.

Now, don't pay too much attention to the drill results. This is really target drilling, framework drilling, air core. What we'll do now is we'll take some of these results and we'll put this into a more focused RC and DD drilling program, where we'll get a better feel for what we've got here.

But this certainly is something that looks like it could be quite significant. Three, four, five years out, obviously, but we're having an eye on the future of Granny Smith beyond just Wallaby.

Invincible. I think you all know that the Invincible pit is one of the key sources of production to St Ives. It's been a very successful pit. It's actually given us more ounces than what we thought it would. And you can see that's the open pit at the top there. There's about five stages across there. Now we're looking at the underground, we'll be going into the Invincible Underground this year as part of our 2017 plan.

It doesn't end there though, because we're seeing there's something else called the Invincible South on the other side of this fault system. We could probably use the infrastructure from Invincible Underground and get in there as well. But importantly, Invincible Deeps, we're seeing something over here as well that looks like it's strongly mineralized. That's going up plunge over here. So this looks like it could be a big system.

And this is how things start at St Ives. In 1994 we had a drill hole of 1 meter of 0.8 grams a metric tonne. Very unspectacular. Today we've got a position over here on our resource statement that is just under 2 million ounces. And that's just one small speck on the whole speedway trend of 22 kilometers. So there's a lot of work to do here, but that shows you what can be discovered with the right focus in the right area. So a lot more to come from St Ives over time.

At Agnew, we obviously are in need to find a replacement for Kim, over time. You can see over here that Kim is in that section. There's a parallel sheer zone over here, called Barunga North. We've put in an exploration drive over here. We've put in a number of drill cuddies and we've done a lot of underground drilling over here, which gives you really good resolution.

That blows it up over there. And if you look at this legend, it will tell you that in fact a lot of the drilling that we're doing, the infill drilling, is confirming what we believe is here. And I think the challenge for us now is to see how we can see if there's something further up and something further down, so that we can create something that could ultimately be a replacement for Kim in time. So work to do there, but that looks exciting as well.

Salares has been around for a while. The project was actually acquired by us and we found the key mother hole back in 2011. We've done quite a lot of drilling. We've probably done about 100 kilometers and more over that period of time. It's typical of the geology in the system, high sulfidation, epithermal system. Gold and silver, of course. And we've updated our mineral resource statement which will be in the release that comes out at the end of March.

But to give you an idea of where we are, we've got 4.4 million gold equivalent ounces. That's about 25 million tonnes. 4.6 grams a tonne gold and with a large silver credit, 53 grams a tonne. And about 52% of that reports to the indicator category. So this is not just something early stage. The ore body looks like it's holding together.

We've been working quite hard to make sure that we had the land granted on this project from the state. We've got that now for 30 years. And also we've got water secured. We've got water boreholes within 12 kilometers of the site. And we've been going through a permitting process over two years. We've now got the water rights and we've got more water rights than what we need for a project. So we've got lots of buffer over there and it's within easy distance.

Clearly, in this kind of place, 4,500 meters up in the Atacama Desert, and if you don't have water you don't really have a project. So we've got the water, so I think that is a massive step forward for us.

We're doing a pre-feas study and we expect to finish that in the second half of 2017, but just to give you a teaser on this, the indications are that this is likely to be an open pit opportunity. And what you've got over here is you've got the main source, which is what we call Brecha Principal. That's a brecciated ore body. And to the side, in a more horizontal lobe, we've got Agua Amarga that heads out that way over there and that's open on strike.

So we've got really high resolution on this and we're gaining more confidence into that area over there. So that's what the 4.4 million ounces' gold equivalent is made up of. So something more that we'll hear in the future about this one, but certainly something for the future.

So if we look at the regional review and where we are, just to orientate you, that's the Invincible pit at St Ives. That's the mill at Granny Smith. That's Tarkwa. You can see that's the old Makulu waste dump. That's some of the open pit operations over there. And, of course, that's Cerra Corona, 4,000 meters up in the Andes. So it gives you an idea of the spread of assets in the portfolio.

I'll move through this quite quickly, but overall for the year, as we've mentioned, 2.1 million ounces for the year at all-in costs of $1,000. All-in sustaining, about $980. Mine cash flow of $444 million.

And if you look at where that's coming from, the Ghana region has made $100 million over the year. This is cash in the bank. That's after taxes, capital, G&A, everything -- soup to nuts.

Australia has made over $250 million. The Americas region $77 million, and or course South Deep, a maiden $12 million positive cash flow for the year. So that gives you an idea of where the cash comes from.

