Gold Fields Ltd (GFI) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields First Half 2017 Results Conference. (Operator Instructions) Please also note that this call is being recorded.

I would now like to turn the conference over to Mr. Nick Holland. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, or good morning, depending on where you are in the world. Welcome to the teleconference on the first half results for '17. I've got Paul Schimdt, our CFO, on the line; and I've got Avishkar as well in the room. I'll give a brief overview of the results and an update on our key projects before we proceed to Q&A.

With the group results, first, as reported in our recent trading statement, attributable gold production for the 6 months ended 30 June '17 was 1,047,000 ounces. All-in sustaining costs for the period were $980 per ounce, with all-in costs of $1,103 an ounce mainly as a result of the increased growth capital that we flagged that we'd be spending this year.

Normalized earnings in the first half of '17 decreased to USD 77 million from $103 million in the first half of '16. That's due to the impact of stronger exchange rates on converting local currency costs and amortization as well to U.S. dollars and, secondly, an increase in amortization of Tarkwa linked to new reserves published in March 2017 as well as increased mining volumes at this operation.

In line with our dividend policy, we have declared an interim dividend of ZAR 0.40 per share, which compares to the 2016 interim dividend of ZAR 0.50 per share, and that translates to about 1/3 of our normalized earnings over the 2 years.

Gold Fields reported a net cash outflow for the half year of USD 102 million compared with an inflow of $60 million in the first half of '16, and that's mainly due to the growth capital spent at Gruyere, Damang and Salares Norte. Stripping out these project capital expenditures of $141 million at these 3 projects for the first half, the net cash flow from the existing operations would have been $39 million.

Consequently, the net debt balance increased to $1.365 billion from $1.166 billion at the end of 2016, with the net debt-to-EBITDA ratio edging higher to 1.12 but still well below the debt covenant of 2.5. And all of this was anticipated and flagged when we gave you guidance for 2017 in February of this year.

Turning to these projects. At the end of '16, Gold Fields embarked upon a reinvestment program in order to sustain the current production base for the next 8 to 10 years and to improve the all-in costs for the group. And here is a brief update on the key projects, which we believe are the most significant issues for this particular call. The Damang reinvestment project, which commenced in late December of last year, has got off to a strong start and is currently tracking well against the project plan. During the first half of '17, total tonnes mined were 18.9 million tonnes, while gold production was 77,000 ounces, underpinned by high-grade material from the Amoanda pit. Given the strong start to the project, total tonnes mined in 2017 are now expected to be 41 million tonnes versus the project schedule of 33 million tonnes, with the key focus on capital stripping.

The AUD 532 million Gruyere project in Australia, which we manage and earn 50% of in a JV with Gold Road, is on track to start production in Quarter 1 of 2019. The Gruyere Village, which includes 648 rooms, offices as well as recreational facilities, was commissioned during the first half. And most of the large construction contracts have been awarded and are on schedule, including the construction of the process plant and the TSF development of the gas pipeline and other engineering projects. The only large contract that is outstanding is the award of the mining contract, which we expect to do later this year, probably before the end of Quarter 3.

After a challenging start to 2017 with a number of incidents, including 2 unfortunate fatalities, impacting Quarter 1, production at South Deep in Quarter 2 increased by 61% compared to Quarter 1. The recovery continued into the July month, during which 32,000 ounces in July month alone was produced. I think this bodes well for the rest of the year.

Despite the slow start to the year, the integrity of the rebase plan is still intact and largely on track. The improved performance from quarter 1 to quarter 2 is scheduled to continue for the remainder of the year.

The benefits of the investments we are making in Damang, Gruyere and South Deep start to come through from 2019 onwards, with production approaching 2.3 million ounces and all-in costs getting down below $900 per ounce. Importantly, this profile is largely achieved from lower-risk, less capital-intensive organic projects in the existing portfolio. Any further upside and capital expenditure potential from Salares Norte is excluded, though we are set to announce the outcomes of a merged feasibility study between Brecha Principal and Agua Amarga by the middle of next year. So that feasibility study, we think, will be finished by then, and we'll give you an indication as to what that says and make a decision going forward on that.

