Gold Fields’ delay-hit Salares Norte impacted by Covid, severe weather in third quarter

Truck plowing snow off the road at night.

GOLD Fields said the construction of its 450,000 ounce a year Salares Norte project in Chile was negatively affected in the third quarter by the effects of Covid-19 and more “severe weather which flowed over” from the previous three-month period.

“Construction progressed 7% during the September quarter, impacted by various snow and white wind events in July and high winds for the remainder of the quarter,” Gold Fields said in its third quarter production report today. Salares Norte is now 82% complete compared to the 77% completion reported at the group’s half year.

Speaking in a conference call, Gold Fields CEO Chris Griffith said however he did not anticipate any further slippages in the project at this time. “We are not anticipating delays but we will have a better feel by the end of the year,” he said.

In August, Gold Fields said capital expenditure on the project would increase to as much as $940m from the previously scoped $860m were it to be commissioned in June 2023 which would make it about three months late. In such an event, the ramp up in Salares Norte’s production would fall to 102,000 of gold equivalent ounces in Gold Fields’ 2023 financial year from the 200,000 oz that is currently scoped.

“There has been a pick up in the project’s tempo and we hit first ore in September,” Griffith said. But sourcing and retaining project staff was problematic. “Competition for labour is hampering us,” he said. “All projects are desperate for people. We are finding it quite difficult to retain staff.”

Current guidance on Salares Norte’s capital expenditure is a range of between $903m to $920m. This adjustment was taken last year as a result of inflation.

Commenting on inflation, Griffith said: “We feel that it has peaked but not materially”. He forecast inflation of between 9% and 10% for the remainder of the year of which about half was related to finding and retaining staff. Gold Fields has budgeted on inflation of between 7% and 10% in the 2023 financial year with the assumption that it would markedly ease in the second half of that year, said Paul Schmidt, Gold Fields CFO.

Gold Fields is expected to hear from shareholders shortly on the group’s proposed $6.8bn all-share offer for Yamana Gold as Griffith had been marketing the deal since Monday. A general meeting at which the vote will be taken is scheduled for November 22.

Commenting briefly on the transaction, Gold Fields said in its third quarter report that: “We continue to make good progress on the transaction”.

Asked for details of the roadshow, Griffith said the group had only held a few meetings so far but said that the response had not been negative. The direction of the offer will be dictated to some extent by the view of proxy advisory companies ISS and Glass Lewis with whom Gold Fields held meetings last week.

Griffith said he expected to hear their verdict on the deal early next week.

For the quarter, Gold Fields produced 597,000 oz, a 1% year-on-year decline. All in sustaining costs were 4% to $1,061/oz, partly influenced by “significant project capex” at Salares Norte.

Gold Fields revised gold production for its South African mine South Deep upwards to 321,500 ounces for the financial year ended December after it had “tracked well” against its targets. The mine was previously expected to produce 308,600 oz.

The group said it expected to meet annual guidance of between 2.25 to 2.29 million oz produced at an all in sustaining cost of between $1,140 to $1,180/oz. Mining cost inflation had been higher than expected but it had been partially offset by weaker exchange rates.