Australia has done really well again. We started the year at 905,000 ounces. We've ended up at 942,000 ounces. A massive improvement in safety. Safety rates up 42%. And costs, of course, really well-controlled. So I really think the team in Australia has done a fantastic job and they've really, again, I think for the third year in a row, really shot the lights out, if I may say that. They've done a super job and we hope that we can continue that again, into 2017.

West Africa has done well again. Of course, Damang has not had a great year but we know that it was a holding plan. We'd held back the capital until we were very confident. On the reinvestment study we took our time on that. We got external consultants to review it, from a geological and from a mining design perspective, until we were satisfied that that worked.

So obviously, it's a tale of two mines -- one that made money and one that really didn't make money. But net, it's $100 million for the year and Tarkwa of course has done exceptionally well.

South America. What can we say about Cerro Corona? It continues to do well every year. 270,000 ounces this year. That's on a gold equivalent basis. All-in costs of $762. Made good money again. Grades did come off a little bit. That's why the production came off. We expected that. That wasn't a surprise for us. But again, they've made good money.

So we're focusing quite heavily on life extension, because we have over 50 million tonnes in resource that could potentially be converted to reserve if we can get tails capacity at slightly higher prices. And we're working on how we can optimize that extension at lower overall costs and bring additional ounces in. So that's one of the key objectives over this year.

South Africa, we've mentioned that they've made cash this year for the first time. I think you can see over here -- look at the bottom. Here's where we've come from over the last number of years.

So one of the things I said at the beginning of last year was the objective for 2016 for South Deep was to break even. Let's try and break even. We've achieved that. Of course, let's be frank, the rand gold price also helped us, but I must give credit to the team under Nico. We got a 47% increase in production. We've brought down our costs, not -- despite the fact that we had to put in additional people and resources to fix some of the base. And notwithstanding all of that, it's been a good turnaround over the year. I'll talk about the rebase plan right now.

So let's talk about that. One of the things the team has done over the last two years is to take a step back and look at every facet of the business, from people to infrastructure, health and safety. And we identified a number of projects that needed to be dealt with in the short, medium and longer term, to fix the base.

If you look at people, we had, obviously, to fix the management team, which I think we've done. Nico has brought in a strong team. And although he's leaving us, he leaves a strong team behind that he's created. So I think although we're sorry to see him go, I think he's done a good job in making sure that we're not going to be left short in terms of expertise on the mine.

Health and safety has improved markedly over the last couple of years, notwithstanding what I said earlier today, and obviously, that's a setback for us. But we'll come back stronger.

We've done a lot of work on fleet replacement. We've bought 58 pieces of new category one fleet, which means we've really replaced about half of the fleet. We've got a new underground workshop now, 200 meters by 200 meters. That's like two rugby fields underground. That's now fully commissioned. That's helping us to improve the availability of the fleet. That's working well.

And we're working on fixing a lot of the infrastructure issues. We've done some work, but there is still some work to do. We've got to upgrade the refrigeration and ventilation systems underground. We've got some work to do on roadways still, and on secondary support backlog. But we've caught up a lot of that work over the last couple of years.

I think the change in the mining method has helped a great deal, and that, for me, is really the essence of why we believe that this plan can be achieved. Certainly the low-profile method, with four or five years of empirical data showed to us that that wasn't the way to go.

And by stiffening the overall geotechnical system and going to reduced mining spans, we could increase the vertical height and then get all of the activities done on a mechanized basis. Not just the drilling, but also the support. The drilling of the holes for the props and the support bolts and of course all of the mesh that gets affixed as well, to the hanging wall and parts of the side wall. That's made a big difference. Not yet optimized, and more work to be done on that, but heading in the right direction.

You can see some of the stats here that demonstrate that. In particular, the destress. You can see that the destress changed fundamentally in 2016 to more high profile. And by the end of July we'd stopped all the low profile destress altogether.

Long-hole stoping. Look at that. A massive increase, over 70% increase in long-hole stoping in 2016. Productivities per rig have cone up 28% on long-hole stoping in 2016 compared to 2015.

Backfill. We're feeling a lot more confident that we have an interim system that will make sure that we can backfill. Ultimately, we're going to go to full shotcreting, which will be done on a mechanized basis. But that'll be something that we'll roll out over the next year.

This is what I talked about earlier, is the new design of moving to six corridors, 180-meter mining spans, with 60-meter regional pillars. And then of course, moving to a 5.5-meter destress vertical height, as opposed to 2.5 meters previously. And this has made a big difference.

We've got a geotechnical review board, which is made up of experts from Canada, Australia and South Africa, assisting us, and walking with us every step of the way, including literally walking underground and going to all the working areas on a quarterly basis, and guiding us along. And I think they're going to be with us for some years to come. And that's been invaluable as we de-risk this operation.

