Gold Fields Ltd (GFI) 2017 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Gold Fields' Full Year 2017 Results Presentation. (Operator Instructions) Please note that this conference is being recorded.

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

Thank you very much, and good afternoon or good morning, ladies and gentlemen, wherever you might be in the world today. Thank you for joining us to discuss our results for the year ended 31 December. With me, I've got Paul Schimdt, CFO; Martin Preece, Head of South Africa; Avishkar Nagaser, Investor Relations.

At the end of '16, Gold Fields entered into a period of reinvesting into the business as we told you at that time. '17 was always expected to be a tough year because of the additional capital that we needed to spend, and we forecasted a cash outflow for the year, given the increased level of project spend.

Well, today, we're pleased to announce that the group was largely cash neutral. Well, '17, in fact, we had a marginal $2 million outflow. That's on the back of better-than-expected prices and production as well as improved cost control. Despite project spending of $326 million on Gruyere, Damang, South Deep and Salares Norte, the net cash outflow is limited to $2 million, as I just mentioned.

Importantly, the core mining operations generated $441 million. This places Gold Fields in a comfortable position to take on another high CapEx year in '18 as both Gruyere and Damang progress towards completion.

For the fifth consecutive year, we have met or exceeded our production and cost guidance for the group. Attributable golds equivalent production for '17 was 2.16 million ounces, exceeding guidance of a range of 2.1 million to 2.15 million ounces. All-in sustaining costs and all-in costs were $955 per ounce and $1,088 an ounce, respectively, both below the lower end of the guidance range provided in February 2017. The international operations all exceeded guidance for the year, once again, highlighting the quality of those assets.

South Deep was unable to recover from a tough first quarter of 2017, which was the impacted by 2 fatalities and 3 falls of ground in the high-grade corridors, with production for the year 11% below the original guidance, overall costs were only 3% above guidance. That was flagged in the quarter 3 operating results, and we ended up the year pretty much in line with what I indicated to you at the end of quarter 3.

Normalized earnings for the year were $138 million or USD 0.17 per share. In line with our dividend policy of paying out a range of 25% to 35% of net earnings as dividends, we declared a final dividend of ZAR 0.50 per share. This takes the total dividend for the year to ZAR 0.90 per share.

On the back of the cash breakeven position from operating activities achieved for the year, the net debt at the end of '17 was $1.3 billion compared to $1.17 billion at the end of 2016. This implies a net debt-to-adjusted EBITDA ratio of 1.03x compared to 0.95x at the end of December 2016, and largely in line with our long-term target of 1x. Gold Fields' balance sheet remains in a strong position to complete its reinvestment phase.

Turning to the individual projects. The Damang reinvestment project, which commenced on 23rd December '16, got off to a strong start and is currently tracking well against project plan. During 2017, total tonnes mined were 40 million against the original project schedule of 33 million tonnes, driven by better-than-expected productivity from our contractors.

Gold produced of 144,000 ounces was 29% higher than guidance of 120,000 ounces, underpinned by additional volumes at higher grades from the Amoanda pit. First ore from the main Damang pit, which is on the same trend of course, is on track for quarter 2 2019.

Early work with Gruyere began in December '16, with Gold Fields taking over management of the project on 1 February '17. The project construction schedule remains unchanged, with engineering progress in line with budget at 72% and construction progress also 32%, in line with plans as well by the end of the year.

Costs incurred to date are also in line with the project budget, which was slightly increased to AUD 532 million. That's 100% basis during the first half of this last year. Gruyere remains on track for first production during quarter 1 2019.

The feasibility study for the Salares Norte project in Chile is tracking well for completion by the end of '18. The interim results from the feasibility study indicate the following metrics for the project: resources of 23 million tonnes at 4.9 grams per tonne gold and 66 grams per tonne silver, with 95% thereof in the indicated category; an annual throughput of 2 million tonnes per annum; life-of-mine gold production of around 3.5 million ounces over 10 years, which will be front-ended; all-in sustaining costs of USD 575 per equivalent ounce; and project capital of around about $850 million, with a 5% plus or minus variance.

