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Gold Fields ups production guidance on South Deep, Australia - Moneyweb

Friday, 19 August 2016

Chief executive Nick Holland told press at the media roundtable following the interim results presentation on Thursday that they (management) were surprised at how many questions they received regarding the company’s South Deep project. “We do actually have a 1.8 million ounce business outside of South Deep,” he said to some laughter.

But it is South Deep he is now quite happy talking about. The project had become a bit of a monkey on the back of the company as it struggled to meet production targets and control costs, something that was especially problematic as the project accounts for 75% of Gold Fields entire reserve base.

But things have now begun to change. While definitely not celebrating the turnaround of the operations just yet, there is a quiet optimism it is on a sustainable path to delivering ounces on a commercial basis.

South Deep produced 140 000 ounces over the period, an increase of 87% in gold production at an all-in cost (AIC) of $1 257 per ounce. This meant that with a little bit of help from the dollar gold price, the project was able to turn its maiden cash flow positive quarter (R63 million) for the three months ending June. Holland announced they had now ceased all low profile development and would be exclusively focusing on high profile development. “But we have some way to go to optimise this.”

Switching from low profile to high profile destress mining has been one of the tactical decisions that appears to have made a difference at the flagging operation. But it has meant extensive retraining of skills and replacement of fleet. Gold Fields is installing new crushers and conveyors, and will be building a new workshop at 100 Level.  “We think it’s going to take between two to four years to get our operators and artisans to the point where they are optimal,” said Holland.

Holland also stated that maintenance of equipment and the shaft had not been up to scratch, and hence the reason why the project will remain capital hungry, with between R1.1 billion and R1.3 billion earmarked for capex in the current year and into the foreseeable future. “The majority of the mine has been capitalised, but there is quite a bit of rehabilitation that needs to happen.”

Unlike the rest of the industry, there have been no fatalities at South Deep over the interim period, and broad safety performance continues to improve. There were four Section 54 stoppages for the six months’ ending June, but these were more like Section 55 stoppages as they did not result in the whole operation being shut down.

The net result of the improvements – in which Gold Fields will provide more detailed guidance in February – is to increase the production guidance. The company expects South Deep will produce 289 000 ounces of gold this year (so has another 149 000 ounces to go) at an AIC of $1 310 an ounce (R595 000 per kilogram).  This, in turn, has seen Gold Fields increase production guidance for the year to 2.10 to 2.15 million ounces at an AIC of $1035 to $1045 an ounce.

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