On the mine planning, if you look at the build-up over here, and you look at these three colors, I think you can see that if you look at the development and the destress, it's going to be either the same or slightly lower, going forward. So the big volume increase is going to come from the open stoping. We've said that all along, is that that is really where you get the volume kicker on this operation. And we'll be looking to increase that over the next five years. How are we doing that?

Well, we're getting additional rigs. We'll be going from six rigs to 12 rigs over that period. We'll be providing more stopes. As the destress advances through the ore body you create more stopes that are available, as you take that arrow-shaped destress design forward, you create more open stoping horizons on each destress cut that you move forward. And then you exponentially increase the number of faces that are available.

I must say, this has been extensively critiqued by the geotechnical review board. Richard Butcher, over here, has looked at it. Here's Richard in the front row. Richard Butcher and the Group technical function have spent a lot of time going through this and making sure that we understand the key ingredients.

And challenging ourselves whether we think this is doable, because the one thing that we're quite keen to do is to put something down that we can get. We've had a lot of targets at South Deep that have not been achieved. And this team is very sensitive to that. This has got to be targets now that we can achieve. So that's what we're committed to do.

Interestingly, we can achieve this, we believe, with really the same number of people that we have now. So it's not a function of putting hundreds of people in here to get this. By changing the mix of your mining to open stoping, you actually significantly increase the tonnes per man, tonnes per crew, because you're going into these big stopes, which are up to 20 meters high, 60 meters long. That gives you an idea of the volume driver that these things will give you.

It'll be a change in the mix of our equipment, as well. You'll see that we'll move to more Simba rigs, which is the open stoping rigs, and less to development rigs as the mix changes away from destress and development, more to open stoping. So we don't think we need a whole bunch of new rigs, either, and we've replaced a lot, as I mentioned earlier. So that's how you get the leverage on this operation.

Here's a high-level life of mine plan, which shows the current mine over here. And it also shows north of Wrench over here as well. Then of course you've got south of Wrench coming in over there, and over there, and that shows you the tonnes of gold over that period of time.

Over here, obviously, is the area we're mining at the moment. We think there's also big opportunities for us to go back there. There's significant resources that haven't been converted to reserve, and we're looking at opportunities. We think there's really good chance for us to get a significant portion of that back over time, so that's also one of the things we'll be doing to, again, de-risk this plan and optimize this plan.

This shouldn't be seen as what the team wants to do. This should be seen really as the minimum. And if we can go beyond this, obviously, we'll try and do that. But that'll come in, in time, whether we can achieve that or not.

So, if you look over the period over here, you can see the split of production between north of Wrench. That picks up a lot, as current mine comes off. Current mine will continue for about 10 or 11 years, but it'll obviously get lesser every year, as we increase north of Wrench and then you can see ounces produced every year, together with the recovered grade.

The recovered grade is expected to be better in the early years than the average grade for the ore body, because we will be doing more mining as we take down, spatially, the higher-grade corridors closer to the shoreline, down to where they need to be. Four West, Three West, which typically are higher grade ore bodies.

But obviously, it's key that we make sure that we maximize the extraction in those areas, given the grades there are between 25% and 40% higher than the average grade in the ore body. So that's where we're going to get a lot of the grade kicker in the early years.

Capital, we've put back into the plan around about ZAR2 billion worth of what we call growth capital. What is that for? That is mainly on things like crushers and conveyors in the north of Wrench area. It's also on refurbishment of refrigeration and ventilation underground. And it's also on some additional development.

Just bear in mind, when we did the original project of ZAR9 billion in 2009, we didn't spend all of that money. There was about 15% left and together with escalation on that, and some scope changes, that ZAR1.2 billion became about ZAR2 billion. So that'll be spent over the next six years or seven years. And then sustaining capital will be something around ZAR1 billion or so.

Okay, so I think that is it. Just to say, tomorrow, obviously, we're going to go through the rebase plan in greater detail. But Nico is here, Richard Butcher is here from technical. And I'm sure you may have more questions, for those of you who won't be at our presentation tomorrow.

Thank you.

Thank you. Okay, we'll start with questions from the floor. Johan.

Thank you. Hi guys, it's Johann Steyn from Citi. Nick, if I just add up all the ounces that you discussed today from Damang, from Gruyere, from South Deep, you're effectively guiding to about 2.5 million ounces to 2.6 million ounces by 2019. Can we interpret it like that or do you think that there's going to baseline decline?

Look, it's not something that I would want to commit to at this point in time. I'm much more focused on growing the cash flow. What we see at this point in time is that we believe that these projects will grow the cash flow of the Company. And it might be that there is an element of replacement, but it'll probably be a replacement of higher-cost ounces with lower-cost ounces.

