TURNOVER in head of operations at South Deep – equal to an average tenor of between 18 months to two years – was a key reason behind the failure of mine owner, Gold Fields, to drive a profit from the West Rand mine.
Responding to a question from Citi analyst, Johann Steyn, Gold Fields CEO, Nick Holland, acknowledged leadership had been a problem for South Deep over the last 10 months. “The average tenor of the head of operations at South Deep is between 18 months to two years which is clearly not good,” said Holland.
“One of the reasons we are not further down the line at South Deep is that the track record is for people to leave. There is then a hiatus of five to six months and that sets us back. It is something of concern. We need to have that stability at that level to improve institutional capacity. Without that there is no winning team at the face,” he said.
Steyn estimated there must have been seven to eight different people tasked with running South Deep over the last 10 years. During that period, the mine has repeatedly missed its targets and has, therefore, been a perennial drag on Gold Fields which otherwise manages high class operations across the globe.
“I think it may be five or six different heads but whether it’s that or eight, it’s far too many for us,” said Holland who earlier admitted that there was a degree of risk to the mine’s 2018 production target of 322,000 ounces. “There is still some risk in the South Deep target, but there may also be some upside,” said Holland who was commenting at the firm’s 2017 full year results presentation today.
“Broadly speaking, South Deep is about getting people to work in an effective way. It will take time but I think we will succeed in three to four years. It is not about the orebody; it is not about the technical solution; it’s about execution of our plans,” he said.
South Deep failed to meet its 315,000 oz production target as set down in a ‘rebase plan’ of February 2017 for the 2017 financial year by some 11%. Whilst a production target of 500,000 oz/year has been retained, this would not now be achieved until 2022 compared to the previous 2020 target. The execution of the full mining value chain at South Deep “… remains sub-optimal,” said Gold Fields in comments to its numbers.
Gold Fields announced on February 8 that it had decided to impair South Deep for $278m, taking its carrying value on the firm’s books to $1.96bn.
South Deep has serially under-performed over its 20-years plus life for whoever has operated it, including Gold Fields. It was previously owned by Barrick Gold, Placer Dome and JCI before it. In the hands of the late Brett Kebble, who was running JCI at the time, the mine was slated to produce more than 800,000 oz.
Gold Fields bought the mine from Barrick Gold for $1.53bn in December 2006 and has, over the years, lowered the mine’s productive capacity. In May 2015, Holland’s 650,000 to 700,000 oz/year target for South Deep was in jeopardy as he dispensed with previous targets in favour of rescoping the entire mine.
It was further rescoped in February last year to the current 500,000 oz/year target. The then head of SA operations was Nico Muller who has since left the company to run Impala Platinum. Muller was replaced by Martin Preece who was previously chief operating officer of De Beers Consolidated Mines. Preece joined Gold Fields in April last year.
Analysts asked if Gold Fields had considered selling South Deep, or even deciding to stop production altogether. Holland said there was more incremental value in continuing South Deep than in stopping it whilst he thought the market acknowledged South Deep was a long term Gold Fields asset. “No, we have not been shopping it,” he said.