Tim Rowland
Photo by: Duane Daws
JOHANNESBURG (miningweekly.com) – South African mining company Gold Fields has cleaned up on marginal mining and wired itself for cash generation.
Gold Fields’ three-year effort to put an end to marginal mining is backed up by strong filters to ensure that mining always generates cash, Gold Fields group competent person Tim Rowland said in a 20-slide presentation attended by Creamer Media’s Mining Weekly Online.
The company’s 52-million-ounce managed gold reserve reported a 15% free cash flow margin at gold prices of $1 300/oz, and R420 000/kg for South Africa’s South Deep, in an exercise that wires the strategy of all eight of the JSE-listed company’s operating life-of-mine scenarios to the planning process.
Although gold prices have been tracking well below the $1 300/oz planning gold price – the price was $1 208/oz at the time of going to press – the 15% free cash flow margin embedded into Gold Fields’ short-term planning plus its life-of-mine planning, bodes well for the headroom and the buttressing against periodically lower gold prices that the company has used for planning, Rowland emphasised during the company’s yearly declaration of reserves and resources, which analysts use as a key reference point. (Also view attached Mining Weekly Online video).
There has been a lot of debate in the past about the prices that should be used to calculate reserves and resources, against the background of the spot price being lower currently than the price of $1 300/oz that Gold Fields used in the 2014 exercise.
“The point that is more important than that is that these are not just reserves that make it because they make a dollar – and that’s crudely the definition, if it makes a dollar, it gets into the reserves – overall, these reserves make 15% over their life,” Gold Fields CEO Nick Holland commented.
“So, what’s critically important for us is that we don’t just talk to a one year operational plan that has a 15% margin embedded into it.
“We’re actually talking about making sure that the life-of-mine planning has that factored into it, so that if we’re wrong, and gold is lower than $1 300/oz for the next ten years, it means that we’ve got a margin of safety between the $1 300/oz that we’ve factored in and whatever the prevailing price is, so that there is no need for emergency reworks and rescheduling of the operations - you can actually have comfort that they will stand the test of time and the vagaries of the commodities markets,” Holland added.
Instead of showing reserves at lower prices, he suggested that the gold industry as a whole might begin to show reserves with their margin.
“Because at the end of the day, if they don’t give you a margin, they’re not going to be mined anyway, so what’s the point of reporting reserves that will never be mined,” Holland argued.
Gold Fields factored in the 15% margin to enable the company to absorb a reduction of that sort of proportion before it would lose any money.
“I think we are okay to about $1 100/oz. If gold went to $1 100/oz and stayed there for a year or so, we’d then have to rethink, as would everybody else too, bearing in mind the average all-in cost curve for the industry is about $1 250/oz, said Holland.
Until then, the 15% margin provided the cushion to absorb lower prices, with no material change required to strategy and planning.
“The sensitivities are quite small. At $1 200/oz, the variance would be immaterial,” Rowland pointed out.
Gold Fields’ accountability for execution and delivery is now firmly regionally anchored as part of a decentralised model and no stay-in-business capital is spent that fails to add value to the bottom line.
Steps are taken to ensure that operating assets and major projects are externally audited every three years.
For the managed gold mineral resources of 128-million ounces, gold prices of $1 500/oz and R480 000/kg were used.