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South Africa now smallest piece of new Australia-heavy Gold Fields

Gold Fields CEO Nick Holland tells Mining Weekly Online’s Martin Creamer that Gold Fields now has most of its mining eggs by far in the less risky Australia basket, as its only remaining South African asset struggles in a cash negative phase. Video: Nicholas Boyd. Editor: Shane Williams.

22nd August 2013

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – Gold Fields – once South Africa’s second-largest gold producer – said on Thursday that it had “improved its sovereign risk profile” by cutting its South Africa production, the smallest of its four global regions – and dramatically increasing its Australian production base to its biggest by far.

The JSE- and NYSE-listed company now has six mines in Australia and only one in South Africa.

Forty-two per cent of Gold Fields production will in future come from Australia and only 11% from South Africa.

Only last year the situation was virtually the complete reverse, with 45% from South Africa and 19% from Australia.

“We may have to find a little kangaroo to put somewhere on these slides in future,” Gold Fields CEO Nick Holland quipped as he flashed a ‘repositioning Gold Fields in Australia’ image on to a large screen during Thursday’s presentation of net loss results in the three months to June 30. (Also watch attached video).

While Holland spoke highly of the company’s performance in Australia – where the company on Thursday announced that it was buying the Yingarn South gold assets from Barrick Gold for $300-million – he warned that Gold Fields' only remaining South African asset, the South Deep project in Gauteng, was loss-making and unlikely to hit its oft-reiterated target of 700 000 oz by 2016.

“Labour relations on the mine are still challenging. We’re having quite a lot of teething issues in bedding down the new operating model,” he said, after earlier reporting a June quarter loss for the group of R1 169-million ($129-million) compared with March quarter profit of R236-million ($27-million).

Surviving at a gold price of $1 300/oz is the new way forward for the group, which reiterates that there is no point in mining ounces at a loss.

Gold analyst Allan Cooke of JP Morgan wanted elaboration on the obstacles in the way of South Deep emerging from a cash negative position, as well as clarification on the likely missing of the 700 000-oz-by-2016 target.

Holland replied that de-stressing procedures were taking longer than anticipated and equipment availability was below what was required.

The number of employees, including contractors, worldwide has reduced by 5% from 19 400 after the unbundling of Sibanye to 18 400 currently.

Full-time employees now number 9 900.

Gold Fields produced 5% less gold at 451 000 attributable ounces from 477 000 oz in the March quarter, mainly owing to the illegal strike action at the Tarkwa and Damang gold mines in Ghana.

The company is continuing to take a series of steps to reduce costs without negatively impacting underground development and surface stripping at the operations.

Using the new World Gold Council metric that it helped to motivate, the company puts its all-in cost at $1 572/oz, which is $209/oz above the current gold price, and its all-in sustaining costs at $1 416/oz, which is $53/oz above the current gold price.

The loss a share of R1.59 ($0.18) was largely the consequence of non-recurring items of R1 318-million ($143-million), of which R1 160-million ($127-million) relates to impairment charges at Tarkwa and Damang.

The impairment was driven by curtailment of heap leach activities at Tarkwa and a revaluation of the ore stockpiles at Damang to match the lower prevailing gold prices.

Loss contributors were the lower revenue resulting from a decline in production and the average quarterly dollar gold price achieved falling 16% from $1 625/oz in the March quarter to $1 372/oz in the June quarter.

The reduction of marginal mining, which began with the closure of the marginal heap-leach operation at St Ives in Australia, continued with the withdrawal from mining the low grade Main and Rajah orebodies at Agnew, also in Australia, and the closure of the South Heap leach operations at Tarkwa.

Restructuring and rightsizing of all operational and corporate office structures and the international projects unit is under way.

The smaller corporate office, which has reduced its staff numbers from 110 to 56, is now narrowly focused on the group strategy, capital, growth, stakeholders, policies and standards, as well as compliance and reporting. Corporate costs have been cut to $10/oz.

June quarter revenue fell 21% from R7 159-million ($805-million) to R6 038-million ($637-million).

Net operating costs decreased 1% to R3 566-million ($401-million) in the March quarter to R3 737-million ($397-million) in the June quarter.

A Gold Fields employee was fatally injured by a fall of ground in the destress section of South Deep, Gold Fields' only remaining South African asset, which is fully mechanised.

The death followed 805 days without a fatality at the mine, where manual support drilling in the hanging wall of destress sections has since been stopped and a new standard implemented group-wide whereby all drilling is now remotely operated.

Cerro Corona in Peru maintained its record of being lost time injury free since September 2011 and Damang achieved a full year without a lost-time injury.

The agreement with Barrick is to acquire the Granny Smith, Lawlers and Darlot gold mines and Gold Fields believes it can apply what it has done successfully at Agnew and St Ives to turn the acquisitions into cash-generating mines.

The company is paying $104 for a reserve ounce of in-production gold.

“When things are cheap, you should go shopping, and so we’ve gone shopping.

“We see a clear path to value and, once fully integrated, these assets are expected to have a positive impact on Gold Fields’ production, free cash flow and global credit rating,” said Holland.

The acquisition provides Gold Fields with additional 452 000 oz/y at an all-in sustaining cost of $1 137/oz.

Cost synergies are seen between Lawlers and the adjacent Agnew, one of the lowest cost producers in Australia.

The company plans to consolidate these two operations and rationalise processing infrastructure.

Edited by Creamer Media Reporter

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