So I want to move away from getting stuck on long-term production targets because things can change. You have five-year strategies and then sometimes you relook at them and things may come out, things may come in. It may be that there are incremental ounces, but I'm much more focused on incremental cash flow. I think these projects are certainly going to add more cash flow.

What I would say, however, is that I think with these projects, Gold Fields is in a good space to be at 2 million ounces or more for the next five to seven years at least. So other than that, I wouldn't want to give too much more commitment or context to it.

Thank you. Look, from an investor point of view it's critical to know because you need to know if you need to model Gold Fields as a 2 million ounce producer for the next 10 years or growing to 2.5 million ounces. It's got a very big impact on the way that you value the Company.

So what I gather from what you're saying is that the correct way to model Gold Fields is about 2 million to 2.1 million ounces and to a large extent that this is replacement CapEx.

No, I'm not saying that. I'm saying in a worst-case scenario I don't think we'll go below 2 million. We could go higher. So when we put out the reserve statement, reserve and resource statement in March, we'll give you an update of reserves for each of the assets. And I think you can use that.

And maybe some of the guys out there I know factorize some of the production in Australia beyond because we have had a habit of replacing, but certainly I feel very confident on the production levels of Granny Smith, St Ives, Tarkwa and Corona over the next number of years. And, of course, you've seen the South Deep profile as well. Agnew, we've got some work to do on that because their reserve has been coming off over the last four years. You've seen that. So there is work to do to bring that back.

So there might be things going in and out, but we would hope that with increasing cash flow it also comes with some element of increasing production. But certainly I don't think we'll go below the 2 million ounces.

Thanks, Nick. And if I may, another question. We're seeing this -- and I think most people would have predicted that, that globally, gold mining companies specifically, is showing a rise in CapEx this year. And obviously the sceptic can say after years of austerity measures this is playing catchup to CapEx not spent and more replacement. Do you think that that is an accurate statement for the industry as a whole? And would you be different if it doesn't apply to Gold Fields?

Yes. It's a very good question. One of the things we did last year is we put together a expose on the industry in terms of the quality of their production and their costs. And one of the things we've seen, if you look at the top 12 producers, which make up about a third of the industry, their all-in costs -- sorry, all-in sustaining costs as a ratio to OpEx declined in 2012 from 41% down to 25%, which indicates to me that capital is being pushed out, exactly your point.

And then we looked at ourselves and said, well, how do we look? And we are at the upper end, so we've reasonably maintained -- I think we're at about 35%/36%. And one of the things that the guys in the operations know very well is that we can't short change next year for this year. We have to be stripping our orebodies in line with the life-of-mine strip ratio. We have to be developing three or four levels ahead of us to make sure that next year we don't have a bubble in capital.

And that's one of the things we do. We look at a five-year strategy and we make sure that we're spending the capital.

But I do think you're right. I think other companies maybe are showing $800 an ounce, $900 an ounce and saying, look how good we are. The question is, is it going to be followed by a bubble of capital expenditure? We don't want to be in that position. We'd rather spend more money upfront today so that we can sustain good cash flows, not just today, but also tomorrow. So I think you're on the money with that issue.

Thanks, Nick. One last question to Nico. You're going to Impala, Nico. Just explain a little bit more about the succession planning at South Deep. You are leaving at quite a critical point. I understand it's an opportunity that came along, but, in your view, how strong is the succession plan? If you can name one or two individuals that would be great.

And even what, in your view, is the key risk of a plan where effectively your stamp of approval is on this plan? What can go wrong? What's the one thing that you think that can go wrong over the next two years, three years, so that we again in this room look back and say, well, we're still stuck at 250,000 ounces, 300,000 ounces?

Okay, so I'm going to just answer your first question slightly differently. I think we've established a very strong operational team at the mine under the leadership of Adriaan deBeer, who I shared previous experience with. And below him, we've stablished a very strong operational team in all the disciplines, and in particular the mining engineering disciplines, which I think are critically important.

And so as part of the business improvement project suite that we've had, we've also embedded strength in supervisory and with management levels below that. So I believe South Deep has got a far stronger operational capability than what it had in 2014.

And in terms of succession planning, I think that is something for Gold Fields to address at some future point and not for me to comment on.

So the rebase plan, whilst my name is associated with, and proudly so, it's not my product. An entire business team, including the operational team, contributed to that. And we had Richard Butcher and his technical team contribute to that and pull it apart, so I'm very comfortable that it was a robust plan. And it started off on our current operating platform, as inefficient as that may be. It was a very pragmatic plan based on mining approaches that we are currently executing, so there's nothing novel or fantastic about it.

