Gold Fields acts on falling gold output

Allan Seccombe | Thu, 04 Feb 2010 09:03
[miningmx.com] -- GOLD Fields missed the production target set for the December quarter and output is set to fall further in the March quarter. It is talking to the mines ministry about how safety stoppages are implemented to stop lost gold production.

Gold Fields produced 900,000 oz of gold in the three months to end-December, falling short of the 925,000 oz target it set for the quarter when it put out its September results.

Operationally, the quarter was disappointing at the Driefontein mine, where a seismic event shut the mine for a week in December, costing it a third of that month’s production. Kloof had safety-related stoppages.

Gold Fields forecast output of 850,000 oz in the March quarter because of a slow start up after the year-end holidays, with total cash costs set to rise to R156,000/kg from R147,648 in the December quarter.

This is at odds with CEO Nick Holland's stated intention of building up production to between 925,000 and 950,000 oz per quarter for the remainder of its financial year to end-June.

"One thing that has hurt us is the start/stop nature of the South African operations," Holland said referring to the temporary closure of mines by the Department of Mineral Resources (DMR) when there's been a fatal accident.

Gold Fields is talking to the DMR about a protocol on safety stoppages, which create stop/start conditions that ironically make a mine less safe and lower production, he told a media conference.

Gold Fields will meet the DMR on 11 February on the protocol governing the issuing of notices to temporarily shut mines when there is a fatal accident, said head of South African operations Vishnu Pillay.

"We believe these actions can be classed as punitive because there is no sense of proportionality," he said, adding Gold Fields had no definitive answer yet on how to address the issue.

"We have been impacted by significant stoppages at Kloof and Driefontein despite our very much improved safety trend," he said.

Gold Fields is also talking to the National Union of Mineworkers, which calls its members out for a day of mourning after a fatal accident.

The mines in Gold Fields have the potential to deliver the 925,000 - 950,000 ounces but not if there are these type of stoppages. Holland has said the company is aiming for a million ounces a quarter.

Gold Fields wants to add another working day to the week to bolster production and save jobs.

“Discussions have commenced with unions, associations and the DMR regarding the introduction of a six day work week to ameliorate the effects of the Christmas and Easter breaks, and lost shifts due to safety and other stoppages,” Holland said in the December quarter statement.

“The objective is to improve efficiencies while maintaining current conditions of employment, especially working hours, in order to create a more sustainable environment and to avoid possible retrenchments,” he said.

The fall in March quarter output will be led by Driefontein, which is expected to produce 26,000 oz less gold this quarter. Pillay said this was because the seven day stoppage in December meant the operation used up its stockpiles normally reserved for the new year.

Once those stockpiles were depleted the mill was fed waste rock to generate backfill needed to secure underground workings and it's taken time for that material to work its way through the plant.

"We are only just coming right now," Pillay said, using this as an example of the deleterious impact of shaft closures as practised by the government.

Gold Fields posted strong financial results, with a firmer gold price pushing net earnings up 40% quarter-on-quarter to R1.4bn. Total cash costs remained flat.

Gold Fields declared a 50 cents per share dividend.

Electricity costs remain a concern within Gold Fields, which has experienced a doubling in power costs over the past two years to R1.7bn. Should power utility Eskom’s request for an annual 35% increase over the next three years be granted, Gold Fields will pay R4bn on electricity alone.