Operational performance

South Deep got off to a tough start in 2018, with production in Q1 2018 impacted by a slow build up after the seasonal holidays, two labour restructuring processes that took place at the end of 2017 and during Q1 2018, and a change in the underground working shift arrangements implemented to increase productivity. In addition, low mobile equipment reliability, the intersection of active geological features (faults and dykes) in the high-grade corridor 3 and poor ground conditions in the composites slowed production rates. The mine only produced 1,485kg (48koz) in Q1 2018.

Production was further impacted by a Department of Mineral Resources enforced safety stoppage during April. As a result of these factors, guidance for the mine was downgraded to 7,600kg (244koz) with the release of our Q1 2018 production update on 25 April, from the original guidance of 10,000kg (321koz).

Despite the two restructuring processes, South Deep continued to face a number of organisational and structural challenges that directly impacted performance during Q2 2018, with production during the quarter only marginally higher than Q1 2018 at 1,518kg (49koz). As a result, on 14 August 2018, Gold Fields announced a material restructuring of the mine, which entailed reducing the workforce by 30%. This announcement impacted the productivity of the mine (Q3 production: 1,539kg (50koz)), and ultimately resulted in the majority union (the National Union of Mineworkers (NUM)) embarking on industrial action on 2 November 2018. The strike lasted 45 days and ended on 13 December. Five days later the NUM signed a settlement agreement.

For details of the South Deep restructuring, see Managing our portfolio.

As a result of the above factors, production for the full year decreased by 44% to 4,885kg (157koz) in 2018 from 8,748kg (281koz) in 2017. Cost of sales before amortisation and depreciation reduced by 12% to R3.586m (US$272m) in 2018 from R4.062m (US$305m) in 2017, mainly due to lower production exacerbated by the industrial action in 2018's last quarter.

Capital expenditure decreased by 30% to R770m (US$58m) in 2018 from R1,099m (US$82m) in 2017. Sustaining capital expenditure decreased by 40% to R528m (US$40m) in 2018 from R874m (US$66m) in 2017, underpinned by lower spend on fleet and surface infrastructure. Non-sustaining capital expenditure increased by 8% to R242m (US$18m) in 2018 (2017: R225m (US$17m)) due to higher expenditure on new mine development infrastructure and an increase in development metres.

AISC increased by 41% to R807,688/kg (US$1,903/oz) from R574,406/kg (US$1,340/oz) in 2017, while AIC increased by 42% to R854,049/kg (US$2,012/oz) compared with R600,109/kg (US$1,400/oz) in 2017. The increase in AISC and AIC was driven mainly by the lower amount of gold sold.

South Deep recorded a net cash-outflow of US$141m in 2018.

Twin shafts, South Deep

Cerro Corona in Peru had another solid year in 2018, with total managed gold-equivalent production of 314koz (2017: 307koz). This was 12% higher than the 280koz gold-equivalent production guidance for the year, underpinned by the higher copper price ratio and increased copper production due to a increased copper head grade.

Cost of sales before amortisation and depreciation increased marginally to US$155m in 2018 from US$154m in 2017. The higher cost was due to higher mining expenditure resulting from increased tonnes mined in 2018, partially offset by a US$6m credit to costs of concentrate inventory in 2018 (2017: charge to costs of US$3m). Capital expenditure decreased by 3% to US$33m in 2018 from US$34m in 2017, due to lower expenditure on the tailings dam and waste storage facilities.

AISC and AIC were US$282/oz in 2018 compared with US$203/oz in 2017 and, on a gold equivalent basis, US$699/oz in 2018 (2017: US$673/oz). The increase in AISC and AIC was primarily due to lower by-product credits, lower gold sold and higher cost of sales before amortisation and depreciation. Both AISC and AIC comfortably beat guidance for the year of US$585/oz and, on a gold equivalent basis, US$810/oz.

The region reported net cash-inflow of US$114m during 2018 (2017: US$117m).

Gold Fields' Australian operations delivered another strong operational performance in 2018. Gold production of 886koz at an AIC of A$1,262/oz (US$943/oz) was better than full year guidance of 865koz at an AIC of A$1,263/oz (US$1,010/oz), with Granny Smith, St Ives and Agnew all outperforming both production and cost guidance. Production was 5% lower than in 2017 (935koz), which included production from Darlot during three quarters in 2018. Stripping out Darlot's production from 2017 (895koz excluding Darlot), production would have decreased by only 1% in 2018.

Cost of sales before amortisation and depreciation increased by 13% to A$690m (US$516m) in 2018, from A$613m (US$469m) in 2017. Capital expenditure decreased to A$373m (US$279m) from A$423m (US$324m), including near-mine exploration expenditure which was slightly lower at A$85m (US$63m) in 2018 compared to A$95m (US$72m) in 2017.