So looking to the full year, we retain our guidance for 2017 with attributable gold production of between 2.1 million and 2.15 million ounces. All-in sustaining costs are between $1,010 an ounce and $1,030 per ounce. And as previously guided, due to the increased project capital spend, all-in cost is expected to be between $1,170 and $1,190 per ounce. And those numbers were put in the February book that we had earlier this year.

With these brief remarks, let's open the call to questions, which either myself or Paul will handle. Thank you.

(Operator Instructions) Our first question is from Tanya Jakusconek of Scotiabank.

Just wanted to ask a few questions, if I could. Just on South Deep, which, congratulations, was a great quarter for you. I just wanted to make sure that the development, that the destressed target of 40,000 square meters is still on track as is the development annual target of 9.1 kilometers still on track for 2017.

Yes, I think with the slow start to the year, Tanya, we should be -- I think within sort of 10% or so of those numbers. We may not quite get there.

Yes, because it looks like, Nick, I would really have to have an amazing second half to make those targets.

I think we could come short on the development of destress, but we've looked at the impact into 2018. And at this stage and as I've indicated in the results book, we don't believe there's going to be a knock-on impact into 2018 at this stage. But obviously, we want to get ahead of the game. We don't want to be behind the game. So certainly, we're going to be pushing hard, but I don't think we'll quite get there.

Okay. So it's not going to impact -- just to make sure that not having this destress in this development is not going to impact what seems to be your annual guidance maintained for South Deep and the 2017 -- and 2018 number.

At this stage, we don't believe so.

Okay. And then maybe just going on to Gruyere, just to finish off. I did notice that the capital went up by AUD 25 million, and I know you flagged being compliant with the Cyanide Code. What else was in there, Nick, that would have bumped it up that much?

Well, the one thing that we had in there, which I suppose is the biggest component, is we put in a stockpile cover, which is probably going to add around about 1/3 of that increment. One of the reasons for a stockpile cover is obviously to make sure that the oxide materials, in particular, the finds, we protect those from, first of all, not going to the environment. But secondly, there's free gold in there, so I think we'll get a good payback on that stockpile cover. And the rest were really just detail engineering refinements in the process plant mainly that we put in. Nothing really particular. There's a shopping list of small items, but the Cyanide Code and the stockpile cover makes up about 45% of that total.

Okay. And then just on the 2 -- I was pleased to see about Cerro Corona, this tailings option of increasing the mine life. I think, Nick, we've been talking about this for a very long time in terms of looking for a new tailings dam area and -- around your mine site for this. Can you talk a little bit more about what the guys conceptually are thinking now? And why are we more optimistic today than we were a couple of years ago?

Okay. First of all, in the tails dam, we've had now a lot of consolidation as we've been depositing in the dam. And we had an idea that the density factors could be quite conservative. So we're now getting a more favorable density factor, so that's going to give probably 2 years of capacity that -- we're pretty comfortable that we're going to get that at this stage. But the one that I think is really interesting is the concept of accelerated mining of the pit, stockpiling and then doing in-pit tailings. And we should be doing a design on that over the next 6 to 9 months. So I think we'll be in a position to give a definitive answer on that option by the middle of next year. And if we're successful, that could take the mine life to 2030, so that's quite an interesting opportunity. We're also looking at off-site tailings as well, and we've identified a couple of sites that we're looking at. And the important thing to remember is that the material that's in resource that couldn't convert at Corona -- you can get this from the R&R book, Tanya. You'll see that the grades are pretty good, and those grades will actually be economic to mines. So we're quite excited about this opportunity of adding materially to the life of Corona, but we've got some diligence work to do. We've got some further studies. But we're cautiously optimistic that we'll be able to add significant life by this time next year, if not earlier.

And just, Nick, we'd have to amend -- like definitely, would have to permit a new tailings facility. Would we just have to amend if we put it back in in-pit?

