JOHANNESBURG (miningweekly.com) - Gold had "substantial upside" and a gold price of $1 000/oz was "eminently achievable" in 2009, Gold Fields CEO Nick Holland said on Thursday.

Holland told Mining Weekly Online that the gold price increase could not have happened at a better time for Gold Fields, which was heading for a 15% increase in production in the March quarter, accompanied by lower costs and the possibiity of a new sweetener that could make the South Deep project almost self-financing going into 2010.

"We can start moving to generating free cash flow, which has been my mantra since coming into office," Holland said.

Gold's price rise, he explained, had been on the back of record investment into exchange-traded funds, which was now 1 200 t long.

"We are also seeing that the Central Banks are not selling their full allocations of the 500 t of gold a year," Holland added.

There had been an acute demand for gold bars and coins, particularly over the December quarter, which was reflected in "large premiums" on the Krugerrand in particular.

"All of the fundamentals look good. The sentiment for gold is good. The world economy has major concerns and that's going to be good for us," Holland reiterated.

Gold demand for jewellery had picked up towards the end of 2008 and once the gold price stabilised, he predicted more demand from the jewellery sector.

Gold Fields' current good positioning was the result of its completion of major projects Kloof, Tarkwa and Cerro Corona.

"That capital's now been spent and there's no more to come, and we expect our production to go up about 15% in the March quarter," Holland said.

Gold Fields was comfortable with its net debt position of under $1-billion, which represented an undemanding 0,8% of annual earnings before interest, tax, depreciation and amortisation.

But bringing down some of the debt would provide the financial capacity to take on opportunities as they presented themselves.

Opportunities had to be scrutinised, however, because some of the gold-mining assets on offer were cheap for good reason.

"Many of these mines should never have been built, and I think it was often a question of mining the market, trying to get investors to invest in the share and getting multiples, but, in fact, the fundamentals weren't there.

"I think we're going to see a lot of sobering approaches to the gold sector, which is good. It will get the supply-demand balance more in line," Holland added.

He assured that, for the right deal, Gold Fields would be able to raise the required funding.

"But we are going to be very, very careful. I've had about five or six deals that we've looked at over the last eight months, and we've rejected all of them, simply because I am not prepared to do anything unless it's demonstrably accretive to Gold Fields, and I always believe that no deal is better than a bad deal, but we'll keep looking," he said.

The South Deep sweetener was a new opportunity to accelerate what was referred to as the "current mine", where there was a high degree of confidence in 3,3-million ounces of reserves. Those reserves were to be mined over 20 years, but Gold Fields was studying the feasibility of accelerating some of that production through low-cost refurbishment of the South Shaft complex.

"It looks like we could get South Deep up to over 300 000 oz in fiscal 2010, but doing that. The benefit of that you get extra revenue to finance the capital programme and, again, because of the gold price going up, it's the ideal timing. So that could make South Deep almost self-financing going into 2010," Holland said.

The plan for getting South Deep into full production by the end of calendar year 2014 was still intact and he was confident that the company had the team in place to get there.

Credit Suisse Standard Securities mining investment analyst Dr David Davis told Mining Weekly Online that Gold Fields was "clearly set" for a growth period in the March quarter, as its major projects were now in production.

Davis said that the expected production increase of "round about" 14% would be accompanied by a 10% downturn in costs.

"Certainly, it's a growth period for Gold Fields, and although it is coming off a low base with the refurbishment of Kloof, it has certainly been planned and bodes well for the company," Davis added.

Holland said that the company was now on the way back to producing at its former level of 21 t a quarter, which would be well up on the December quarter's 15 t.

Gold Fields' regionalisation strategy was in full flow, the South African operations had moved to their own office closer to the company's centre of operational gravity on the West Wits.

The new corporate office in Sandton had been slimmed down to under 100 people.

The company's South African and international assets were taking on their own identities, but without losing the overall corporate standards that applied across the organisation.

To subscribe to Mining Weekly's print magazine email subscriptions@creamermedia.co.za or buy now.