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Will Gold Fields' change of tack at South Deep finally deliver the ounces? - Moneyweb

Saturday, 20 February 2016

A large feature of Gold Fields CEO Nick Holland’s presentation for the full year results on last Thursday pertained to developments at South Deep, the mine that has often been like a millstone around the neck of the company due to its failure to realise mined gold ounces in line with its huge outlay – R28bn to date.

So while the developments were treated with a healthy degree of scepticism by the investment community, they were interesting enough to warrant attention.

The company took the decision in July to change the mining technique deployed at South Deep, from low profile destress, to high profile destress. High profile refers to a 5 metre cut, whereas a low profile the cut is just 2,5m. “The problem with the 2,5m cut is that you can’t get equipment in there to create the hanging walls and side walls, so you have to do that manually. Then we had closures because there was a backlog in establishing the support and doing the backfill,” says Holland.

The high profile cut means the development at South Deep is similar to the 5x5m development ends you would encounter at a mine like Kloof. “But in order to destress the mine, you need to backfill the void, and you need to make sure the support is executed according to plan,” says Holland.

With a 5m cut, everything can be mechanised using one fleet of equipment, so the increased speed realised from not having to do the backfill and support manually has meant the time to access stoping has fallen from 30 months to 19. “We have been doing this for seven months. We were told to keep the destressed cuts to 2.5m, so we had to bring in experts to review this. We now have a smaller mining span and a stiffer structure,” says Holland.

South Deep production

Results thus far are encouraging. South Deep produced 64% more gold in the 2ndhalf (once high profile mining had commenced) of the year than it did in the first. The operational metrics below indicate how operational metrics have risen.

South Deep operational metrics

The company has guided to producing 257 thousand ounces (Koz) from South Deep in 2016 with an all-in cost (which includes capex) of R575,000/kg. This is based on a rand/dollar exchange rate of R14,14. The current price of gold using R15,40/$ and $1,200/oz is R594,000/kg which would make South Deep cash flow positive in 2016, all things being equal. “I have no doubt we are on track to mine South Deep profitably,” says chief operating officer, Nico Muller.

One of the other challenges the mine has faced is the availability and utilization of its fleet. “We are not particularly good at maintaining the fleet. We want to aim for 85% availability and we are currently tracking 60-70%,” says Muller.

The company will spend R1bn in capex on South Deep in 2016. Most of the imported equipment deployed at South Deep is imported from Sweden and Denmark. “We are going to be reducing the fleet from 95 to 87 units. We will be adding 24 pieces of new gear during the year, so two-thirds of the fleet will be 18-36 months old by the end of the year,” says Holland. 

The company has also completed construction of the workshop at 91 Level which is 2,900m below surface. Employee morale has also improved. “We are seeking continuous improvement at South Deep,” says Holland.

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