2017 was a year of 2 halves for South Deep, with quarter 1 2017 negatively impacted by 2 fatal accidents and 3 falls of ground in the higher-grade section of the mine, which resulted in a deferral of mining grade -- of mining higher-grade areas. In fact, we lost one of the main arterial haulages around that 4 months, which locked out access to one of the high-grade areas of the mine. Fortunately, everything has been restored.

Production recovered through the rest of the year, with production in the second half of '17, increasing by 36% to 162,000 ounces from 119,000 ounces in the first half. I think as you can see, the second half performance was tracking what we needed to achieve for the year had it not been for the unfortunate events of the first quarter.

While good progress has been made on the technical front, with the implementation of the mining method receiving positive feedback from the Geotechnical Review Board, the execution of the full mining value chain remains sub-optimal as a key focus area for management. Really, what we're saying is we want to integrate all of the aspects of the mining value chain from drilling, blasting, destress development, ground support, axle and spatial compliance. And that is a key focus in improving the operational delivery. It really is all about getting more out of our people. It's not about the technical solution for the operation, which we believe is sound. It's not about the orebody of the operation, which we believe is sound.

As a result of the slow start to the rebase plan in 2017, we expect a more gradual buildup to steady state of circa 500,000 ounces by the year 2022. Looking ahead, our attributable equivalent gold production for the group for 2018 is expected to be between 2.08 million ounces and 2.1 million ounces, with the main difference between '17 and '18 being the absence of Darlot, which was sold during the latter stages of 2017.

All-in sustaining cost is expected to be between $990 and $1,010 per ounce, and all-in cost for the group is planned to be between $1,190 and $1,210 an ounce. And I would just add that these costs have been recalibrated to spot prices we see today between the South African rand and the U.S. dollar and the Australian dollar and the U.S. dollar, which, of course, have strengthened somewhat over the last month or 2, in line with the weakening of the dollar against the major basket of currencies.

With that, either myself or my colleagues, Paul, Martin, will take the questions that you might have today. Thank you very much.

(Operator Instructions) The first question comes from Tanya Jakusconek of Scotiabank.

Maybe, Nick, I can come back and ask you a little bit about South Deep, and thank you very much for putting the new rebase plan, what you're looking at for 2018 to 2022. And I think what they're saying is that everything that you see from an orebody perspective is fine, is increasing productivity in your workforce to get to these targets that you've outlined. Is that correct?

Yes. Tanya, I'm going to let Martin. He's the head of South Deep. He's been here for 9 months. He came from De Beers where he was COO. He's going to deal with the question for you. I'd like you to hear his response. Thank you.

Tanya, thank you for your question. I think as Nick has said, we believe that we've got a strong and workable technical solution, I think from a mining perspective, from a geotechnical perspective. And our focus areas going forward, now being directly to what you're saying, around productivity. And I'll -- there's 2 aspects to that is -- one is around driving more positive organized culture and performance-driven organizational culture where we, I think, enable and energize, I think, the full body of the workforce, I think, toward -- connectively, towards getting the mine to achieve its long-term objectives. And then the second area of focus, which supports that, is identifying what we call enabling activities. So how do we take obstacles out of the way of our people that they can operate to their best potential at the front end of the business. And so putting our people at the front end of the business at the full -- right at the full center of everything we do so that when they come to work, they're fully enabled to achieve what they need to do in the hours at work.

Okay. So maybe you can share with us, when you come up with your targets on this new rebase plan, moving production from this 322,000 ounces to 480,000 ounces by 2022, can you share with us what implied productivity you have, like, in 2018? And where are we getting to in 2022 to get to that 480,000 ounces?

