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GOLD Fields thinks the improvement in the fortunes of its South African mine, South Deep, might lead to a doubling in annual gold production to 400,000 ounces.
"We are going to keep our feet on the ground, but South Deep has made tremendous strides," said Gold Fields CEO, Nick Holland in a conference call on Thursday.
"We can do better than 200,000 ounces a year. The process plant is doing 100,000 tons a month but we have got the ability to double that," he said.
South Deep announced plans to shed nearly 1,100 jobs in August 2018 after leaking about R756m in cash. The restructuring was met with union opposition which led to further cash losses, but at a lower operating rate and assisted by the strong rand gold price, the mine generated about (R86m) $5m in cash in the six months ended June 30.
It mined 98,800 oz of gold in the first six months of the year, some 14% higher than at corresponding period last year.
"The restructuring 18 months ago was the perfect catalyst in turning the tables on a non-performing asset," said Holland. "Since we got it back (from Covid-19 lockdown), it has been doing well and it looks like it could be sustainable."
Expanding production would improve the mine's "economies of scale", he said. "We have got hedges running off towards the end of the year and then we expect it to be a major contributor in 2021," said Holland.
In June 2019, Gold Fields hedged 200,000 oz of South Deep's 2020 production – virtually all of it – at an average strike price of R660,000 per kilogram on the floor and R727,000/kg on the cap. The spot price of gold is just north of R1m/kg. As of June 30, the marked to market value on the hedge was a negative R1bn with a realised loss of R544m.