Terence Goodlace, head of South African operations, Gold Fields
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» Thousands of Gold Fields jobs face the chop
» Gold Fields to lose up to R1bn in power crisis
» Gold Fields' reserves down 2%
» Gold Fields project in 23% cost hike

» JSE:GOLD FIELDS LIMITED:
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Gold Fields mothballs shafts, shelves growth plan
Allan Seccombe
Posted: Mon, 25 Feb 2008

[miningmx.com] -- GOLD Fields could lay off nearly 7,000 workers because of the power crisis in South Africa that will see falling output and spiralling costs in that country as shafts are mothballed and expansion plans put on hold, the company said on Monday.

The mining sector, which had a week-long stoppage from 25 January when power utility Eskom declared force majeure, has agreed to cut its power consumption by 10% to ease the country’s power shortage. The reduction is likely to be in force until 2012.

“The inability of Eskom to supply the mines their full power requirements, and to commit to additional electricity demand for new mining projects currently in development, has caused a significant crisis in the South African mining industry,” said Terence Goodlace, head of South African operations.
consider downscaling in the current record-high gold price
“It is paradoxical that we have to consider downscaling in the current record-high gold price environment,” he said.

The National Union of Mineworkers, the largest union in the sector, said it would not countenance job cuts because of the power cuts. "The NUM reiterates its position that it would not negotiate retrenchments with any particular company which argues power outages and output as the reasons," it said in a statement.

"The NUM will take to the streets if companies carry out their retrenchments threats. It is not our members who brought about electricity crises and they should not be made to shoulder so-called electricity-crises related problems," it said.

Gold Fields will mothball two shafts at its Driefontein mine as well as suspend its 9 Shaft depth extension programme, which would have given the mine another 10 years of life by accessing reserves of 8.5 million ounces.

Two shafts at Kloof will be mothballed, while the recently acquired South Deep mine, seen as the future of the company, will be restructured. The only mine unaffected by the plans to meet the 10% power consumption reduction is Beatrix, the company said in a statement.

“To ensure sustainability of production and the security of the associated jobs, albeit at reduced levels, all available electrical power will have to be directed to higher margin, revenue generating shafts, at the expense of lower margin shafts and the Driefontein 9 shaft development project,” Goodlace said.

Gold Fields, which employs 53,000 people, could have to lay off 6,900 employees and contractors in its plans.

Talks have started with the unions, and the National Union of Mineworkers has asked for formal retrenchment talks to wait until it has met with the government and Chamber of Mines at the end of February.

Gold Fields will spend R200m installing back-up power generation on-site by the end of 2008 to ensure the safety of its workers.

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Gold Fields has said its South African gold production for the March quarter will be 20 to 25% lower than that for the December quarter, while the June quarter’s production will be 15-20% lower.

At Driefontein, Gold Fields suspended its R5.4bn, decade-long depth extension plans in favour of its South Deep projects. The extension would have needed 110 megawatts (MW) of power and, importantly, a guarantee from Eskom that this power would be available.

March quarter production at Driefontein is forecast to be 1,500 kg lower at 5,900 kg, with total cash costs rising to R116,250/kg from R94,390/kg in the December quarter. The week-long shutdown in January accounts for the bulk of the reduction in output.

From the June quarter, steady state production should be 6,800 kg per quarter going forward, Gold Fields said, adding cash costs are forecast at R102,150/kg.

At Kloof, where Number 3 and 8 Shafts, will be mothballed, March quarter production will fall by 1,700kg to 5,450 kg and cash costs will rise R115,200/kg from R91,029/kg in the December period.

Kloof’s steady state production from the June quarter will be 5,910 kg per quarter with cash costs of R104,061/kg.

Gold Fields has asked Eskom for a special exemption for Kloof mine to draw more power, said CEO Ian Cockerill. "Kloof is particularly tricky to balance that's why we've asked for an exemption to get a little more power."

At South Deep, where conventional mining has stopped because of geological conditions, March quarter production will fall by 700 kg to 1,400 kg and cash costs vault to R237,200/kg from R147,719/kg.

From the June quarter, production should fall by 860kg to approximately 1,200kg at cash costs of approximately R250,000/kg.

Gold Fields will spend R1bn a year for the next five years at South Deep as it develops the mine, said Goodlace.

Beatrix Gold Mine is expected to decline by 1,004kg to approximately 2,644kg and total cash costs may increase from R108,058/kg to R150,908/kg. Steady state sustainable production from the June 2008 quarter and onwards should increase by 35kg to approximately 3,733kg per quarter at cash costs of approximately R108,210/kg.