INVESTORS AND MEDIA 
In the news
It's been a mixed start to the year for the precious metals sector, with margins down on balance in Q1 2023 vs. Q1 2022 and slightly higher capex year-over-year, affecting free cash flow generation for most producers. Meanwhile, successfully replacing reserves was difficult, with most producers having to ratchet up cut-off grades at their mines because of the impact from inflationary pressures. In fact, less than 30% of the larger gold producers successfully replaced reserves in 2022 despite the majority increasing their gold price assumptions. Unfortunately, one name in the group that struggled to replace reserves was Gold Fields(NYSE:GFI), a 2.0+ million ounce producer with an operating portfolio spanning from South America to Australia and Africa. Let's take a closer look at the company's 2022 Reserve Report below:
All figures are in United States Dollars and all mineral reserves and mineral resources are on an attributable basis unless otherwise noted.
Mineral Reserves
Gold Fields reported year-end mineral reserves of 46.1 million ounces of gold, a slight decline from the 47.4 million ounces reported in the year-ago period. Meanwhile, the company's exclusive measured & indicated resources declined materially to 31.1 million ounces, down from 32.2 million ounces at year-end 2021. Gold Fields noted that the dip in mineral reserves (46.1 million ounces vs. 47.4 million ounces) was related to ~2.6 million ounces of mined depletion during the year, which was only partially offset by reserve growth at its assets. And while its Australian operating portfolio reported successful reserve replacement from St. Ives and Agnes, we saw slight reserve declines at South Deep, Tarkwa and Gruyere (50% owned) and large declines at Cerro Corona and Damang. And in Damang's case, the mine life is now sitting at less than three years, but this is a relatively small contributor at ~9% of annual production in 2022, so an inability to extend the mine life here wouldn't be a huge hit to overall production.
Despite Gold Fields' declining trend in mineral reserves, the company continues to have one of the largest mineral reserve bases sector-wide with reserves at some of the highest-grades with a reserve grade of ~2.8 grams per tonne of gold. That said, this reserve base is among the most concentrated sector-wide, which is not ideal, with just ~17% of reserves in Tier-1 ranked jurisdictions and ~62% of reserves at a single mine in a Tier-3 ranked jurisdiction with its South Deep Mine in South Africa. So, while Gold Fields might otherwise command a premium multiple vs. peers for its large reserve base that is above that of Agnico Eagle (AEM) and its industry-leading reserve grades, I believe its discount can be attributed to the fact that without South Deep and its long reserve life at well above average grades for major producers (this is a ~17.5 million ounce reserve base at slightly below average grades without this one asset which makes up the bulk of reserves.
Mineral Reserves By Mine
Digging into mineral reserves by mine, we can see that several assets saw declines in mineral reserves, with the most significant declines at Cerro Corona, Damang, Gruyere, Tarkwa, and South Deep. At the shared Gruyere Mine, we saw a 9% decline in reserves (~0.20 million ounces) due to cost increases and depletion, while its 100% owned Granny Smith Mine saw a 4% decline in reserves (~0.10 million ounces) with only partial replacement of mined depletion. Elsewhere, South Deep saw a 2% decline (~0.40 million ounces) in reserves due to cost increases and depletion, with Damang having the same issue, with reserves down 47% (~0.30 million ounces) because of higher costs and depletion. Finally, Tarkwa and Cerro Corona, which make up significant tonnage relative to the company-wide reserve base saw 7% and 21% declines in reserves year-over-year, also due to cost increases and depletion.
Fortunately, we saw a partial offset from reserve growth at Agnes and St. Ives, which saw 8% and 12% reserve growth, respectively. At Agnes, reserves grew due to extensional drilling and improved classification, and this is the largest mineral reserve base that Agnew has held in over a decade at ~1.1 million ounces (~5.3 million tonnes at 6.46 grams per tonne of gold). Meanwhile, at St. Ives, resource conversion at the Invincible Underground Complex and Hamlet North Underground contributed to reserve growth, with reserves increasing to ~2.71 million ounces at 3.43 grams per tonne of gold at this higher-margin asset (FY2022 all-in costs of $1,104/oz). Based on the current reserve base, this places Agnew and St. Ives mine lives at 5 years and 8 years, respectively, but I am confident that Gold Fields will extend the mine lives at both assets past 2032.
