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South Deep deaths scupper output target - BusinessLIVE

Tuesday, 24 October 2017

The bad start to the year at Gold Fields’ South Deep mine in SA when two people were killed will probably have a knock-on effect on 2018’s output from the new mine, CE Nick Holland said on Monday.

The South Deep project is arguably the most closely watched within Gold Fields after years of missed production targets and hefty capital expenditure totalling R29bn, including the purchase price and the need for another R2bn to bring it into full production of 650,000oz annually in the next five years.

South Deep would miss its full-year target of 315,000oz by between 5% and 10% because of a fatal accident in the first quarter of 2017, Holland said.

This effect would probably roll into 2018, but the overall 500,000oz target for 2022 remained intact, he said.

South Deep improved output by 10% from the June quarter, generating 81,000oz during the September period at an all-in cost of R530,842/kg, which was 10% lower when compared with the previous quarter.

"The current mine area is constrained — it has a smaller footprint with ounces and has remnant mining.

"When we open the new mining area early next year, we will have access to 10 times the ounces and then you’ll see the benefits of real bulk extraction," said Holland.

SA contributes just 14% of the group’s 2.1-million ounces of annual gold production, rising to 20% at full production, and Gold Fields had no intention of adding further South African exposure to its portfolio of mines in Australia, Ghana and Peru, he said.

"We don’t want to go back to conventional hand-held mining. It has a very limited shelf life of about 10 more years," he said.

This dated mining method needed to be changed to improve the health and safety of employees in SA’s deep-level mines, Holland said.

Gold Fields is returning to the model used a decade ago by large mining companies of investing in junior exploration companies to do the hard work of finding and confirming mineral deposits.

It has recently increased its 17% stake in Canada’s Cardinal Resources, which has an exploration project in Ghana.

"These companies are only focused on exploration.

"They’re not like us with managing our operations and building mines. They really do it well and they can’t waste money and time. The model has historically worked well," Holland said.

"Other gold majors are also starting to take toeholds in junior explorers as a way to provide growth for the future," he said.

In Australia, however, Gold Fields is spending about A$90m a year in a five-year programme to explore for additional ore bodies around its existing mines. It has so far been able to replace 1-million ounces a year of mined reserves and add to resources.

The cost of additional mining reserves was about A$100/oz compared to buying reserve ounces for about A$300 based on merger and acquisition activity in Australia, Holland said.

Cash flow-positive Gold Fields maintained its full-year production guidance despite the 10% drop in output from South Deep.

The miner generated positive cash flow of $85m for the September quarter after outflows of $67m in the June quarter. Gold production came in 6% higher at 567,000oz for the quarter compared with the matching period a year earlier.

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