The one biggest risk for me personally is the -- our ability to perfect the de-stress mining method. We've gone through several changes as far as the de-stress is concerned. We had the hanging wall, footwall ripping, high profile, and we've made some optimization as far as the layout was concerned.

That is the area that is -- it is the leading element of the value chain. It is the area that is associated with the seismic hazards that we have. I think the changes that has been made in the layout over the last years have been very good and conservative as we've reduced the stance between the pillars, we've increased all the pillar sizes. So I think that's all contributed to a much more robust and stiff overall regional design. But that is the one area we have to perfect.

We've started with the execution of the new layout, but it requires several years to develop a sufficiently large footprint to stay back and say, this is bedded down for the life of the mining operation. So that would be the one area that I think is important, and in the short term, the extraction rate of our secondary long-hole stopes that we left in between the primary long-hole stopes. But I'm more confident, short of that, because I think we've made significant improvements in our backfill, which is a critical element in the whole long-hole stope extraction.

Okay. We'll go Adrian.

Morning. It's Adrian Hammond, Standard Bank. A bit of general question first for you, Nick. So, in my mind, the industry has obviously gone through a lot of change. Exploration has been very low for the last 10 years and it seems to -- and reserves are falling. So just to be clear on Gold Fields' strategy, do you prefer to build or buy mines?

Look, if you look at the history of Gold Fields, actually everything we've got in production now has actually been bought. We haven't taken anything through. Even Cerro Corona, although we built it, we actually bought the deposit. The deposit was fairly well understood when we bought it back in 2003.

We were successful in buying a number of mines. We bought Damang for a good price. Now we bought the Australian mines, all of them for very good prices. We got our money back. Cerro Corona we only bought for $40 million, would you believe?

But it's getting harder to do that. And one of the reasons it's getting harder is that most of the majors, back to your point, are seeing decays in their medium to longer-term production profile, because exploration has been cut systematically for 20 years and there's a dearth of new projects built. This industry produces 100 million ounces a year, and it's hard to see where they're going to get those ounces replaced from.

So I think there's a feeding frenzy often when reasonably good assets come on the block that are in production. So maybe we're going to take a step back and say, actually let's be a little bit organic in our view at this point in time. Let's continue to look for opportunities to add to the mines' lives in Australia and try and upgrade the quality, try and get better-quality ounces in Australia.

Gruyere I think is going to be a great addition. Damang opens up, basically, 6 million ounces of resource for us, so that could be there for a long, long time. Tarkwa, we know that there's other opportunities on Tarkwa and we're starting to explore on Tarkwa.

So I think you're hearing that whilst we never close the book and we never say never, I think acquisition of in-production is becoming harder.

The other thing, as I said earlier, I think we've got our plate reasonably full at the moment and unless something spectacular came along I think it's less likely that we would do something. Obviously if a very logical in-country, synergistic deal came on the table, and I'm sure you can think of a few, there may be an opportunity for us to consider it.

But in the absence of that, it's less likely we're going to be going into new frontiers. We've got to have an eye on the downside as well, given that we're going to be spending $850 million this year. Once we get through this year I think it gets a little bit better in 2018, but I don't feel compelled that we have to go out and buy something. And I think with what we have, we've got a reasonable portfolio that can make good cash into the future.

So if we just contrast that to projects you have, you've got Damang with a 28% IRR and Gruyere with a 6% IRR. And I appreciate that's a bit of a hybrid, being to buy and build. So is there something there that we're not seeing that can justify such a low return?

Well, certainly if you look at Gruyere, that's only on the reserve. And the resource is very well defined. It has a porphyry system, which has very good structural controls in the mineralization. It goes down a depth quite a long way. Also, there are other orebodies on the lease that have potential that we didn't value.

So I think we see Gruyere being a much longer life than just 13 years. Importantly, it gives us an entry into a whole new camp. This is a 5,000-kilometer camp east of the Yilgarn Craton, where we're in now, so it gives us a position in there which I think in time to come could be strategically very important.

But obviously we don't want to do a deal that doesn't make money on the hard numbers. It makes money on the hard numbers and I think the upside is there. There'll be potential here for potentially a push back or more underground material.

And one of the things we'll do as we get out our arms around this is we'll have a separate team looking at upside opportunities on this bit. We're very excited to be in there and we see a lot of potential.

So hopefully that gives you a steer on that.

I'll come back to you if you have more, right. Yatish?

