JOHANNESBURG (miningweekly.com) – South Africa is one of the most expensive countries for gold mining, with the cost per ounce of gold produced averaging at $968, Gold Fields CEO Nick Holland said on Friday, delivering the miner’s financial results for the 2011 financial year.

By year-end, the company had managed to reduce its total cash cost in the country by 15% to $882/oz.

The cost per ounce of gold produced at the company’s other operations across the globe varied from $435/oz at the Cerro Corona operation, in Peru, to $590/oz at Tarkwa and Damang, in Ghana and $841/oz at its St Ives and Agnew projects, in Australia.

Holland said that South Africa had “serious competitive concerns” in the medium term, citing State-owned electricity provider Eskom’s three tariff increases in quick succession as significantly impacting on cost increases.

“With another tariff increase of 25.9% looming, we are hard at work to reduce cost inflation. South Africa has also seen a number of years where industrial action has cost the company production, as well as seeing yearly wage increases above the national inflation rate,” he told Mining Weekly Online in an interview.

Holland said Gold Fields was making headway in reducing stope-to-plant operating cost increases through implementing the business process re-engineering (BPR) programme. The miner also managed to reduce its energy use in the last four years by 14%, equal to about 16 MW of electricity.

“Through implementing our BPR programme, we have been able to keep our cost increases as low as 3%, while cost inflation is currently at an average of 10%. We will continue biting into cost inflation,” he said.

Further, Holland said Gold Fields was able to exercise significant leverage on the increased gold price. Where the price of gold had increased by 81% over the past four years, the company’s net earnings had increased by 169% in the same period.

He added that he was relieved that the potential mine nationalisation debate had been dispensed with, creating new confidence for investors in the country. He stressed that South Africa currently desperately needed direct foreign investment.

Meanwhile, Gold Fields said it was on track to achieve its ambitious goal to have in development or produce about five-million ounces of gold by 2015. Holland said that it was easier to find new ounces of gold with the drill bit, than through “big-bang” mergers and acquisitions, although he did not rule corporate activity out.

The company said it was undertaking a programme in a possible joint venture (JV) with ASX- and JSE-listed Gold One, to reprocess surface tailings deposits in the West Rand region of South Africa’s Witwatersrand basin of about 700 000 t, at about 0.35 g/t of gold. The tailings represent about 60% of the total tailings material in the region.

Holland would not speculate as to how the process would be undertaken, only saying that it would have to be a massive bulk operation to achieve economies of scale.

The company is currently in talks with Gold One to form a JV in which both companies would contribute mining equipment to process the tailings.

“I sense possible good synergies between the two companies,” Holland said.

Meanwhile, Gold Fields acquired the minority assets at its Ghana and Peruvian projects for $1-billion, adding 250 000 oz of gold to its current production a year. The company said it expected those operations to be fully paid for within five to six years.

“It was an opportunity not to be missed, owing to the buying price being equal to about $300/oz of gold,” Holland said.

The company was busy with exploration projects through its Arctic Platinum project in Finland, Yanfolila in Mali, Chucapaca in Peru and its Far Southeast Drilling project in the Philippines.

Gold Fields now owns about 52% of the world’s total gold production assets.

Gold Fields reported a 26% rise in quarterly earnings, in line with expectations as its results were lifted by a favourable exchange rate.

The group's adjusted earnings a share increased to 368c from 291c in the previous quarter.

The company also declared a final dividend of 230c a share.
 

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