[miningmx.com] – SHARES in Gold Fields were under the hammer as investors absorbed news the group’s R8bn South Deep mine would be delayed a year, and production would be lower than planned.
Gold Fields CEO, Nick Holland, said South Deep’s first year of full production would be in 2018 in which it would produce between 650,000 and 700,000 ounces. This compares to a previous production target of 700,000 oz and follows a six-month long review of the west Rand asset. Once upon a time, South Deep was feted (but not by Gold Fields) as an asset capable of producing 850,000 oz/year.
“Delivery of South Deep is a top priority,” said Holland at the group’s December quarter results presentation in Johannesburg today in which the group also published its 12 month figures for the 2013 financial year. “Things have gone slower than we would have liked [at South Deep], but we are confident, although it is taking a little longer”.
The cost of building the mine had been kept to within 12% of stated targets which Holland said the group had “tracked quite well”, but there would be the opportunity cost impact of forgoing the expected gold production in 2016.
Output from South Deep in the 2013 financial year was 302,000 oz, about 12% higher than in the 2012 financial year. Some 360,000 oz had been targeted for the current 2014 financial year, he said. “We need to more than double production over the next four years,” he said.
South Deep has been a project in development, under various management teams ranging from JCI, Placer Dome and Barrick Gold, since the Nineties, but the delivery of steady-state production is now critical to Gold Fields.
Gold Fields last year hived off its Driefontein and Kloof gold mines on the west Rand – operations that are now generating buckets amounts of cash for Sibanye Gold – and has cut marginal production as it removed $450m from its capital, exploration and expenditure programmes.
As a result, South Deep is a major part of Gold Fields’ investment appeal, especially as the mine represents the last significant new gold production from South Africa. “We are not ex-growth,” Holland said. “We would want to keep developing mines … to make sure we have a future,” he said.
Gold Fields is building two new projects at its St Ives mine in Australia, and it bought the Yilgarn South operations from Barrick Gold last year for $270m.
Still there was a degree of gloom in analyst questioning as they sought assurance that South Deep would not be delayed further or incur significant amounts of capital. The mood was also affected by some $672m (R7.5bn) in impairments that muddied Gold Fields’ year-end figures relating to its Australian and Ghana assets.
Holland said the write-downs were “gold price related” and did not refer to the integrity of the group’s orebodies. However, the outcome on Gold Fields’ 2013 financial year was a net loss of R3.6bn for the year. There was a cash outflow of just over R1.5bn. A dividend of 22 South African cents a share was paid. Shares in the company were about 6% weaker on the Johannesburg Stock Exchange by mid-morning.
Full year production came in at just over 2 million ounces at an all in sustaining cost (AISC) of $1,202/oz against an AISC of $1,310/oz in the 2012 financial year.
Gold Fields said it would produce 2.2 million oz in the current financial year at an AISC of $1,125/oz. The group had planned on an operating margin of 15% at a gold price of $1,300/oz, but said it could break-even at $1,100/oz – a level where the entire gold industry would be “… treading water just as we were in 1999 when the gold price was $250/oz,” said Holland.
