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JOHANNESBURG (miningweekly.com) – JSE-listed Gold Fields expects to reach its two-million-ounce milestone for the first time this year, as its Damang project, in Ghana, increases production, as the Gruyere project, in Australia, enters production and the Asanko joint venture, in Ghana, contributes for the full year.
CEO Nick Holland stated in an operational update released on Thursday that the company had been focused on reinvesting into the business, with this year expected to be the inflection point as project capital decreases and the new projects start to contribute to the group’s output.
“Having spent total project capital of more than $500-million over the past two years, primarily on Damang and Gruyere, Gold Fields is well placed to maintain a production profile of about two-million ounces a year over the medium to long term, which is based on the current gold price, attributable gold mineral reserves of 20-million ounces, as well as our track record of resource conversion and exploration.”
Gold Fields’ total gold-equivalent mineral reserve stood at 50.9-million ounces in December 2018, of which 41% is outside of South Africa.
During the quarter ended March 31, the company continued to invest in near-mine exploration at its Australian mines, while the board had approved a maiden mineral reserve and the technical components of the feasibility study of the high-grade, low-cost Salares Norte project, in Chile.
The company produced 542 000 oz of gold for the quarter, compared with 509 000 oz produced for the quarter ended December 31, 2018, and 490 000 oz produced for the quarter ended March 31, 2018.
Gold Fields’ production was from its wholly-owned operations in South Africa, Australia and the Americas, as well as from its 45% stake in Asanko, its 90% stake in Tarkwaand Damang, in Ghana, and its 99.5% stake in Cerro Corona, in Peru.
Meanwhile, production at South Deep, in South Africa, started to recover in the reporting quarter after a challenging fourth quarter of 2018, owing to the protracted strike by National Union of Mineworkers.
The mine produced 34 000 oz in the reporting period, which is on track with the mine plan for the year, despite the effects of load curtailment implemented by State-owned powerutility Eskom.
South Deep’s planned production for this year is weighted to the second half, as higher-grade corridors will be accessed during this time.
“The rebooting of the mine after the strike [that ended on December 18] meant that most of January had been devoted to making the mine safe, reorientating the reduced workforce and recalibrating the company to implement the revised mining plan.
“Momentum picked up in February and March and continued into April. South Deep continued to focus on a number of key enabling activities, with tangible progress being achieved at the end of the quarter and into the second quarter of 2019,” Holland said.
Gold Fields expects to achieve an increase of between 4% and 7% in attributable gold production to between 2.13-million ounces and 2.18-million ounces for the full year.
Gold Fields has arranged fixed income investor meetings in the US and London from April 29, in which the company will pursue a five-to-ten-year bond offering. The funds will be used to improve liquidity and the profile of the company's debt - both reducing net debt and extending the maturity of the debt profile.
Holland said the company should be able to give an indication on the bond amount within the next month.
Standard & Poor (S&P) Global has affirmed its 'BB+/B' global and its 'zaAAA/--/zaA-1+' South Africa national scale ratings, while also affirming its 'BB+' issue ratings on Gold Fields' senior unsecured debt.
The agency said expected that the company will maintain leverage commensurate with the current rating under S&P's base case, despite "weaker than expected" performance in 2018.
However, S&P stated that the financial profile of the company weakened slightly, reflecting uncertainty related to the long0term cash generation prospects of the South Deep mine, as well as additional reinvestment capital expenditure that had been incurred at other operations.
The agency forecast a funds from operations (FFO) to debt ratio for the company of between 30% and 35% (previously between 35% and 40%) and a debt to earnings before interest, taxes, depreciation and amortisation ratio of between 2x and 2.5x for 2019 and 2020.
Following persistent underperformance against production targets at South Deep, the company restructured the operation during the second half of 2018, with the aim of consolidating mining activity to increase productivity focus and to align the cost structure to production levels. The restructuring was set to result in around $60-million in annual operating cost savings and $30-million in one-off capex savings, which should reduce ongoing cash losses.
"We expect the operation to remain free cash flow negative in 2019 with limited certainty on production and free cash flow thereafter," said S&P.
The agency further stated that Gold Fields' other operations in Australia, Ghana, and Peru continued to deliver in line with guidance. Excluding equity accounted joint ventures, Gold Fields' reported all-in sustaining costs (AISC) of $979/oz and all-in costs (AIC) of $1 172/oz in 2018, which was skewed by South Deep that recorded AISC of about $1,900/oz and AIC of about $2,000/oz.
"Our assessment of Gold Fields' business risk reflects a unit cost profile that ranks towards the third quartile for goldminers on average, moderate geographic and asset diversity measured by production, and concentration of the reserve base and life of mine in South Africa. It also reflects volatile earnings and cash flows, owing to cyclical metal prices, operational setbacks experienced, and high capital intensity.
"We see limited ratings upside in the near term, given uncertainties inherent in the gold price and currency forecasts, combined with country-related risk factors. However, we could consider raising the ratings by one notch if the group improved leverage to comfortably below 1.5x and FFO to debt above 60%, combined with a sufficiently comfortable medium-term liquidity profile," S&P said.