Mining Weekly

JOHANNESBURG (miningweekly.com) – While a solid showing from its Peruvian, Ghanaian and Australian operations pushed Gold Fields’ second-quarter earnings to $22-million, the company has cautioned of a likely output slip at its South Deep gold mine, located along the Witwatersrand basin, narrowing the operation’s forecast yearly production by 8.5% to 229 280 oz.

Despite posting a 7% quarter-on-quarter uptick in production to 39 000 oz for the quarter ended June 30, on the back of an overhauled management team and stricter safety controls, CEO Nick Holland told investors on Thursday that the company continued to advance efforts to “get the basics right” at South Deep, which was running some two years over its development schedule but which, he maintained, was starting to show “green shoots”.

“We have previously said that 2015 at South Deep is more about the inputs than the outputs, and we’ve identified interventions in terms of people, fleet and mining method.

“[However], despite numerous safety stoppages, we’ve managed to increase production over the quarter . . . [and] are starting to see some positive trends, with momentum in key mining metrics increasing in June and July,” he said at a presentation of the company’s results, in Johannesburg.

Gold Fields planned to increase the number of skilled employees at the mine by 160 people, after announcing in June that it had signed a three-year wage deal at the operation until March 2018, providing a degree of stability while the operation ramped up to achieving cash break-even by the end of 2016.

Further boosting its fleet at the mine with a view to accelerate development, Gold Fields acquired an additional 27 pieces of equipment over the period, with 85% expected to be in operation by the end of the third quarter.

The company would also sharpen focus on the mix of mining methods at South Deep, making efforts to “debottleneck” constraints in distress mining, introduce dedicated crews to install secondary support, increase backfill production and rip distress ends.

Holland, meanwhile, told journalists that lower yearly guidance at South Deep would be offset by improved production at the Ghana-based Tarkwa, Australia-based St Ives and Granny Smith, and Peru-based Cerro Corona mines, maintaining the group’s overall yearly guidance of 2.2-million ounces.

Cost guidance for the year of all-in sustaining costs (AISC) of $1 055/oz and all-in costs (AIC) of $1 075/oz across all operations remained unchanged.

INTERNATIONAL BOLSTER
Gold Fields continued to rely on the resilience of its international operations, which lifted overall attributable gold output 7% quarter-on-quarter to 535 000 oz for the three months.

AISC, at $1 029/oz, were 10% higher on the prior quarter, while AIC narrowed 9% to $1 059/oz.

“Tarkwa, Cerro Corona and Granny Smith were the star performers in this quarter,” Holland said.

While noting that the fall in the gold price in recent weeks was of “deep concern”, he added that the company did not believe that it had to make structural changes to its business.

“Currency weakness provides us with some respite, resulting in the Australian dollar and rand gold prices remaining at favourable levels.

“While Cerro Corona benefits to a much smaller extent from currency weakness, the mine is one of the lowest-cost producers in the industry and can, thus, withstand prices lower than current levels.

“Our Ghanaian operations are most exposed to changes in the dollar gold price; however, Tarkwa is a low-cost mine that still makes a margin at the current price and Damang is, in any event, being targeted for reinvestment to unlock value in its resource base,” he told journalists during a media roundtable on Thursday.

Holland added that many of the more “painful” adjustments in reaction to the depressed gold price had already been made in 2012 and 2013, at which point the business was structured to deliver a free cash flow margin of 15% at a gold price of $1 300/oz.

“This translates roughly to an AIC break-even level of $1 050/oz. We remain firmly focused on delivering on our plans in terms of both cost and production in this lower gold price environment, and we will not divert our attention from the nonnegotiables encompassed in our values, including safety, health, environmental stewardship and stakeholder engagement,” he asserted.

Gold Fields posted headline earnings of $19-million, or $0.03, a share, in the June quarter, compared with headline losses of $14-million, or $0.02, a share, in the March quarter.

In line with its policy to pay out a dividend of between 25% and 35% of normalised earnings, the miner declared an interim dividend of 4c a share for the second quarter.