JOHANNESBURG (miningweekly.com) – JSE-listed gold major Gold Fields would be re-engineering its operations in order to achieve a minimum 20% profit margin across the group after all operational and capital expenditure, Gold Fields CEO Nick Holland said on Thursday.

Gold Fields, which is chasing a production target of 3,8-million ounces of gold a year, produced just on 900 000 oz in the three months to June 30 - a 13% increase - and tripled earnings for the fourth quarter to R900-million.

Gold Fields dubs such a margin as the notional cash expenditure (NCE) margin, which it succeeded in increasing to 15% in the 2010 financial year to June 30, and to 18% in the final quarter.

"We're not satisfied with that. What we want to achieve as a team is to get that margin up to 20%, irrespective of the gold price.

"We believe that we need to generate an NCE margin, after all capital expenditure and all operating costs, of at least 20%.

"If that means that we have to close down certain operating mine shafts because they are losing money, we'll do so. If it means that we have to cut out parts of the group, we'll do so. We're not here just for ounces sake, but for profitable ounces," Holland told Mining Weekly Online in a video interview.

Achieving 20% would enable Gold Fields, already one of the largest dividend payers in the gold-mining industry, to fund dividends as well as growth projects.

Gold Fields has a philosophy of showing an increase in margin for shareholders after all capital expenditure, even if the benefit of the expenditure will only be felt in the future.

Gold Fields includes all expenditure in its NCE approach, which includes all operating costs and even the capital expenditure on growth assets from the existing cash base.

"We're putting everything in here, so that the full impact can be seen, even the funding growth assets out of our existing cash flows," Holland said.

Key growth projects are the fully mechanised South Deep gold mine in Gauteng province, which increased production by 52% to 265 000 oz in the year to end June; the Cerro Corona gold project in Peru, which increased production by 80% to 394 000 oz in the financial year; and the Tarkwa operation in Ghana, which increased its production by 20% to 721 000 oz in the same period.

"We're going to be looking at how to re-engineer our operations to make sure that we can up our margin overall to 20%," Holland said.

There are a number of efficiency and productivity exercises under way to optimise footprints across all of its assets, which include the Driefontein, Kloof and Beatrix mines in South Africa and St Ives and Agnew in Australia.

Holland said in reply to JP Morgan Cazenove mining analyst Allan Cooke that the company had realised the need to drive profitable production growth, and not merely production growth.

"It's ounces that generate cash that count. Fund managers are looking at margin per ounce," he said.

In order to improve margin per ounce, the company had decided to embark on a group-wide process to review all of the company's organisational and reporting structures, as well as mine-to-mill processes.

"We're pulling this together in one complete exercise, across the operations," he said.

Gold Fields executive VP South Africa Vishnu Pillay told Mining Weekly Online that the No 1 Shaft at Beatrix in the Free State province had reached the end of its life.

Pillay said that the closure of the shaft would not decrease gold production at Beatrix.

On the contrary, it would increase production, because the shaft pillar being mined was of exceedingly high grade of 1 000 cmg/t.

Pillay said, while all shaft complexes would be expected to meet the 20% margin requirement, a suite of issues would have to be taken into account, including the aspect of Gold Fields shaft complexes having a symbiotic dependence on one another.

He said that shaft infrastructure would not be cut out in an irrational way.

"It'll require a significant level of re-engineering over a period of time, which is something that we will do, in order to manage the increased electricity cost and also to acknowledge the fact that some of the orebodies are depleted," Pillay added.

Executive vice president West Africa Peter Turner reiterated that the company's Yanfolila gold project in Mali over 1 600 km2 was being firmed up as a large resource.

"This will certainly be one of the projects that will be taking the West African region well above the million-ounce a year mark," Turner said.

Executive vice president South America Juancho Kruger said that the NCE margin at the new Cerro Corona mine was a high 54% and the he expected the South American region to produce between 320 000 oz and 340 000 oz in the company's 2011 financial year.

New executive vice-president Australia Richard Weston said that he expected Australia to produce between 600 000 oz and 635 000 oz in 2011.

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