So if you look at the numbers, we're basically, year-on-year, looking at between 5% and 10% productivity improvement every year. I think it comes with a very, very large base. And if you just -- if you extrapolate those numbers, I think of that low basis. It's fairly easy. I think what does make it easier is if you look at the split of ground between current mine and North of Wrench current mine is the current existing mine, which is scattered mining. And as you move towards 2022, more and more of the material up to -- will move to close to 70%, 80% of the material will be coming from North of Wrench, which is the new mining method formal structure, where we're taking out, not selectively, but we're taking the whole orebody out using more mechanized and repeatable processes. And that's, I think, the 2 components that are going to drive that productivity is, one, increasing the machine and people productivity, but secondly, the mining method itself, leans itself to more projected instruction of the orebody. So it's 5% to 10% year-on-year improvements, aided by driving people effectiveness, machine and equipment effectiveness, and then the mining method itself will lean to that increased productivity.

Okay, I know I saw that on Page 13, the North of Wrench that you talked about. And just when you say from a low base, if I can recall, I think we had productivity around 46% or 50%. Is that about right?

Yes, we had sort of destress is around about early 40 meters per rig per month. Development, I think, was around about 70-odd meters per rig per month. So it's fairly modest increase against that. I mean, if you look at our Australian operations, we're getting up to 200 meters on those equipment stats, Tanya. And even on a best-in-breed South Africa, you're getting over 100 meters in some of the operations in the platinum sector. So it's not like these are going-to-the-moon top targets.

Yes, no, I remember they were like half of what it was in South Africa. Okay, I'll leave that. I have 2 other questions, if I could. One of them is just on Salares, and thank you for that information. That's very helpful. This question, on -- you're doing the feasibility study. You are doing the EIA. What do you have as a time frame in your mind when Salares Norte could contribute to production, because we've got to obviously permit, build it and so forth? What is reasonable to think, yes?

The EIA is the long-lead item in this process, which we expect to be submitting the EIA any time now. We really wanted to wait until the government elections have been completed, Tanya. And then, obviously, you knew who we're talking to. And in history, that's been like a 2-year time frame. Maybe it'll be quicker because I believe that the new government is trying to push projects along, but that's going to be the long-lead item. So realistically, we couldn't really start production if it's 2 years. And so I guess, late '20, and it'll -- it would be a 2-year lead time more than likely to production. But I say these figures guardedly because we need to finish the feasibility study and have it externally peer-reviewed, and we'll get better resolution on those numbers. The other thing is, would we do this on our own? Or would we do it with a partner? We haven't made up our minds yet, and I will be giving considerations to that during the course of the year. We still got time to think about how we do this. But it does look like it would be a -- although it's fairly sizable capital, it looks like it'd be a reasonably short payback period. And it's not just Salares you should think about, you should think about the camp that we're in with many, many properties adjacent to it within a 20-kilometer radius. And we're going to be doing some work on those properties as well during this year. We're going to be drilling about 24 kilometers on a number of targets to see if we think this might be a camp scale opportunity beyond just Salares.

Is it a 2- or 3-year time to build?

I think those will be most likely work on about 2 years. If you take Korea and Australia as a proxy, work on about 2 years. The difference though is, obviously, we have more barren waste to remove. Then we probably got about 60 million or 70 million tonnes of barren waste to remove. We got to build a plant. And then we'll zinc precipitation here because there's a lot of silver. It will be dry stack tailings. So there's quite of lot of work. I think we'll need at least 2 years to build this.

Yes, 2 to 3 years. Okay. And then my last question and let somebody else ask is just on Tarkwa. Can you talk a little bit about what's happening? We read about the -- that you're moving to a contractor and obviously, your union not being too pleased on that, you're off to court, a little bit on that. And then just on the life-of-mine plan. Looks like you've made an adjustment. Can you talk about what exactly you've done there?

