Gold Fields stages Q3 recovery, but South Deep to miss target

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South Deep mine

GOLD Fields responded strongly to the previous quarter’s operational setbacks staging a $152m positive swing in cash flow during the third quarter, and nibbling at net debt.

But South Deep, the South African gold mine that Gold Fields re-scoped for lower production earlier this year, is set to disappoint for the year. It lifted gold production 10%, but the recovery was insufficient to avoid missing guided annual production of 315,000 ounces, most likely by some 5% to 10%, the group said.

Total production for the third quarter was 567,000 oz, a 3% improvement quarter-on-quarter. All-in sustaining costs (AISC) were 5% lower quarter-on-quarter and 12% lower year-on-year at $906/oz. All-in costs (AIC) were 5% lower quarter-on-quarter and 1% lower year-on-year at $1,032/oz.

Overall, group full-year production is on target for 2.1 million oz to 2.15 million oz at an all-in sustaining cost (AISC) of $1,010 to $1,030/oz.

Goldman Sachs said in a note that Gold Fields’ production was “a beat” despite the miss at South Deep. The outperformance “… was a function of strong beat at Cerro Corona which was attributed to higher grades,” the bank said. The gold grade at Cerro Corona increased by 32% and copper head grade increased by 18%.

Gold Fields generated net cash flow of $85m after growth capital expenditure of $34m at Damang, $17m at Gruyere – Gold Fields’ Western Australian gold project which it holds with Gold Road Resources – $4m at South Deep, and $12m at Salares Norte, a project in Chile. This compares to a net outflow in the previous quarter of $67m.

“If we exclude this growth capital, net cash flow for the quarter would have been $152m which is also stated after interest paid of $19m,” said Gold Fields CEO, Nick Holland in notes to the firm’s published third quarter operational update today. “Taking into account the net cash generated and interim dividend payment, the net debt balance decreased to $1.30m from $1.37bn at the end of June 2017,” he said.

Gold Fields has set down ambitious growth plans involving growth and stay-in-business capital of $869m this year – a 35% year-on-year increase. The projects include South Deep, the extension of Damang in Ghana, the start of the ground-up development of the Gruyere gold project, and the Salares Norte project.

Commenting on its growth projects, the group said it was on track at Damang with $87m spent year-to-date against a budget of $120m. At Gruyere, engineering progress of 37.8% and construction progress of 19.8% were achieved, although some A$80m ($62m) has been deferred to the next financial year without disrupting the project’s schedule.

A feasibility study regarding Salares Norte is due to be published in the first half of Gold Fields’ 2018 financial year, the group said.

3 COMMENTS

  1. Dear Fellow Readers,

    Your favourite armchair critic will always have something to say about GFI results. I remain a bullish about this company and hopeful that the CEO will be depart soon. I wrote the following previously about South Deep :

    “This mine under his management, and prior involved , has swalllowed R35Billion of shareholder funds. The target production has been debased from 1200Koz/yr when acquired in 2006 to 800koz/yr (2009) which changed to 700koz/yr (2012) then metamorphosed into now 500koz (2017). IT IS A STAGGERING FAILURE BY THE CURRENT GFI MANAGEMENT. Nobody spends R35Billion for a 500Koz/yr mine at AISC = R600k/kg ( $1000/oz). And all of these targets have been always 3-5 yrs away when they were announced just like the new 500koz/yr .”

    The 3Q results have shown that South Deep improved Q/Q production by 10%. This is NOT an accomplishment because this mine will miss its call of 315Koz/yr for FY17 by some 25Koz. This production target was set as recently as Feb 2017. The sorry saga of this Mine is depressing me greatly. I just don’t understand why the BoD of GFI cannot put a stop to this continued underperformance which clearly has governance implications. When will they wake-up and deal with this South Deep mess?

    There is across the board metrics are pointing to enduring underperformance , namely :
    1. Grade control is poor : It ranges from 3,2-5,5 g/t over 4 qrts.
    2. Longhole stoping: The % tonnage from this mining method areas should be >60% . This 3Q , is lower at 42%. So the high costs mining method tonnage is dominating the production profile thus increasing costs. Unacceptable.
    3. Throughput: This mine installed infrastructure is 330Kt/month. Its % utilisation is at 33% , despite all the development expenses YTD. Unbelievable.
    4. Face Length : If you are ever going to complain about face-length availability on a reef horizon with channel width = 15m, then you are ” by die verkeerde stasie” in mining. Its total incompetence!

    I can go-on-and-on….

    The CEO says that GFI is more than just South Deep. Well, he is right in that regard BUT this illustrate his ignorance of a potential value-unlock catalyst (South Deep comprises 34Moz of GFI’s 48Moz reserves) in the company he is managing , and has been at it for ±10yrs Now. This orebody is stupendous under proper management. Froneman must fix SBGL balance sheet and takeover this mine and save us from the heartache. I estimate R10Bn should do and then we can begin afresh and at least look to a brighter future.

    It seems even the 2,1-2,15Moz/yr for FY17 is looking like a stretch target now. There is a startling deterioration in the Australian region which is expected. Thats what happens when you become other people’s dustbin ( Read Harmony vs AGA Deal). These assets just die unexpectedly on your lap and you are left holding the bag. The Aus region was billed as a 1Moz/yr region after the acquisition of Barrick’s clunkers. Well, it seems that was just empty-talk and everything has gone quite and we are told to focus on Gruyere. As any project person will tell you, if spending commitments are not met/achieve then soon the schedule will slip. So the underspending on the project is NOT good so early, so expect this Gruyere project to be mess.

    The Positive News:

    ” GFI is Cashflow positive for the 3Q FY17….by some $85M ( 2Q : -$67M)!

  2. Baas Neek, please baba, our call is too high…South Deep will only ever produce 350kOz per annum… No more promises please….

    • Goldminer, you are being silly!!! ha ha ha ha!

      It seems like South Deep battles to even deliver 300koz/yr …

      This mine sends me into depression each time i think of the R35Billion spend on it, yet NO +ve Cash Flows y/y or at least increasing production profile.I should not meet Nick in a dark alley alone about this issue!

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