Gold Fields Ltd (GFI) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gold Fields Limited Full Year 2018 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 very much. And good afternoon, or good morning, ladies and gentlemen, wherever you may be in the world today. Thanks for joining us to discuss our results for the year ended 31 December. I've got Paul here, our CFO, as well as Avishkar and Tom from our Investor Relations team.

2018 marked the second year of the reinvestment program embarked upon by the company during the latter stages of '16. Having spend total project capital of $500 million over the past 2 years, mainly on Damang and Gruyere, 2 new mines in the group essentiality, Gold Fields is now on track to ensure that our international operations will be producing 2 million ounces a year for the next decade. This milestone is expected to be reached for the first time in 2019 as Damang grows its production, Gruyere commences production and our Asanko joint venture contributes for the full year as opposed to only 5 months in the previous year. The longer-term future of the group also looks positive as we continue to invest in the near-mine exploration at our Australian mines, which yet, again, enabled us to put back into reserve what was depleted last year and add beyond that.

A positive feasibility study for the Salares Norte project in Chile has been completed and a maiden reserve of 4 million equivalent ounces of gold has been declared.

While South Deep had a difficult year, the large scale restructuring completed at the end of 2018 places the mine on an improved footing from which to gradually build our production, having removed over ZAR 800 million a year out of our operating cost base and around ZAR 400 million a year of capital expenditure, together with a significantly reduced footprint having cut out significant large-scale, low-grade operations. We believe this will give us increased focus on the areas of the mine that really matter.

During 2018, we have seen a continued improvement in our health and safety performance as stringent safety culture and standards become entrenched at our operations and projects. Gold Fields Total Recordable Injury Frequency Rate, or TRIFR, fell below 2 recordable injuries per million manhours worked for the first time in 2018, which is a 24% year-on-year improvement and the lowest level ever recorded for the group.

Attributable gold equivalent production for 2018 was 2.04 million ounces, which exceeded the revised guidance of 2 million ounces given late last year. All-in sustainable costs and all-in costs were $981 per ounce and $1,173 per ounce, respectively, both below the lower end of the guidance range provided in February of '18.

As expected, 2018 was another higher capital expenditure year with a total of $814 million spent in the year, given that 2018 was always going to be the peak year of capital spend on our new projects. As a result, the net cash outflow for the year was $132 million compared to an outflow of $2 million in 2017.

Mine cash flow for the year, which excludes project capital, was $334 million compared to $441 million in the previous year. In fact, if you exclude South Deep, which clearly lost money in both years, then the international mines in the group from the other regions generated cash flow before projects of close to $500 million a year. That's after everything, taxes, royalties, sustaining capital, et cetera. Despite the heavy capital expenditure over the past 2 years, Gold Fields' balance sheet remains in a comfortable position. Net debt at the end of 2018 increased to $1.6 billion, implying a net debt-to-adjusted-EBITDA of 1.4x.

We'll look at refinancing both our bond and our bank debt during the course of '19 to improve liquidity, and we'll look for opportunities to bring down debt.

2019 is said to be an important year for the company, with the Damang project approaching completion and Gruyere commencing production in the first half of the year. In addition, Asanko will contribute for a full year for the first time since the acquisition of our 45% stake. This will allow the group to increase production by up to 7% in 2019. This also means that our capital expenditure will fall quite aggressively through 2019, and the amount of project capital reduces. We expect the group to reach a free cash flow inflection point in the second half of 2019, as a lot of our project capital, of course, is front ended in the year and the production buildup is back ended. The key focus areas for 2019 include: on South Deep, we look to gradually rebuild off a restructured base with a strong focus on integration of key mining activities; on Gruyere, the project remains on track to deliver first gold in quarter 2; on Damang, we expect to largely compete -- complete the project with first ore from the Saddle area of the main pit expected in the current quarter; Asanko, we need to bed down the acquisition and deliver an optimized mine plan for the future, in particular, work out a way of capturing the inherent value of the Esaase project; at Salares Norte in Chile, we need to complete the EIA process, advance the detailed engineering and consider funding options for the project on the assumption that the group goes ahead and commences construction before the end of 2020, if in fact that is the route that ultimately is determined.

That's a fair chunk of information we've given you. Obviously, you may have had time to look at our results book and the presentation I did this morning. And with that, we will take questions that either myself, Paul or the team will answer. Thank you.

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

I've got a couple of questions, and I apologize we haven't been able to go through all of your financials and your book that you talked about. But I wanted to just come back to South Deep, number one. Nick, maybe exactly I know you've rebased it. But can you just kind of give us an idea of what exactly now is happening in terms of the underground? When are we getting to that orebody? I thought it was 18 months last quarter. And at what point, do we get a life of mine plan where we know what's happening? That's my first one.

