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Gold Fields set for ‘year of reinvestment’, announces R2.28bn South Deep growth plan – Mining Weekly

Thursday, 16 February 2017

JOHANNESBURG (miningweekly.com) – The South Deep gold mine achieved several milestones in 2016 as interventions implemented over the past two years started yielding results and dual-listed Gold Fields will now embark on a new R2.3-billion rebase plan at the mine to create a defensive asset in a spiralling industry.

Equipped with a new long-term build-up plan for the underperforming South Deep, the next five years will see the ramp-up to steady-state production of 500 000 oz/y at an all-in cost (AIC) of below $900/oz, with a 70-year lifespan.

Some R2.28-billion in total growth capital will be spent on the mine over the next six years, including R287-million in 2017 and the peak of R582-million in 2019, to bring the mine to steady state by 2021/22.

“Importantly, most of the operating expenditure is now in the cost base, with the majority of the key skills and fleet now in place. As the mine ramps up to steady state, we expect to see operational gearing given the fixed cost nature of the mine,” said Gold Fields CEO Nick Holland on Thursday.

The bulk of this capital, at R1-billion, is required for underground infrastructure and R724-million on follow-on development. Around R104-million is budgeted for electricity, R88-million for vertical development, R66-million for fleet and R58-million for drilling.

Speaking at a presentation of the company’s results for the 2016 financial year, in Sandton, Holland pointed out that most of these items were part of original project capital that was deferred in 2013.

“The mine entered a critical stage of its evolution at the beginning of 2015, when Gold Fields made the decision to take a step back and fix the base at the mine before determining the new long-term steady-state profile,” he noted.

Much work had been done over the past two years, including a thorough diagnostic during 2015, which resulted in 68 business improvement projects being identified to create a long-life, sustainable mechanised mine.

Twenty-nine of these projects have already been completed. A further 27 will be completed this year and the remaining 12 in 2018.

South Deep also tackled several challenges surrounding people and skills, fleet and maintenance, underground working conditions and the mining method.

In a turnaround on the mining method, which Holland believed would be the reason the new plan would succeed, several improvements were made on the overall design and mining layouts and an experienced management team with extensive exposure to mechanised and deep level mining was established.

South Deep also instituted a number of key strategies to upgrade the condition of mechanised equipment fleet and effectiveness of its maintenance practices, while working on initiatives to improve various elements of the underground infrastructure, including roadways, water management, backfill and ventilation.

This had delivered a 47% increase in gold production to 290 000 oz, improvements in lead indicators and achieving beyond the targeted cash breakeven, generating net cash flow of $12-million.

EYE ON INVESTMENTS FOR GROWTH
Gold Fields has earmarked 2017 as a “year of reinvestment” with the focus on new growth and development projects.

“With various new growth and development projects, we have entered the next cycle in our evolution. This focuses on reinvesting in the business and our future, to target both continuing and increasing free cash flow for the benefit of all stakeholders,” said Holland.

In addition to the South Deep rebase plan, the company will now focus on bedding down its recent acquisitions and reinvesting into the business as opposed to embarking on further merger and acquisition activity in 2017.

During the next year, growth expenditure at South Deep is planned to increase to R287-million, while focus will also narrow to three other major projects, namely the Damang mine, in Ghana, the joint venture (JV) Gruyere gold development project, in Western Australia, and the Salares Norte project, in Chile.

Over the next year, $120-million will be invested in the future growth of Damang, which requires an overall $340-million injection to extend the life-of-mine (LoM) by eight years from 2017 to 2024.

Over the LoM, 165-million tonnes of waste and ore will be mined, with 32-million tonnes processed at a grade of 1.65 g/t gold, resulting in total gold production of 1.56-million ounces and an average yearly output of 225 000 oz at an average AIC of $950/oz.

The project offers healthy returns, with an internal rate of return of 28% at a gold price of $1 200/oz and a payback period of four-and-a-half years.

Meanwhile, Gold Fields plans to spend A$153-million on the development of the 50:50 Gruyere JV and A$106-million on the balance of its A$350-million purchase price.

Gold Fields and Gold Road late last year entered into a 50:50 JV for the development and operation of Gruyere, with Gold Fields having taken over its management in February 2017.

The Gruyere project is expected to have average production of 270 000 oz/y over a 13-year LoM at an average all-in sustaining cost (AISC) of A$945/oz.

First production from Gruyere is expected at end-2018 or early-2019, with the total capital cost of the project reaching A$507-million.

In Chile, Salares Norte, which hosts mineral resources of 4.4-million gold equivalent ounces, is on track to complete a prefeasibility study in the second half of 2017, with expenditure plans of $64-million in 2017 and $39-million in 2018.

“In addition, we will continue to invest in brownfields exploration in Australia with positive results at St Ives and Granny Smith, and look for opportunities for life extension at Cerro Corona and Tarkwa,” Holland noted.

GROUP PERFORMANCE
Overall, the group exceeded it targets for the year ended December 31, 2016, with production and costs beating original guidance.

“During 2016, we achieved a number of our strategic objectives including improving safety; achieving guidance; generating strong net cash flow; deleveraging the balance sheet and growing the dividend in line with higher normalised earnings,” Holland said.

During the year under review, Gold Fields delivered attributable gold equivalent production of 2.14-million ounces within a revised guidance of 2.1-million ounces to 2.15-million ounces.

The group reported AISC of $980/oz during 2016, down from $1 007/oz in 2015, and AIC of $1 006/oz, a contraction on the $1 026/oz the year before.

This compares with the revised AISC guidance of between $1 000/oz and $1 010/oz and guided AIC of $1 035/oz to $1 045/oz.

Declaring a final dividend of 110c a share for the year under review, the company reported normalised earnings of $191-million, more than a threefold increase on the normalised losses of $45-million reported for the year ended December 2015.

Revenue increased 8% from $2.54-billion in 2015 to $2.75-billion in 2016, mostly owing to the higher gold price.

Gold Fields also reported a 5% contraction in net operating costs from $1.45-billion in 2015 to $1.38-billion in 2016.

Meanwhile, the miner maintains its output guidance for this year at between 2.1-million and 2.15-million ounces.

AIC for the group is planned to increase to between $1 170/oz to $1 190/oz in 2017.

Sustaining capital expenditure (capex) for the group is planned at $617-million and growth capex is planned at $252-million. 


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