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Best place to start driving value is within your own assets - Griffith - Mining Weekly

Monday, 30 August 2021

The best place to start driving value is within your own assets, says new Gold Fields CEO Chris Griffith.

Speaking to Mining Weekly in a Zoom interview, Griffith emphasised that existing assets are the best place to get value.

"You've already invested the capital, you've got all the people there, you know how to operate there and so … it's always going to be the most value accretive thing that you can do for your company.

"Gold Fields has had a good focus on business improvement and driving value out of the assets but we think we can take that to a whole new level, building on what has gone before us.

"Different assets are going to have different opportunities but it's going to be through both innovation, digital technology, people, a real understanding of the value drivers and where the most difference can be made, and then chasing that difference," he says, noting that digitisation is presenting what he describes as great opportunities when it comes to processing plants and big items of equipment.

"You can use advanced analytics to be able to predict the performance of your equipment and to make sure that you are maintaining in time but also how far and how hard you can drive your equipment.

"As we put in the digital backbones and we take the next advances in digital, we see that it opens up new opportunities and new possibilities for us," he says.

When it comes to long-hole drilling or the drilling in opencast mines, technology is helping to improve precision and to reduce costs.

"There are many great opportunities, using technology, some of which we've got in place, and some of which we can take to new levels, and some of which are in the process of being developed," he says.

The JSE- and New York-listed company under his leadership is intent on maintaining value as it grows production to 2.8-million ounces of gold a year.

"I think we can maintain that level of production," he adds.

PAYING DOWN DEBT

On paying down debt and becoming debt-free, Griffith expresses the view that reducing debt liability is always a good thing. The company's net debt as at June 30 was $1.097-billion, with the net debt to earnings ratio a low 0.49x.

"At the moment prices are high but if all of a sudden the gold price dropped to $1 300/oz, then the level of debt that we have on our balance sheet of let's say a billion dollars, is so much more difficult to pay back.

"What you're seeing is number one, we have reduced our debt in our balance sheet and will continue to do so.

Gold Fields' reduction of its net debt to earnings before interest, taxes, depreciation and amortisation level has improved the strength of its balance sheet.

In increasing its production and cash generation, it will be reducing its debt position any way, "and we think that's an important thing to continue doing".

On the company's $1 300/oz hurdle rate, Griffith says that, given the cyclical nature of the business, the only way for a precious metals mining company to be consistently profitable is to make sure that it is in the first half of the cost curve or that its costs are absolutely below what a long-term price could be.

The hurdle rates for anything the company owns or buys is $1 300/oz, which means that when it converts resources to reserves and brings those into its books, hurdle rates are not raised to say $1 400/oz or $1 500/oz just because the price is high now.

Bringing incrementally less valuable production into the company's portfolio ensures that it does not end up being loss making.

" We've got to make sure our projects are profitable even at $1 300/oz. That means that through the cycle we will be profitable," says Griffith.

In addition to the ascending South Deep gold mine in South Africa, Gold Fields has mines in Australia, Chile, Ghana and Peru, and is ramping up the Salares Norte gold project in northern Chile.

Half-year free cash flow from the operations was $399-million with all-in cost per ounce at $1 274/oz. With 33% higher normalised half-year earnings of $431-million, the company increased its interim dividend to 210c a share, compared with the 160c a share for the corresponding period of last year.

In the six months to June 30, the company delivered the average 10% higher gold price to the bottom line, despite the increase in net operating costs.


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