Yes, let me start with the life-of-mine plan. What I can say to you is that we would expect reserves to be around about 6 million ounces this year. It's going to be very similar. It's not going to be far off where we were for 2016. Now with some modeling changes and changing the sequence with how we access pits, we've been held to do whatever some ramps that pyrolyze some oil. So we're putting some oil back into the plants. So I think the reserve position looks good. For the next 8 years, we're comfortable that the top oil will be between 500,000 and about 540,000 ounces per year over the next 8 years. And thereafter, it'll come off, and we're looking at opportunities as well to convert more of the resource to reserve over that time. The contractor mining issue, I think it's the union basically losing control and maybe losing power over the employees. The employees are actually okay with the move. We just moved Damang at the beginning of the year to contractor mining. So a little bit amused by it all. And there's very few job losses because most of the employees will be employed by the contractor. They get a generous redundancy, and then they move across to the contractor. Contractor takes off fleet onboard, carries on a seamless operation, very similar to other operations in Ghana. So I'd say, we're a little bit amused by it all, but this will play out, I suspect, over the next month or 2.

And just coming out on the new life-of-mine plan. So what exact change, because I didn't quite understand, what exact change has occurred to move this production to lower than what was originally anticipated?

Well, we've always thought that we would be in the range of 500,000 to 550,000 ounces over the life. I think what we've been enjoying the last few years where we've been about 550,000 ounces is high grades in certain parts of the mine that enabled us to push the production. Now we're getting into some of the grades of more representative of the reserve grade. That's the first thing. And then the strip sequence is changing. And now we have to remove more waste in certain areas to get the same ore, and we've reconfigured the life-of-mine plan accordingly. But actually, it would be better for us to bring this mine back from 100 million-tonne a year operation to about an 85 million-tonne a year operation. That's total material moved, and the reduction in ounces that we're getting as a consequence is more than offset by the better NPV over the life, the better value. So we think the sweet spot now for Tarkwa going forward, as I said, is somewhere between 500,000 and 540,000 ounces for the next 8 years. That's a more comfortable level. We're not here just for ounces, Tanya, we're here to make money. That gives a better cash flow, gives a better cost profile.

The next question comes from David Haughton of CIBC.

Just thinking about South Deep, ordinarily, Christmas and into the New Year, so your first quarter basically is a tough period. How did it look this year so far?

I'm going to hand it over to Martin to deal with that, David. [Nice to share to you.] Hold on.

I think the question -- we have had a sort of slow start at the beginning of the new year. The new year wasn't cut month. It's coming off the back of the Christmas break. I'm pleased to say that things settled down towards the end of January, and the guys, got into a rhythm, and I think they're starting to meet their targets and build up some momentum the last couple of weeks. So there has been a slow start, and the guys are fully focused on getting into the rhythm and working through. We've had some response to working through the Easter period, which is positive. And hopefully, we'll keep the momentum going into the half year.

Okay. So at this stage, I've got the first quarter at about 20% thereabouts of your annual kind of guidance, just to give an indication of a slower start. So I think that might be the right ballpark, I'm not sure.

Yes. Look, I mean, within spitting distance, hopefully, give or take, a bit here and there. But the first quarter is just proportionately lower than the rest of the year. So yes, let's see how we go.

Okay. Then over to Ghana, Damang, big stripping year this year, but the stripping kind of reduces significantly in 2018. Can you see a reasonable step-up in your production once we go into 2019, once we pass that big stripping hump?

Yes, the big swing factor here is going to be when we expose ore in the main pit, which will be in the second half of '19. And we'd expect to hit steady state most probably around about 2020. And in 2020, we should be close, and I'm going into 2021. So a favor to strip, we still have to do in the main pit. I think just an answer we've had here, David, is that I'm a winder, which is a -- it's like a feed of pits, if you will, on the main trend, has turned out to be much bigger than what we anticipated in the original reinvestment plan. And it looks like it's extending further north and coalescing with something we used to mine, [Port Mentor North]. And that's proving to be a really good filler. But we can't lose focus on the main pit. So yeah, it's pickup in production in '18, as you can see, about 160,000 ounces. And we should see another good increase in 2019, quite a big increase, in fact, in '19, and then '20. Hopefully, we'll be well over 220,000 ounces a year. So still a favor to strip in the main pit, but we're tracking. We're not seeing major variances against the plan and where we are today.

