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GOLD Fields signalled it would further loosen the apron strings to its South African mine South Deep during the current financial year producing two million ounces for the first time from mines in Australia, Ghana and the Americas following investment of $500m.
Commenting in the firm’s first quarter report today – in which attributable equivalent gold production came in 11% higher at 542,000 ounces – Gold Fields CEO Nick Holland said the two million ounce “milestone” would be achieved courtesy of new production from Gruyere, a Western Australia project in which it first invested R3.5bn in 2016.
Production from its 50% stake in Asanko Gold Mines, a gold producing property in Ghana in which it invested about $202m last year, and gold from the expansion of its Damang mine, also in the West African country, would contribute to the milestone production.
South Deep, meanwhile, was showing signs of recovery from a month-long strike waged by the National Union of Mineworkers (NUM) which ended in mid-December.
The mine produced 34,000 ounces of gold in the first quarter which Holland said was “tracking the mine’s plan”. This was despite rolling blackouts imposed by Eskom, South Africa’s electricity utility. Gold Fields would invest in diesel power whilst for the longer term, it would consider investing in a 40MW solar plant.
“The rebooting of the mine post the strike last year, which ended on 18 December 2018, meant that most of January was devoted to making safe, re-orientating the reduced workforce and recalibrating the organisation to implement the revised mining plan following the previously announced restructuring,” said Holland.
“Momentum did however pick up in February and March and continued into April. South Deep continues to focus on a number of key enabling activities, with tangible progress being achieved at the end of the quarter and into Q2 [second quarter] 2019,” he said.
However, it’s clear that Gold Fields has positioned itself to do without South Deep’s production which has long had a net cash flow negative impact on the group. According to JP Morgan Cazenove analyst, Dominic O’Kane, in an April 11 note, South Deep and Salares Norte, Gold Fields’ $834m Chile project, were “mutually exclusive” in the firm’s portfolio if capital allocation targets more than 15% internal rate of return.
“This is likely to mean that a strategic solution at South Deep is a likely condition precedent of Salares’ approval for funding,” said O’Kane. “Such a strategic solution at South Deep would be positive catalyst in Gold Fields’ share price,” he said.
Gold Fields said on April 10 that subject of an environmental impact assessment (EIA), Salares Norte would take 18- to 24-months for the Chilean authorities to complete. The EIA was accepted by the government for review on July 11 last year.
Construction on Salares Norte was scheduled to begin in late 2020 with first gold production in 2023. The mine would have an initial life of mine of 11.5 years and life of mine production of 3.7 million gold equivalent ounces at a $465/oz all-in sustaining cost.
Commenting on the firm’s full-year results in February, Holland said 2019 would be “… an inflection point” for the group in which project capital halved and the business would turn cash flow positive in the second half [of the financial year]. This would be assisted by a potentially far-reaching restructuring of South Deep where staffing was reduced to 1,500 compared to the 4,000 on the payroll at the beginning of the 2017 financial year.
For all this, Holland said Gold Fields would continue to believe in South Deep as it hadn’t been subject to a major restructuring before, and it therefore needed time to prove its stripes at new staffing levels.