Big talk bites Gold Fields

Allan Seccombe | Thu, 07 May 2009 15:12

[miningmx.com] -- GOLD FIELDS has missed its target of producing a million ounces of gold a quarter at the start of this year, but CEO Nick Holland, in a markedly less aggressive stance, maintains the group will reach that objective.

The reasons for missing the target include a disappointing run of quarters from the Beatrix mine, which was expected to be 30,000 oz/quarter higher by now, and the mill expansion at Tarkwa in Ghana not building up production as quickly as expected.

Kloof was expected to be 15,000 oz/quarter higher than it currently is, while a drop in the copper price from around $6,000/tonne to below $4,000/tonne has negatively affecting the gold equivalent ounces at its Cerro Corona mine in Peru. That took 40,000 to 50,000 oz out of the equation.

it’s not as if that target cannot be achieved

“The good news is that it’s not as if that target cannot be achieved,” Holland said. “It can. There are some issues we need to resolve to get closer to that target. If the copper price continues its upward run it will help us get there.”

Gold Fields will increase its production to 900,000 oz in the June quarter from 800,000 oz in September. If that is taken as a measure, it will reach its million ounce target in the next three quarters, but much depends on South Deep, Tarkwa, Beatrix and Kloof reaching their planned output.

The 900,000 oz target is well short of the revised 975,000 oz level the market had been expecting. "It just makes people more doubtful about their ability to meet medium and longer term targets," said an analyst.

Not only that, but it put pressure on other parts of the business, with the revenue that had been expected from those additional ounces not coming in. One analyst saw the roll over of a debt repayment from the June quarter to the next year as a possible symptom of this.

Tarkwa’s steady state production is forecast at 180,000 oz soon, with the June quarter showing 170,000 oz. Beatrix will lift production to 93,000 oz in the fourth quarter. The mine is capable of closer to 106,000 oz, but whether it will get there is another question.

The intention is to lift Kloof to around 190,000 oz from around 175,000 oz.

SAFETY DRIVE KNOCKS OUTPUT

The safety drive since Holland took the reins has obviously also played a major role in the target being missed.

Holland shut the main shaft at Kloof for six months for refurbishment as well as shifting a sizeable chunk of production away from dangerous pillar and remnant mining. These moves have paid off handsomely. The number of deaths so far in the fiscal year is 13 compared to the previous year’s 47.

Holland told Miningmx in an interview in July 2008, just two months into his new role as Gold Fields CEO, that the group had a target of a million ounces per quarter by the end of that year or early in 2009.

The tone now is a good deal more cautious, but no less bullish.

“I’m not going to give you a definitive time line on it, but it’s still very a strategy of Gold Fields to get to that target. It’s not pie-in-the-sky or shoot-the-lights-out kind of stuff. If we get our assets delivering what they should deliver we can get very, very close to that,” Holland said.

The million ounces a quarter target is a key component in the strategy of becoming a five million ounce producer in the next three to five years, with South Africa contributing two million ounces and the Australasian, West African and South American regions adding a million ounces each.

Some analysts are not factoring in the five million ounce outlook into their models, wanting to hear a lot more detail from Gold Fields on how exactly it will get there.

Some are sceptical about the million ounce/quarter target. "I think they'll get there eventually and South Deep will contribute some big numbers. It's really a question of when they're going to do it. It seems every quarter they push their targets out a bit more," said an analyst.

Central to achieving the South African output is raising production at the South Deep mine, which has absorbed cash but not really produced the gold everyone had hoped for.

Gold Fields plans to invest up to $850m in the mine to lift production to 800,000 oz by the end of 2014.

Holland was sanguine on funding the mine, saying the money would come from profit generated at the mine and elsewhere in the group. The most important step on that road is to increase production at the mine by 100,000 oz next year to 300,000 oz.

“My real objective for South Deep is to make sure it can fund all of its own capital. If we get production to 300,000 oz next year, that will go a long way towards doing it,” he said.

Gold Fields has 13 dumps in South Africa containing a total of 400 million tonnes of tailings material. It will have a feasibility study completed to take to the board in the first quarter of 2010 to decide whether it should extract the uranium, gold and sulphur in that material as well as a further 200 million tonnes of current arisings.

Holland wants construction on a new mega-plant to start during 2010. The preliminary thinking is to process some two million tonnes a month.

He declined to give cost or production forecasts, but it’s understood at that rate of production, Gold Fields, if it keeps 100% of the project, will generate some 200,000 to 300,000 equivalent ounces of gold. It will convert these to by-product credits, which will bring down its costs.

Gold Fields is using a uranium price of $40/lb for its studies. Holland conceded the biggest risk to the project is environmental approval.