Okay. Just thinking about Salares Norte, lots of detail there, so that's good. Do you have an internal hurdle rate that you needed to jump before you give the go-ahead decision? And how close are you to that kind of that hurdle?

Yes, generally, so as a rule of thumb, we're saying we want a 15% minimum, 15% to real rate of return on new projects at conservative prices, which is around about $1,200. I think this project is going to consequently meet that hurdle rate as things stand. I don't see a major problem with the all-in sustaining cost of about $575. It's very insensitive to capital adjustments and capital delays. As you'd expect from a high-grade open pit, it's very similar in a way to what we experienced with Cerro Corona. We found that Cerro Corona was actually quite insensitive to capital and time frames, more sensitive to grade because, obviously, that lives with you through the life. So now this is a robust project, and I think you can run low -- fairly low prices through this, and you'll still get good returns. I will say we've drilled it well. 95% is an indicator, as you saw. We're still going to be doing some more inflow drilling this year. But so far, I think this is a project that looks like it's got all of the makings of a new operation.

Just looking at your presentation, Page 23, you've got -- and onwards, you've got some pretty good exploration kind of images here. At St. Ives, given the exploration that you've highlighted on Page 23 of your presentation, what's your current thinking about the underground opportunities at Invincible?

Well, we're into the underground now. We've started the first 2 portals back in July last year. We had to portals in the part of the pit that we've already mined out in the stage we've mined. Those portals have made good progress in the last 6 months. We've actually already intersected ore late December, which is good news. So I think you'll find the way we'll run this is we'll be operating the last stages of the Invincible pits, along with the underground in tandem through to, at least, the end of '19. And then when the pits ends, we'll have Invincible underground as the early Invincible. At the same time, we're looking to try and join the docks, as you saw there between Invincible Deeps and Invincible Underground and try and create something bigger, which I think would give a longer life of mine. And then in addition, push on with Invincible South, which is down [Duke]. And that could be accessed as well from one of the same portals. So we could actually turn one of the portals to the side and actually go into the second Invincible. And that's only going to be another few hundred meters away Invincible South at its site and carry on from there. So there's quite a lot of dynamic changes we'll see over the next 3 or 4 years on Invincible, and we've got further trends down in the speedway, which we're looking currently into.

(Operator Instructions) The next question comes from Patrick Mann of Deutsche Bank.

I just want to follow on, I think, from my question this morning, and then also from Tanya's question around the productivity at South Deep. And really what you're trying to get our head around I think and probably what everybody is, in terms of how likely it is to achieve the South Deep ramp-up goals in terms of efficiencies, how much of it -- and I asked the question this morning, how much of it is because of a shift from the current mine to North of Wrench? And how much of it is kind of increasing productivity at where you are at North of Wrench? So the follow-up question I wanted to ask was, are you seeing the kind of productivity that you have in your long-term plan in kind of pockets of excellence within the teams? I mean, do you have guys that are capable and it's just about bringing the entire workforce or the entire -- maybe if 1 stope or a couple of stopes or a couple of ins, which are hitting the kind of targets that you want? And is it a case of bringing everybody up to that level? I mean, that'll just help us to understand if it's kind of feasible or how likely it is or how long it might take to get there?