Hi. It's Yatish Chowthee from Macquarie. Just a question on the Australian production curve. With Darlot coming off now, well, potentially, how do you foresee sustaining the production profile north of 900,000 ounces? This is even before Gruyere kicking in. Is there any potential flexibility on Granny Smith, St Ives, looking at grades, volumes? Can you --?

Okay. I'm going to use the opportunity. Stuart Matthews is here and so I wouldn't want to waste the opportunity. He's head of the region, so maybe Stuart -- he doesn't have a mic, but he could stand up and maybe use that mic and Stuart have a go at that answer.

Yes. With Darlot about to be divested, that'll happen probably in the next six months, we would see the production profile come off. But right now, you could see from Nick's presentation there's several things emerging at Granny Smith. We're looking -- we're very focused on filling the mill there. We run that plant 15 or 16 days a month, but we have some quite good-quality open-pit opportunities emerging there, the Goanna pit, and we think that that could come into play within the next 18 months, two years and help us there. And there's a great exploration potential south on the lake as well.

Agnew, we think we can maintain where we are now for a couple of years. Not much upside there at the moment, but we can maintain and sustain. St Ives is looking quite positive to be able to maintain its production profile.

So we might initially lose Darlot's profile, but we must remember we're making that for a strategic reason and spending money on building a quality asset which is actually going to lift our production profile within two years.

Just a quick follow-up. On Granny Smith being an underground operation, do you have any hoisting constraints there in order to fill up the mill?

This is single-access decline. We're looking at that and how we can push productivity. This year we'll be -- well, last year we actually smashed all key performance metrics. We drilled more tonnes out of that mine than ever produced in previous years, more capital development, more operating development. And we're pushing even further this year.

Thanks.

Thanks. It's Danielle Chigumira from UBS. A couple of questions, one just on Granny Smith. So you've been clear that Goanna and Windich maybe need a couple of years to firm up into reserves, but in terms of the optionality at Wallaby, do you think you'll be in a position to add to the reserves there significantly already in March?

And the second question is at South Deep. So you said that you already have the number of people that you need to reach 500,000 ounces, but you mentioned that the skills is a real issue. So that implies some significant churn over the next two to three years. And with the regulatory environment being what it is, do you see that being a challenge in terms of executing on that churn?

I think let Stuart answer Australia.

Yes. On the Granny Smith growth and the reserves potential, I think there'll be a very positive result on that. We had a great result last year. We expect something potentially similar.

As far as the turnover is concerned that you're referring to, we went through a very volatile period in 2015, right at the start of the new management team joining there. But we've past that. And the level of turnover that we saw at management level at that time was not sustainable in the long term.

So following on from that initial process, we are -- we embarked on a skills development process. So we believe that we've got the strength within that we have to equip and develop with skills development as opposed to recruiting from outside.

Great. Thank you.

[Charles, Dean], did you have a question up there?

If I were to ask Nick, I mean in the old days we used to work on a gold call, and if the gold call for South Deep was put right up in reasonable management, then what would be the biggest constraint to building the ounce rate out of South Deep? If I were to ask you what are the constraints you'd have to release to make that happen, what would be the answer? Would it be the ROCIs? Would it be the capital? Would it be -- what?

I'll let Mr. Muller answer the question. I think he's most qualified.

Yes, so I think the most significant constraint has got to do with the footprint, which is currently defined by the de-stress, the area that is being de-stressed. So South Deep is a three-dimensional puzzle where all the components fit into each other. The leading elements of the value chain is represented by development and then de-stress, followed by backfill and long-hole stoping.

Development, we've done very well over the last year and we developed it into something that we have to keep -- manage in relation to the rest of the operations. So I think if we could accelerate the development with the de-stress, the rate of de-stress, that will then open up the footprint in order for the rest of the production value chain to follow.

But that is the area we've had to be very cautious this year given the fatalities that we experienced as a consequence of the seismic event that occurred. So that's the area I think the arrow point of South Deep is (inaudible).

You've actually increased the de-stress vertically, if I read you correctly, going from 2.2 to 5.

That's correct, but that's got nothing to do with -- so that's -- that improves the overall efficiency of the mining method. So everything is now mechanized. We can use one fleet for our development and de-stress. We eliminated the multiple power system because initially we did de-stress and then we had to the annual footwall ripping and re-support.

So it cut all of that out, but it did not, by itself, expand the aerial footprint. And that's what's important with de-stress. It's the aerial footprint that you need to increase.

I'd like to add to what Nico said, is that there's really two constraints. I think one is what Nico -- there's really two constraints and two bottlenecks which we'll be working on. One is the one Nico has actually said, about expanding the de-stress footprint. That was what allows us to stope.

