Gold Fields’s South Deep production up 87% - Moneyweb
SIKI MGABADELI: Gold Fields swung to profit in the first half of the year as it benefited from a higher dollar gold price and improvements at its South Deep mine in South Africa. That offset declines at its international operations. My colleague, Warren Dick, speaks to Gold Fields’ CEO, Nick Holland, and he started off by asking how Gold Fields has been able to contain costs.
NICK HOLLAND: First of all, costs have gone down 8% on an all-in-cost basis, and round about two-thirds of that has been because of weaker currencies in Australia and South Africa, so they’ve helped us.
But a third of that has also been reductions in local currency around the world just through continued business improvement. I think there are always opportunities to bring in marginal production, particularly when you are not filling your process plants in the various mines. And we need to have an eye on that because that’s good business for us.
But just moving to lower-grade discrete sources for the sake of it is not always the best to do, and I’ve lived through cycles in this game when we’ve gone for the low grade and then when we’ve had to cut back because prices came down, we ended up in a very difficult position. It’s very easy to put the cost into the system, and very tough to take it out, and it usually costs more than you think to get it out of the system.
WARREN DICK: Just on that note, Nick, you also alluded to – if I can paraphrase – good costs and bad costs. How is Gold Fields’s position there? Are you expecting to make more investments into your business to sustain your production going forward?
NICK HOLLAND: Look, we’ve been keeping our capital at a fairly constant level and in fact we’ve even increased our capital in the second half at South Deep for additional machines on the ground and to provide more flexibility and also target the capital-strip in the pits. And so we want to make sure that we not only meet our production goals this year but we try and maintain profitable production into the future.
But I do think you should look at the quality of costs that are being reported in terms of whether they are spending the money in the right areas, are people high-grading their operations, taking high grade now at the expense of low grade later, because those things are going to come back to roost down the road. And that’s one of the dangers I think the gold industry has been faced with. This high price I think will provide an opportunity for people to catch up, but you can’t let these things build up because it’s a bow wave.
WARREN DICK: Just on that note, you mentioned South Deep. Let’s talk about that. I’m sure you are very comfortable. You provided a number of metrics in the presentation today that show how production is improving at South Deep and, in fact, you’ve declared – is it a maiden quarterly profit from that operation?
NICK HOLLAND: Ja. In fact, we made cash for the first time in this quarter.
WARREN DICK: So just give us a bit of insight. I know you are going to be giving the market a detailed production plan and cost expectations for South Deep in February next year. So just tell us how things are progressing.
NICK HOLLAND: Well, certainly we put in a number of initiatives to turn the operation around, starting with just getting the basic management skills and operator skills supervision in place. So we’ve employed a lot of people over the past 12 months; around 150 positions have been filled vertically across the mine.
We’ve also invested in training and taking all of our operators and assessing them. We are taking our artisans who work on our equipment and we are putting them through supplier courses to make sure they understand how to maintain the equipment with our OEMs – that’s the equipment manufacturers.
We have also simplified the mining method a year ago and, without going into a complex technical discussion essentially we’ve simplified how we access the ore body into a bigger cut, which allows us to use one suite of equipment which mechanises the entire mining value chain. That speeds everything up, it’s safer, more productive. So that has helped too.
And we bought some additional fleet which has given us greater availabilities and allowed us to access areas that otherwise we couldn’t have got to. All those have been good wins for us. It’s nice to see we had an 87% improvement, but it’s work in progress still awhile. We’ve got a lot of work ahead of us.
WARREN DICK: You’ve declared and will pay a 50c/share dividend for the interim period. You mentioned today the dividend policy of the company is to pay out 25 to 35% of earnings. So if we see the gold price stay where it is, I assume that we could expect a nice, healthy dividend from Gold Fields at the end of the year?
NICK HOLLAND: Well, without promising, I would hope that we certainly do that, because I’m also a shareholder and I’ll benefit too like the other shareholders.
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