We'd have to have an amendment to our permits for that. And we'd obviously have to go through a process, and we'd approach the regulators early on. We first have to firm up, that technically, it's possible to do. In-pit tails are not a unique thing in Peru. In-pit tails are a common thing. The regulator is used to it. We've done it before in Peru, so it's not a new thing. And we'd have to have a reasonable expectation of permitting if we don't get it in time. But we'll certainly approach the regulators, I'm sure, before the end of the year.

Okay, perfect. And just my last question on Salares Norte. The pre-feas that we were working on, it doesn't seem to be coming out since you're now looking at a feasibility study mid-next year. Is that because we've merged the 2 deposits together? Is that why we're not getting our pre-feas?

Yes, that's right. We've decided to actually look at a more holistic project, which includes Agua Amarga because we think it will significantly improve the profile and the overall return on a derisk project. So that's the reason why we're merging it into that. And I think also, you'll get a better resolution on this as you do that. So we're waiting for that study. I think it's going to be a better project all around.

Okay, so not to hold my breath for a pre-feas then.

Don't hold your breath. Wait for the feasibility.

Next question is from Richard Hatch of RBC.

Well done on a very good set of numbers, so hats off to you for that. A couple of questions. First one is just on costs. Just given kind of the stronger currencies, I'm just a little surprised, perhaps, your cost guidance wasn't increased in dollar terms. Are you controlling those? Or what kind of inflation levels are you seeing? Is there any risk to your cost inflation here? Or are there things -- levers you can pull to bring yourself in line with your original guidance that you published in February? That's my first one.

Richard, it's Paul. Yes, I think it's mainly Australia where we've seen movements. But it's a year of 2 halves, and the way we're forecasting it at the moment for the year we'll be very close to our guidance. I think we used 0.75 in correcting the guidance, and we've had -- the first half was a bit lower. Obviously, now we're close to [278]. So we're watching it, and we haven't made a -- we've decided to keep the guidance intact because the way we're seeing it, it's fairly flat. The rand is very close to where we guided, so no need to make any changes there at the moment. Yes.

Okay. And then my next one is on Damang. Really nice to see that you're moving ahead of plan there in terms of the tonnes moved. Does that potentially mean you might bring some CapEx forward for '17? Or are you comfortable with where you're standing at the moment?

No, I think we're comfortable with where we are at the moment. It might be a little bit extra compared to the original plan. But I think one of the benefits we're getting is we're moving these extra tonnes at a lower cost. We're using a higher mining cost than what we're getting now, and I think that's hats off to the contractors and, importantly, the teams on the mine who are managing the contractors. So we're able to get the extra volume at fairly marginal extra cost, which is really good news. It means that the cash burn is less, and hopefully, we'll get the project into production sooner than the schedule indicates. That's the main pit I'm talking about. I'd like to get it in earlier, but I wouldn't want to hazard a guess today as to what the date is, Richard. But certainly, we're trying to capitalize on this momentum.

And on Damang, just -- and I saw your -- (inaudible) Damang -- South Deep, sorry. Can you just say -- just give us a quick summary on where you're kind of running this year versus plan? Obviously, you had a difficult Q1. Q2 seems to be a lot better. Your July number looks pretty good. I mean, where are you versus your internal planning on South Deep?

Yes. Look, we're probably around about 15,000 ounces or so below -- 15,000 to 18,000 ounces below where we want to be. Quarter 1, obviously, is the bulk of that. Now quarter 2 is almost where we want it to be. So we got work to do in the second half, but here's the thing. We lost a lot of the high-grade areas in the first quarter because of the fatalities. Now one in particular was in a main arterial haulage that knocked out virtually the whole of corridor 3 for a couple of months, so we lost a lot of high-grade area. We had to substitute with lower grade. Now we're getting back into those areas. So this is a function of getting extra volume at a higher grade into the second half. The other thing to remember is we really lose a month of production in the first half because of Christmas and the Easter break. So if you think about it simplistically, the first half is really 5 months, and the second half is 6 months. In addition to that, we're opening up 3 extra cuts, destress cuts. And when we say destress cut, a cut is either stoping, developing or destressing or a combination of all 3. And we're going to have 3 extra cuts active in the second half versus the first half from 8 to 11, and that's going to give us more mining phase and more flexibility to deploy our people and machines. So those are the main factors behind the bigger pickup in the second half and why we still believe we can get there. And you can see July month, we put our there. We did 32,000 ounces in July month alone. So if we can continue that good performance, then I think we're in for a good second half year.