The other one is how fast and how quickly we can turn over those long-hole stopes. In other words, how fast we can slot them, how fast we can long-hole blast them, how fast we can backfill them. The faster you can do that, the higher the tonnage we get out. So there's two parts to that component, two parts to that component.

Initially, when you look at the mine it's about the footprint and the de-stress because that allows you to mine. And then in the latter years it becomes how fast you can turn over those long-hole stopes.

Leon?

Yes, thanks. Leon Esterhuizen, Nedbank. Just two questions. The first is, obviously you've still got a mine that's designed to do 300,000 tonnes and you're sticking 230,000 or something into your plan. Is the whole mine designed for 300,000 or are you now limiting other -- outside of the shaft? Is everything else now being cut back to 230,000 tonnes, 250,000 tonnes and leaving that out for a long-term future option or are you still leaving the whole mine as a 300,000-tonne potential machine? That's the first one.

Sorry, just the second one, which I think is an important question. And you might think it's a bit nasty, so sorry for this bit. When Nico -- when you came across you obviously brought people that you thought were going to be able to do the job. So when you're going to Impala now, is there any threat that people will leave to follow you or -- important people that we need to see continuation at this operation?

I'll answer the second question. I'm thankful to [that] Mr. Terence Goodlace developed a very strong team on that side, so I hardly see that being necessary. Now, obviously South Deep is very close to my heart and the South Deep team, Nick and [Lee-Ann] and the team. So it would be I don't think in anyone's best interest to create a massive breakdown in the organization that you love and have invested a lot of effort in.

So on the first question, so the one thing we're not going to do is limit ourselves and close off optionality. So obviously, I've got an eye on the fact that in my time we've spent a lot of money to create a twin-shaft system that can do 330,000 tonnes of ore and we've got a plant that can do 330,000 tonnes of ore.

Now, obviously, I'm acutely sensitive to the capital that's been sunk to put that in place, so we're not going to close off the optionality of trying to fill the shaft and the plant capacity in time. But I think what we've got to do and what we've asked Nico and the team to do is put together a plan for us that we think we can achieve, as opposed to saying, show me a plan that gets to 330,000, which is I think, historically, what the approach was.

So this is not the limit at all, and if we can get ahead of ourselves down the road we would not be scared at all of trying to figure out how we optimize the exploitation of this asset because, as you know, every time you look at South Deep it's a volume game. We've looked at can we take the higher-grade parts of the orebody. We actually can't.

From a geotechnical perspective, you've got to take that whole footprint. All of those corridors, you've got to take them down. You've got to mine the low grade, you've got to mine the high grade. That's why you get an average grade of about 5.5 gram.

So if you can find ways of actually filling that capacity, improving productivity, et cetera, we're open to all of that. We're not closing off that opportunity.

But I think the first and most important objective is let's try and get this, sustainably, to make money. And then if we can kick on from there, we're not going to limit our opportunities. I think this is going to be a mine that will be optimized for many years to come. There's a whole array of potential innovation and technology things which Richard's put a team together for, that we can help us to continue to optimize this mine over time.

So this isn't the endgame, but we're trying to put something down that we think is realistic, as opposed to arm waving and saying, these are the numbers we're going to get to. There's science behind this. It's a plan that's been done by the mine. It's their plan. It's not my plan. And they've got commitment and ownership of it.

Do you want to add to that?

Well, no, I think that's said well. We're only going with 230,000 tonnes at this point because that's what we -- where our confidence position lies. But I think we are -- we want this (inaudible) keep open optionality going forward to make sure that in the event that we improve beyond our expectation that we can deliver into the infrastructure constraint.

Yes. I think just to add to what the chaps are saying is that, as I indicated before, the first constraint is going to de-stress (inaudible) rate. The second constraint is getting the actual stope turnover up. That's probably where we see one of the levers in the future we can pull, is getting that stope turnover rate up. We can't pull that lever now because we've got to get a few bits and pieces and basic stuff done, but that's one of the areas which we actually see we could do.

There's also some other opportunities, as Nick has alluded to, in the upper mine with remnant extraction, which we're now starting to think about. So those are the things which are in the back of our mind, but we'd probably like to do this first and get this up and running.

Sorry, just one follow-up on that. So you clearly have a plan now that you think you can under-promise and over-deliver on. I'm serious. So I just want to know, when you did the planning, one of the things that normally would go into this is as the teams get more used to doing this mining method you increase the efficiency rate. Did you do that or did you just stick in the current meagre or low-efficiency numbers?

There are efficiency improvements in here, but as Nico has alluded to, they're off the current base. They're not off some theoretical base. And over the five/six years, they're not unreasonable commitments.