Patrick, thanks again for the question and apologies if I wasn't clear this morning. We are certainly seeing it, and we look at the bottom of the mine on 100 level. We released some of the conditions of managing to hit the 100 meters a month with our development efforts, and we're pushing that team this year by committing to 114 meters a month. So I think we've seen demonstrate performance, and we believe that with a -- as I said this morning, around enabling activities, we can get it right. So it's not just a method of how we operate the machine, it's about how we maintain the machine. How we get the right space, equipment and material to that machine and getting the crews in and out of "the more distant breaking process." So there's a host of initiatives, I think, just on that, but how do we get our people to the phase, how do we get the equipment reliable. We recently appointed a new method engineer, who's doing a lot of work on getting the basics right, because it's not about just checking machine availability, it's about having 100% availability for the 5 hours a day you really need that machine. So there's a lot of factors going into those basics. We're doing work around our support cycle. The support cycle is the most difficult or the most time-consuming part of the cycle. We're looking at different support tools to reduce that. And then the second part, which was part of your question this morning, is as we move the rest of the mining into the corridors at the bottom, you get efficiency that just comes naturally with mining larger scope stopes, mining them sequentially and just get into a rhythm. Because you're narrowing your footprint, you're getting better focus and you're getting better efficiencies out of that. Linked to that is improving our drilling and blasting practices so that for the same effort, you're taking -- you're breaking the complete stope up, not leaving ground behind in a stope. So for the same effort, we believe we can get at least another 15%, 20% more ground. So I think it's not one single thing that's going to drive the efficiency, it's a host of factors from the mining method, the discipline around extraction, machine availability and reliability, getting people into the phase, getting material rate effect and do their jobs. And we've got focused activities driving all those enabling activities to get us to the desired productivities. And as I've said, we've demonstrated at the bottom, the deepest part of the mine, if you've got crews there that are mining at those levels we want to get to by 2022.

I would also say, we got a lot of copious detail in the rebase plan presentation we did in February last year. And those underlying assumptions still hold true, by and large, for this, because all we're saying is that some of the impact of the quarter 1 problem has pushed things out, but it doesn't affect the integrity of most of those numbers. So I would urge you to have another look at the rebase plan. We gave those productivity improvements. We gave it for destress development, stoping, we gave a number of rigs, I think we gave a lot of detail on that. Have a look at that, do us a favor. And if it's not clear then Mark and I would love to have a meeting with you and go through it in more detail just to explain to you how we are seeing all this stuff.

It's more around getting comfort that under the correct, as Martin was talking about, the enabling environment, if you've got a good team in that environment in the kind of new section of the mine where it's not the scattered mining, where it's not -- we're not kind of dealing with the legacy issues, and it's kind of more fresh or fed up for the way you're intending, are you able to hit those? And it does sound like under the right circumstances with the right team, you are able to do it. So I mean, it's not about, I suppose, not looking at those numbers in the rebase plan, it's about whether those are actually being achieved now? I know it does sound like there are pockets of it, so it's just about bringing everybody up to the same level and moving the center of gravity of production over to the North of Wrench, if I'm understanding it correctly.

Absolutely. And let me just say this, from our perspective, we don't think it's an issue that the rebase plan targets are not achievable. 500,000 ounces a year at sub -- sort of $900 an ounce or so is achievable. If there's any risk here, it's the risk that it takes maybe a little longer. But at this stage, when we took the original plan, we wanted to factor in enough time to have moderate increases in productivity, because I also don't believe in a hockey stick approach to productivity improvements. And look at those numbers again and you will see that they are fairly modest. And as Martin's saying, once you open up the open stopes, you've got a lot more tonnes to man because of the change in the mix of the mining. That really is the big win on this operation is get more stopes open, that's more phased, that's more de-stressed, that's more development, and then you see the benefit coming through.

Sir, there's no further questions from the lines. Do you have any closing comments?

I just like to say thanks that everyone could join us today for the call, and thanks for your interest and your questions. And we look forward to catching up with some of you individually over the next month or 2, or if not, we look forward to chatting to you again in the half year results. All of the best, and take care.

Ladies and gentlemen, that concludes today's presentation. Thank you for joining us. You may now disconnect your lines.