(Operator Instructions) Our next question is from David Haughton of CIBC.

Just a little bit more specific, I guess, on South Deep because when we have a look at the second quarter, clearly, an improvement on the first. But the underground tonnes mined, very similar Q2 compared to Q1, and the pickup had really been at the processing plant, taking some additional surface material going through. The key here is just getting the mining rates underground to feed that better grade. And just wondering where we could be going. Could we be looking at moving towards 0.5 million tonnes from the underground in Q3, Q4?

Well, look, certainly, if you work back from the number, we have to get a big pickup in tonnage into the second half compared to the first half, but we also need to pick up [pit] grade. And we're probably looking to get this operation close to something like 6,000 tonnes per day mined and milled. That's what we're shooting for to achieve in the second half. And of course, with the extra face available, with the extra cuts, we believe we can achieve that. We've got also debottlenecking of the infrastructure that's taking place. We've got additional boxes and tips that we can now use, which will significantly shorten the trailing distance. So it's 2 new boxes that have just been commissioned, which are going to materially help that, and it also gives spare capacity. We've got additional backfill capacity that has been installed. Because the thing is if you don't backfill your stopes, you can't mine the new ones. And we've upped our ground support program, and that's the other key factor. If you don't get that right as well, your mining comes to a halt. So we've increased our activities around secondary support, and that should also enable us to feed better production. So those are the main factors behind it, David.

Okay. And I'd expect, with the additional tonnage mined underground and also processed through the mill, that the unit cost should be coming down as you're getting the fixed costs over a larger base. Is that a reasonable expectation, quite a bit of fixed costs in here?

Yes. I mean, David, if you just look at the guidance for the year that we expect to -- obviously, we're going to see a much lower all-in cost for the balance -- all-in and all-in sustaining costs for the balance of the year and exactly what you're saying. The costs so basically are going to be similar half year and half year but a much higher production profile, with just a small increase in the capital vis-a-vis half year on half year because there are some once-off deliveries happening in Australia, about ZAR 100 million to ZAR 150 million more than in the first half of the year.

Right. So what you're saying is basically, in millions of dollars, similar operating costs, Q1 compared to Q2, but with a much better ounces going through the...

We're talking half 1 to half 2. I think that's what you're saying (inaudible) guidance for the year, yes.

Half 2 year, okay. All right. Over to Australia with your capital spend. You got the adjustment on the Gruyere CapEx. I'm wondering what the split is now for 2017 compared to 2018 on the CapEx.

The total capital for the year is around about AUD 150 million, I think, for the projects.

Yes, yes.

AUD 153 million.

Yes. What we guided was USD 112 million on the capital side and $78 million in terms of us contributing the balance of the purchase price, which remember, actually goes towards their share of the capital. And if you look at the -- and I'm now talking U.S. dollars. If you look at the $60 million we spent at Gruyere for the first half, $37 million was on capital and $23 million was effectively working capital, which is paying down the purchase price for their share of capital.

Okay. And those dollars are your share in the (inaudible)?

Yes, that's our share, David. Yes, yes, yes.

The total project spend for this year is AUD 153 million out of the AUD 532 million.

Our next question is from Andrew Byrne

of Wellington.

Just I suppose maybe a bit more of a direct question just on South Deep year. We sat here in mid-August, so kind of you're halfway through the third quarter. In terms of the production that you had in July, was that similar to that June rate? Or was it more similar to kind of the April, May period?

No, I think that was the -- that was probably a high for the year. July was probably the peak for the year. So that's been higher than any other month we've had, looking back, yes.

That brings us to the last of the questions. Do you have any closing comments, sir?

No, I don't think so. Thanks very much, everyone, for dialing in. And hopefully, we'll see some of you on the road as we travel or, alternatively, in Denver in just over a month's time. Thanks, everyone. Have a great day.

Thank you very much, sir. Ladies and gentlemen, this concludes this conference call, and you may now disconnect your lines.