But I wouldn't want you to walk out of here and think we're under-promising. I think there's a lot of hard work to do to deliver this. It's not going to be a walk in the park. And as you can see, this year, next year are still going to be tough years for us.

So I think the team will do well to deliver this, but if we can build confidence like we have achieving what we promised for last year for the first time, then obviously the team will get motivated to do more. But we don't want to put too much pressure on the team and on ourselves. We'd like to try and achieve one goal after the other and keep the opportunity open after that.

I'm going to take one last question from the conference call, James Bell. And if we have time we'll take one more from here.

James, your line is live.

Thanks, guys. Just two quick questions from me, firstly on South Deep. I just wondered, given the challenges, if you guys would look at hedging rand or gold to give you support or a base level on those near term.

And secondly, just on capital allocation, I just wanted to understand, Nick, why you feel the need to push forward with all of the projects you have in 2017. Obviously $64 million at Salares and the spend at Gruyere is -- potentially could be seen as non-essential this year. So I was just wondering if you could talk about that as well.

Okay. I'll deal with the second question and then I'll ask Paul to talk about our hedging philosophy and where we are today. But certainly if you look at Damang, I think there's a clear case here that we either had to invest in the project or we had to potentially face the problem that other miners are facing in Ghana, that we have massive retrenchments, costs a lot of money. You bring forward rehabilitation costs and you actually end up spending quite a lot of money anyway on getting to a position where there's no value left in the asset.

So for us, and particularly given the development agreement, it made a lot of sense for us to push ahead. So I think a 28% IRR at $1,200, I think that speaks for itself.

If we look at Gruyere, we always wanted to try and add to the portfolio. We've said that M&A is a key strategy. It does lower the costs and it adds life to Australia. And it's synergistic in the sense that we've got a great team under Stuart that we think we can add value towards there.

On Salares, that's been bubbling under for a number of years. And interestingly, we think we're adding value every year with what we're doing. All of the drilling we've done over the last five years has added value. The analysts are not really giving us much for this in our share price. Maybe that's because we haven't said too much on it. But clearly it's an asset that is being looked at quite interestingly by others around us.

So as we continue to spend money, we add value, but we're doing stuff that we think is within the ambit of what we can do. And that's why we've said this is probably enough for us for now and that unless there's something really startling, we wouldn't want to put our balance sheet at significant risk. We've been able to de-lever by $700 million over the last few years, so that's created the headroom.

But if things got tough, the one thing we may have to do is obviously slow things down. We don't rule that out. If we head to $1,000 gold -- and that may happen. Who knows? Clearly, we'd have to look at the pace at which we do these projects, including the exploration in Australia, Salares, et cetera. So on a downside case, we'd have to look carefully at what we do.

I'll ask Paul to talk about the hedging.

On the hedging for South Deep, we really hedged last year. In 2016, we took out a currency hedge that made us ZAR210 million. Our policy makes provision especially for projects where we can hedge the thing.

And this year, we would consider looking at other currency hedge or a rand gold hedge. Some we will look at obviously depends on the pricing and if they're numbers that we're comfortable with. So yes, we would look at it.

Okay. One last one. Patrick, you can get a chance here. Adrian, I'm sorry if you had an additional question.

Thanks. It's Patrick Mann from Deutsche Bank. Nick, you made it sound very much like a seller's market with gold assets. I know you've said you're comfortable with your portfolio, and Darlot is obviously strategically non-core. Any thoughts around selling at this point? If you could realize value upfront without having to take the operational risk, why not look at something like that?

Look, we have a very dynamic view on our portfolio. You've seen we've now put Darlot on the block. We did enough work to satisfy ourselves that it's probably better in someone who is prepared to spend the time and effort to bring to account what we think is enormous potential there still. And we would continue to look at our portfolio, but right now we don't think there's much else that we would need to do at this stage.

We did a lot of the pruning back in 2013 of projects and various other things. We cut out marginal production. We've done a lot of business optimization over the last three years. So, as always, we'll have an eye on that, but for now, I think we're happy with the rest of it.

Would you ever consider selling South Deep?

Look, I think it's a great asset. It's a key part of our portfolio. And in a world where people are not exploring, in a world where people are not replacing their ounces, when you're sitting on what is the second-largest global un-developed gold deposit, which all the drilling has showed over the last seven years it holds together, then I think having those ounces in the ground, given where the industry's going, is only going to be more valuable over time.

So I see South Deep not just something that will make money. It's almost like a call option on the gold price as the mining industry declines. So I think the value will continue to go up over time.

Thanks.

Okay. Thank you for your time. We'll see you in six months again. And the journalists that are joining us for the roundtable, it's upstairs. Thank you.