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Gold Fields to lose just 3% of gold output to Covid-19 - BusinessLIVE

Thursday, 23 April 2020

Total lost production from South Deep is expected to be R1bn, but mines in Australia and Ghana are still working at full steam

Gold Fields stands to lose 2-tonnes of gold in 2020 to disruptions to its mines in SA and Peru, but CEO Nick Holland says this represents about 3% of annual output and the rest of its mines are pumping metal and cash.

Gold Fields anticipates repaying a "sizeable" amount of its debt as its mines in Australia — the single largest source of gold for the group — and Ghana continue to operate as normal as the Covid-19 pandemic sweeps across the globe.

There were no intentions to withhold dividends or reduce its capital expenditure plans, said CFO Paul Schmidt.

Biggest disruptions

Gold Fields kept production flat in the March quarter. It had 537,000oz of gold, similar to the same period a year earlier. Its all-in cost was $1,060/oz.

The biggest disruptions from March were at its South Deep mine, the last operating asset it has in SA, where it was shut for 21 days and is slowly ramping up production, and the Cerro Corona mine in Peru, which was shut as part of the government's measures to curb the spread of the virus.

At South Deep, Gold Fields is recalling half its 2,500 employees and 1,500 contractors in line with government regulations of easing the lockdown restrictions on underground mines.

The total lost production is estimated to be 32,000oz, or 1,000kg, which at the prevailing gold price is worth R1bn.

Gold Fields has sold forward three-quarters of its South Deep gold at an agreed price. It has 200,000oz of gold in these structures called hedges at contracted prices ranging between R660,000/kg and R727,000/kg.

It has a further 480,000oz of Australian gold and 375,000oz of Ghanaian gold in these forward sales, representing about half the production in each country.

Gold Fields was completing all these hedges this year and was not putting any further contracts in place, said Holland.

South Deep should see a 5% increase in costs, paying half the workforce to remain at home, and money to bring the mine into production.

"A three- to five-week shutdown is not really material for us. If we were to have shut down for six months, that would be different," Holland said. Gold from South Deep is expected in the week starting April 27.

South Deep employs 300 people from neighbouring countries who cannot return to the mine yet because SA's borders are closed.

Cerro Corona, a gold and copper mine, will lose about 30,000oz, which is roughly the same as South Deep.

Holland said in an interview that when calculated as part of the total year's gold production, these two mines accounted for the 3% reduction in the full-year forecast output.

"You have to look at this in context. A 3% decline on overall guidance is quite small in the scheme of things and well within tolerance when you consider the risk inherent in mining," he said.

Gold Fields will now produce between 2.2-million and 2.25-million ounces of gold compared with 2.275-million and 2.315-million ounces of gold. The all-in sustaining cost was kept flat at up to $940/oz.

The all-in cost, which includes capital expenditure on projects, is forecast to range between $1,035/oz and $1,055/oz.

Gold is selling at $1,724/oz.

The high profit margin will allow Gold Fields to repay debt, do further exploration around its mines, increase dividends and pay for the new Salares Norte gold project in Peru, said Holland.

"If we continue going the way we are then debt will be quite low by the end of the year. The rate we're going we're going to be sizeably below our net debt number for the March quarter," he said.

Net debt during the March quarter fell to $1.26bn from $1.66bn.

Gold Fields has raised $250m equity towards Salares Norte and will most likely fund the rest from internal cash flows, he said, adding debt was the third option if cash became problematic.

The project will start production in 2023 and generate 450,000oz of gold a year.

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