Digging into the assets where we saw reserve declines, the 2% decline in reserves at South Deeps was hardly material as this asset continues to boast a 60+ year mine life even assuming a higher throughput rate of ~2.0 million tonnes per annum and adjusting for a further increase in cut-off grades (cut-off grades rose from 3.4 to 6.0 grams per tonne of gold in 2022 vs. 3.0 - 6.0 grams per tonne of gold in the previous year). Elsewhere, at the company's massive Tarkwa Mine, reserves may have fallen by ~10 million tonnes at slightly lower grades, but this asset still boasts a ~13 year mine life based on ~164 million tonnes and assuming a throughput rate of ~14.0 million tonnes per annum. Plus, the company is confident that it can extend the mine life further and optimize the asset if successfully moved into a joint-venture with AngloGold's AU) Iduapriem Mine. Elsewhere, Damang's reserve base is at less than three years, but opportunities are being assessed for a further pushback at the east wall of the Damang Main Pit and Juno Pit to the south.
Finally, there was some negative news when looking at cut-off grades, though this wasn't company-specific. As highlighted in the 2022 report, cut-off grades rose at multiple assets because of higher costs, with examples including:
Fortunately, while Cerro Corona has seen a material increase in cut-off grades, the copper price continues to hold up well above $3.50/lb, which is benefiting this gold-copper mine. Plus, the mine life should extend to at least 2030, assuming the receipt of the approved ninth EIA permit, which will be required by March 2026. This is a solid contributor to the company's overall production profile with ~260,000 ounces produced at sub $1,000/oz all-in costs last year. Finally, if we look at Salares Norte, this asset will come online by year-end even if behind schedule and should lead to a material improvement in Gold Fields' production and cost profile. Hence, even if Damang were to head offline by 2025, this will be offset by high-margin ounces from Salares Norte in Chile. For those unfamiliar, Salares Norte's all-in sustaining costs should come in come in below $800/oz on a gold-equivalent basis, making this one of the lowest-cost mines globally post-2023.
Overall, the decline in reserves was not ideal, but it is important to note that while a few producers reported reserve growth in 2022, the growth benefited from well above-average gold price assumptions which helped to offset higher costs at assets by reducing what would have otherwise been meaningful increases in cut-off grades. For Gold Fields, the company maintained a relatively conservative gold price assumption of $1,400/oz, which is in line with the industry average, and we've seen minimal decline in reserves per share as Gold Fields has kept its share count similar to previous years with no major all-share acquisitions like some peers. So, while the headline result of unsuccessful reserve placement might disappoint some investors, I would argue that this was much better than the successful reserve replacement by Coeur Mining CDE) primarily because of higher gold price assumptions, which can mean that it's chasing more marginal ounces at some of its assets.
Recent Developments
Outside of Gold Fields' ~46 million ounce mineral reserve base, its reserves are backed up by ~42 million ounces of exclusive resources (M&I + inferred), as shown in the below chart. And while the bulk of these are found at South Deep, similar to reserves, we saw some resource growth in 2022 with new discoveries at St. Ives and ounces added at Cerro Corona due to the acquisition of adjacent land holdings that allow for an increased resource pit footprint. Plus, not included in these resources for 2022 was the acquisition of a 50% interest in the high-grade Windfall Project in Quebec, Canada, which will add ~1.6 million ounces of reserves, and ~2.0 million ounces of exclusive resources. This will slightly increase Gold Fields' reserve exposure to Tier-1 jurisdictions, assuming this reserve base continues to grow, with this partially offset by the reinstatement of reserves at the Asanko Gold Mine.
The other recent development worth noting is that not included in Gold Fields' reserves and resources was ounces at the shared Asanko Gold Mine in Ghana, with reinstated reserves announced in February of this year. While this reserve base isn't a huge contributor at ~1.03 million attributable ounces, it should help Gold Fields to increase its reserve base at year-end 2023 with the addition of ~2.50 million ounces from assets not included in reserves this year. Plus, as highlighted earlier, Gold Fields continues to use a relatively conservative price to calculate its reserves, and there is room to increase its gold price assumption to $1,500/oz to $1,550/oz between now and 2026 which would translate to further reserve growth. This is not the case for some smaller producers using high prices that will have to rely on exploration or acquisitions to grow reserves.
Summary
Gold Fields reserves may have declined on a year-over-year, but it continues to maintain a solid reserve base and it's encouraging to see the company being creative to add to reserve/resource ounces with no share dilution in more attractive jurisdictions such as the recent deal at Windfall. That said, and as discussed in a previous update, I don't see a meaningful margin of safety for Gold Fields at current levels with the stock trading at an enterprise value of ~$14.6 billion and trading at ~4.9x FY2024 EV/EBITDA estimates, with the ideal time to buy the stock being below 3.6x forward EV/EBITDA, like when I highlighted the stock as attractive in June 2021 at $9.00 per share. In summary, while I would expect reserve growth in 2023 for Gold Fields and see it as one of the better gold producers, I would need a pullback below US$11.50 to become more interested given that the stock would offer a margin of safety at these levels.
