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South Deep mine drains Gold Fields - BusinessLIVE

Thursday, 15 February 2018

The blot on the Gold Fields landscape remains its sole remaining asset in SA, the South Deep mine, which has absorbed R29bn so far and has little to show for it, leaving the international assets to generate cash for the group in 2017.

Gold Fields is pouring millions of dollars into Australia, Ghana and Chile to replace and grow its gold ounces as it continues to struggle to bring the South Deep mine to account in the first year of a R2.3bn, six-year plan to bring the mine to steady-state production of 480,000oz in 2022.

Gold Fields on Wednesday revised the final target down from the 497,000oz released in March 2017 when CEO Nick Holland unveiled the plan.

The frustration Holland felt with South Deep and the inevitable flood of questions about the mine were clear at a full-year results presentation. Citi anabuting to difficulties, a point Holland conceded was unsatisfactory. Holland also rowed back from expectations that South Deep would break even soon after saying early in 2017 the mine was poised to do so.

The new break-even target was for 2022, given the drop in the rand gold price on rand strength and a slower-than-planned ramp up to full production, he said.

"As always we expect the market to focus on the negative news from South Deep, including the R3.5bn impairment," Nedbank analysts Leon Esterhuizen and Arnold Van Graan said in a note.

"However, we believe that the international performance more than makes up for this, and the growth projects should further enhance the international base. So we would look ‘through’ any weakness as a result of the South Deep issues."

They said the company "remains one of the few companies we cover that is currently building two new mines with internal funding; real growth – not the kind where you issue tons of shares to add ounces".

Dominic O’Kane of JP Morgan asked Holland why Gold Fields would hang on to South Deep and keep investing in the mine when it had a strong international portfolio of assets and the Salares Norte project in Chile, which would cost about $850m to build and, in the words of Holland, "move the needle" for it and potentially be one of its best mines.

Holland said Gold Fields was not trying to sell the mine and it was close to realising value from the asset, making it a poor time to sell South Deep after coming so far with it. Gold Fields declared a 50c per share final dividend, bringing its total return to shareholders for the year to R0.90 per share.

Investing in growth projects in Australia, Ghana and SA; a feasibility study in Chile; and a R3.5bn impairment against the South Deep mine left Gold Fields with an attributable net loss for the year to end-December of $35m compared with a profit of $163m the year before.

Attributable headline earnings, excluding once-off items to give a like-for-like comparison with the previous year, were $194m v ersus with $208m.


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