So obviously, we've had a 6-week strike, Tanya. So as you can imagine, we have to, in the first instance, get on the ground, make safe, relook at all of the support, the ground support, with [expert short created] in a number of areas. So there's been a lot of work to get the operation back into shape. When you shutdown an operation for 6 weeks, it doesn't just ramp up in a day. So that's going to take some time, and we're starting to build up gradually. We are not thinking beyond this year at this point. We have set the targets for 2018 -- 2019 to, in essence, reflect the run rate that we were on before the industrial action of August and onwards from last year, but do that with a significantly compressed cost base, which would see us get as near as possible to a breakeven at the prevailing gold price and that's what we're trying to achieve and we've hedged some of that production, too. We're going to be giving any longer term targets at this stage. We're going to take this through 2019 to see where we are, and then take it from there. And the reason for that is, we're focusing on the short-term deliverables. We have pulled out of low-grade areas, which has shut down a lot of the footprint. We have suspended the new mine development because we were ahead, and we're focusing now on delivering in the areas of the mine that we are actively mining. So we'll pause on any long-term forecast. We'll see how we go this year, and then we'll give another projection at the end of this year, which may or may not be beyond a year. But at this stage, we're not prepared to venture any heroic forecast beyond the current year.

Okay. So in terms of then getting to the widened portion of the orebody, I guess, that's like in limbo?

No. We were there already. I mean, let's bear in mind, more than half of mining is taking place in the new mine area. It's around about 50-50, so we're there. And we've opened up a lot of areas that we're going to be mining. So we're in the bulk, the bulk nonselective area of the mine. And by closing down a lot of the lower grade scattered mining areas in the shallower parts of the mine, we are, in fact, emphasizing the move from the old mining style of scattered selected mining to the new mining style, where we actually develop on reef, and we actually get in, we open up, we mine as quickly as we can, we backfill, we get out. So you're going to see, over the year, that there is a greater proportion of our mining in that area anyway. So the North of Wrench area, which is the new mine, now represents around about 9 million ounces of reserve versus the current mine that is about 1 million. So the center of gravity is moving rapidly to that anyway.

And in terms of getting to breakeven that you mentioned, what are some of the things that you are doing to get there?

Well, obviously, we've shrunk the cost base, which is an important thing. We have reduced our rigs, loaders and trucks from 98 to 62. We've taken all those machines out of the mine. We're going to recondition, refurbish some of them. It's going to enable us to defer any new purchases. We're focusing heavily on improving the execution of our maintenance activities on the remaining fleet. We're continuing to go through a productivity and training exercise that is about a 20-month exercise that started already last year. And we're focusing on integrating all of the activities, moving away from solid management to make sure all aspects are fully integrated, that we understand, that we are opening up ground timelessly, we're ground supporting timelessly, we're backfilling timelessly, and we're cleaning stopes timelessly, making sure all of those things are better integrated together to ensure sustainability over the longer term, and that's what the team is working on now.

Okay, okay. And I guess, I'll leave South Deep. And just maybe a quick one on the Asanko deal. When are we going to get a new life of mine plan there?

Yes, I guess, we are targeting the end of the year. That's, I think, realistically where we're heading for before the end of December. We'd like to do that. We're working together with the Asanko team looking all other different options, what is the best way to tackle Esaase, does one go for a higher volume, lower grade, lower-volume, high-grade operation, how does that play into the distance we have to take the ore down to the Obotan plant about 30 kilometers away, completing all of the updated resource modeling. We have a very rigorous process, as you probably know, and we'll work through that properly and make sure that when we put our name to this, that is something that we're really comfortable with. So we're working with our partners on it. They understand it's a rigorous process that will take time. And as I said, before the end of the year, we should have a good line of sight to where we're going.

Okay. And maybe just my last question, so I don't hog the call. I just wanted to ask about M&A versus your balance sheet deleveraging. Quite a number of assets coming up for sale either in Ghana and Peru, South America and Australia, particularly. How do you balance your deleveraging versus the opportunities out there versus your internal opportunities?

First of all, I think our internal opportunities are pretty good. So I think we should focus first on them. The Salares Norte project, as you've seen, very robust in terms of costs and grade production. Now this is going to be generating 450,000 ounces a year for the first 7 years. We've got a good pipeline. We really don't need to do anything. We've positioned ourselves early on to make sure that we have a good future ahead of us. And possibly that is what is driving a lot of these mergers is the fact that companies maybe are running out of road. But also, what I must say, Tanya, is, I don't think the best assets are going to be put on the block here. The best assets are going to be kept in that sort of stuff, if I look at the stuff that is likely to come out, these are not Tier 1 assets that are going to be put on the block. The Tier 1 assets will be retained. And we're trying to improve the quality in our portfolio. We're not just trying to bulk up for the sake of it. So never say never. But we'll watch what happens, but I don't think we necessarily need to do anything or -- that said, whether in fact stuff on the block is necessarily going to improve our portfolio. That's not to say there isn't 1 or 2 that may, but let's see what happens. We're not standing by waiting desperately to participate.

