South Deep clobbers Gold Fields yet again

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Gold Fields CEO, Nick Holland Pic: Martin Rhodes

It was the “same old story” from Gold Fields in the March quarter which is that the non-South African operations delivered but the group’s South Deep mine did not – in fact the operation seems to be in big trouble yet again.

South Deep’s woes have continued into the current June quarter with a 22-day safety-related work stoppage imposed by the Department of Mineral Resources (DMR) during April and Gold Fields has been forced to reduce its gold production guidance for the year to end-December.

These latest setbacks follow the decision taken by Gold Fields to impair South Deep by R3.5bn in its accounts for the year to end-December 2017 following a slower-than-expected production build-up after the then latest redesign.

Gold Fields CEO Nick Holland has revised expected production from South Deep to 244,000oz from the previous estimate of 321,000oz and has cut production guidance for the group during 2018 to between 2m oz and 2.05m oz.

Holland said that South Deep had “a tough start to 2018”. The reasons for that cover the full spectrum of underground mining problems ranging from labour trouble to equipment breakdowns; safety issues and geological factors.
Holland said production was hit by a slow build-up after the seasonal holidays along with the impact of two labour restructuring processes and a “change in underground working shift arrangements implemented to increase productivity.”

He commented, “these changes have inevitably created workforce uncertainty and a disruption of operations. The labour restructuring comprised 47 personnel at management level and approximately 260 personnel at lower levels. “The change in underground shift arrangements effected in early April have provided a longer shift of 11.5 hours instead of the previous 9.5 hours. The intention is to increase the effective time on the face and it will take some time to see the impact of the change.”

In addition production was hit by “low mobile equipment reliability” as well as the intersection of active geological features (faults and dykes) in high-grade corridor 3 and poor ground conditions in the far western part of the orebody.
Then the DMR imposed a 22-safety stoppage in April “to re-support back areas in the two of the critical new mine access ramps which account for half of total production for the mine.”

According to Holland, the mine team is “currently developing a recovery plan aimed at mobilising the workforce post the restructuring and bedding down of the new underground shift cycles.”

He added the poor ground conditions were “mostly a symptom of the transition to more effective pillar designs as recommended by the independent geo-technical review board; lack of timeous and effective stop cleaning and backfill, as well as timeous and effective secondary support.

“These constraints are receiving urgent attention,” Holland said.

Also notable in the Gold Fields March results statement is that the group has expanded its gold hedging programme which started in June last year at its Australian mines “to protect cash flow at a time of significant expenditure.” At that time it hedged 295,000oz of gold.

Gold Fields has now hedged another 674,000oz in Australia (equivalent to 78% of FY 2018 guidance) and 489,000oz of gold in Ghana (equivalent to 72% of 2018 financial guidance).

4 COMMENTS

  1. Well after many many years of writing research notes on this particular company and mine, reading your article, Brendan, invoked a stroll down memory lane for me. It reminded me why I’m so glad I’m not mixed up in that thankless job anymore. It reminded me of how a certain senior executive complained to one Lord Renwick in London (one of my ex-employers’ “god-like” management figures, about my work. The recommendation he (the complaining Gold Fields executive) made was that I should be fired. I wasn’t. Indeed the local management at the time were in hysterics about the way this particular manager had reacted to what they thought was a decent note. Indeed it happened a couple of times over the years with that particular executive.

    The point we were trying to make in our research was that the mine was never likely to deliver what was promised and that the purchase consideration was, well, ridiculous. Ironically, I was actually very wrong about it, in the end. My proposition that management had put $2 on the table to pick up only $1 of value, was way off the mark. I should probably have said 25c or even naught.

    Now I find myself reflecting on the “excuses” being proffered by the CEO, and I must confess some of them look strangely familiar to me. It is as if they come around with the inevitability of an unloved season…

    Then I was trying to remember how many General Managers (sorry Vice Presidents) had been consumed in this sorry story. I couldn’t – I lost count. Were they all inept? I don’t think so. Is this mine impossible to fix? I doubt it. Have fingers been pointing in the wrong direction? Let’s leave that to the imagination of anyone that might read this, shall we?

    If the workforce is uncertain/unsettled, it can hardly come as a surprise to anyone, can it? As with the managers, I’ve lost track of which plan we’re on now. Is it “plan R”? Those poor guys on the working face must be wondering what their incredibly highly payed masters in Sandton are up to. They must be asking themselves; do the directors have any idea what they’re doing? Who could blame them? I find myself asking the same question as a (very) modest shareholder.

    Lastly I feel I must pass comment on the wonderful photograph you selected to accompany your article, Brendan. I confess I did laugh out loud. That gesture was what did it. I contemplated who it might be directed at. I was forced to conclude that it might have been a shareholder, like me……..

    I wonder how much longer the shareholders that matter are going to tolerate listening to this catalogue of misery over and over again? I think it is truly remarkable that the CEO has survived as long as he has. Nick, it’s time to go, surely.

  2. This is what i wrote many reporting quarters ago……..

    SOUTH DEEP (The problem child)

    There has been so many changes of management at this mine and the only decision left is to change the CEO of GFI. 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. I have stopped estimating or proposing solutions to this mess until the current management depart the stage. Its shambolic and diabolical nonsense what is happening at South Deep. So the mess will continue so long as Nick is the CEO. This asset requires fresh eyes on issues ( and they are many!) bedevilling it so that we outsiders can interpret them and make reasoned judgement.

    CONCLUSIONS

    GFI requires a new capable CEO to take it forward and deliver on its potential , which is inextricably tied to getting South Deep to deliver on its orebody potential. The South Deep orebody production potential is >1Moz/yr nothing less.”

    I AM THE LEAST SURPRISED BY THIS SOON TO BE MISSED TARGET…AND ANOTHER ….AND ANOTHER…..SO IT GOES !

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