I wasn't thinking you were desperately awaiting. I was more thinking with something like the Kalgoorlie in Australia since you've done quite well there, it fits your portfolio?

Yes, look, I mean, I don't want to get necessarily into specific assets. But one knows certain assets, obviously, get older and they get deeper and the cost cut. We've got the potential to build a brand-new mine that we've discovered in Chile. And capital is scarce, Tanya. You have to make choices. We can't do everything. And the question is, what would I rather do? Would I go and build a brand-new mine that gives me a 25% return with significant district potential or would I go and buy something else that potentially is on the deep line? I'll leave you to figure out that answer.

Okay. So we would put internal opportunities and deleveraging ahead of M&A?

I think at this stage unless something was really compelling, really compelling.

(Operator Instructions) I have a question from Andrew Kaip of BMO.

Nick, look, just a follow up question on the new projects and, in particular, Gruyere. You are getting close to moving towards commissioning and commercial production in the back-end of -- the back half of this year. When you look at the project and how it's tracking right now, where do you see the risks along the stated path? And what could disrupt or potentially delay the project slightly, given what you see right now?

Look, as we speak, the project now is at about 93% completion, but we have 7% to go. We've got everything delivered to site that we need. There's not likely missing components or missing structures or anything that needs to be installed. I think the big issue now is most of the outstanding work is on electrical and piping installations. And a lot of it is painstaking work and a lot of it has to be done in sequence. So usually find with these projects the last bit of work takes longer. And remember, we're building a large plant here, it's about 8.25 million tonne plant per annum. So it's purely now a function of time. We've, obviously, cranked up people on the project, given that we're close to commissioning. Now the other thing is the handover to operations. And what we've done here is, we've brought in a number of people from our Australian operations and seconded them to the project for a few months to assist us in a handover from construction to operation to derisk that entire process. The other thing that could take longer is the ramp-up. The plant is a big plant, as I've just mentioned, it has to achieve steady state. It's going to lock up some inventory in the circuits, may got to let that happen naturally and get it into an equilibrium over time, and we've allowed a fair degree of months. I think Gold Road put out their release yesterday and it talked we've allowed for about 6 months or so for that process. So that's important to recognize that. But I would say, at this stage, Andrew, it's purely a function of time. We're very close, so we're hoping that we're not going to have any hiccups. But what I can tell you is the project is extremely well engineered. And at some point, if you get the opportunity to come visit it, I think you'll get that strong sense when you get there, and we are setting it up for really a long life operation that will go on for many years. So we're close, 7% is not a lot, but those last bits and pieces can sometimes take longer. So it's more of a time risk than a process risk of getting through it.

Okay. And then just one final question on South Deep. You've indicated that you've moved out of the lower grade areas, the upper mine and are really now focusing on the new mine area. Should we be expecting a bump in grade as a consequence of these actions? And if we are going to expect that, what kind of grade range should we be thinking as we kind of get a feel for what 2019 is likely to look like?

Yes, look, I would still say, the expected grades are probably going to be around about 5.5 to 5.75 grams reef grade, which is not inconsistent with where we were because those lower grade areas were declining anyway. We just had a big footprint that we had in the areas to mine it when, in fact, the volumes were starting to come off. So the cut-off grade has gone up a little bit, so that will also push up the actual mine grade that we're mining. But I would say, we're in range of about 5.5 to 5.75 reef grade. Remember, we do commingle the development waste with the ore. We don't flush it out when we put it through the mill because it's not worth it. The development waste is quite small. It's really only in the undercuts to the destress cuts that we have pure waste, when you're actually creating the access to the destress horizon. Once we get into the destress horizon, it's on reef and then everything after that is on reef. So the waste that we're actually taking to the plant is probably around about 10% of the total volume, so that dilutes it slightly. So if you add that back, I think you could confidently predict the reef grade to be between 5.5 and 5.75, which is slightly above the overall ore reserve grade, given the fact that in the early years we always indicated that the grades are likely to be a little bit higher than the overall average for the life.

(Operator Instructions) Sir, we have no further questions in the queue.

Well, thank you very much then everybody for joining us. And we look forward to catching up with you, hopefully, face-to-face in the various conferences and other meetings we've got scheduled over the next little while. Thank you very much. Have a great day.

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