The Australia region reported a net cash-inflow of US$194m in 2018 (2017: US$188m).

Mine performances

St Ives continued its transition from being predominantly open pit to a predominantly underground operation during 2018. By end-December, 79koz had been mined from the Invincible underground mine. The Invincible open pit will be phased out during 2019, at which point Invincible Underground, Hamlet Underground and the Neptune open pit will be the main sources of ore.

Production increased marginally to 367koz in 2018 from 364koz in 2017, and came in slightly ahead of guidance of 360koz. Cost of sales before amortisation and depreciation increased by 20% to A$249m (US$186m) in 2018 from A$207m (US$159m) in 2017. The increase in costs was primarily due to increased underground mining cost of A$18m (US$14m) and a lower gold inventory credit to costs of A$20m (US$15m) in 2018, compared with A$38m (US$29m) in 2017.

Capital expenditure decreased by 17% to A$170m (US$127m) in 2018 from A$204m (US$156m) in 2017, due to lower expenditure at the open pits following completion of activities at Invincible open pit stage 5, partially offset by increased capital development at the new Invincible underground mine.

AISC and AIC increased by 1% to A$1,207/oz (US$902/oz) in 2018 from A$1,198/oz (US$916/oz) in 2017, and were 3% below full year guidance of A$1,250/oz (US$1,000/oz).

At Agnew, gold production decreased by 1% to 239koz in 2018 from 241koz in 2017, but was 4% higher than guidance of 230koz. Cost of sales before amortisation and depreciation increased by 10% to A$216m (US$162m) in 2018 from A$197m (US$150m) in 2017. The cost increase was driven by higher mining costs at Waroonga as a result of increased ground support and paste fill, as well as an increase in gold-in-process charge to costs of A$2m (US$2m) in 2018, compared with a credit to costs of A$6m (US$5m) in 2017.

In an important development for Agnew, Gold Fields made the decision to invest in a new camp (we previously rented rooms from BHP Billiton in Leinster) and a hybrid power station on site. The first buildings for the camp arrived on 15 December 2018 and construction commenced in January 2019. Commissioning of 450 rooms and the central facilities is targeted for May 2019. The new power station will entail a combination of gas, solar and wind power generation.

AISC and AIC increased by 8% to A$1,374/oz (A$1,026/oz) in 2018 from A$1,276/oz (US$977/oz) in 2017, and were 5% above full year guidance of A$1,310/oz (US$1,050/oz).

Commissioning of the gas and solar components is scheduled for June 2019, with wind generation to follow in Q1 2020. Capital expenditure rose by 2% to A$98m (US$73m) in 2018, up from A$96m (US$74m) in 2017. In addition to the camp and power station, Agnew put out a tender for an aviation contract, which was awarded on 30 January 2019.

At Granny Smith, production decreased by 3% to 280koz in 2018 from 290koz in 2017, but was 2% ahead of guidance for the year of 275koz. Cost of sales before amortisation and depreciation increased by 7% to A$225m (US$168m) in 2018 from A$210m (US$160m) in 2017, mainly due to increased mining costs on the back of increased ore tonnes mined from the deeper zones, and an 18% increase in ore development in 2018.

Capital expenditure was 8% lower in 2018 at A$105m (US$79m) (2017: A$114m (US$87m)), due to completion of the VR8 ventilation shaft in 2017.

AISC and AIC increased by 6% to A$1,239/oz (US$925/oz) in 2018 from A$1,171/oz (US$896/oz) in 2017, mainly due to higher cost of sales before amortisation and depreciation and lower gold sold, partially offset by lower capital expenditure.

The mine generated net cash-flow of A$131m (US$98m) in 2018.

A review of the three mines’ brownfields exploration activities in 2018 is detailed in the Life extension through near-mine exploration.

¹ 45% stake, equity-accounted
² Excludes Asanko contribution
³ Gold Fields’ 45% share of the mid-point of Asanko 2019 guidance

The Ghanaian region is the second biggest producer in the Gold Fields portfolio, contributing 34% to Group attributable production in 2018. Gold Fields has a shareholding of 90% in both Tarkwa and Damang, with the Ghanaian government holding the remaining 10%. During 2018, Gold fields acquired 45% of AGM in August, with our joint venture (JV) partner Asanko Gold holding 45%, and the Ghanaian government the remaining 10%.

The Damang reinvestment project, which commenced at the end of 2016, continued to track well against plan during 2018. Total tonnes mined were 45.9Mt against the project schedule of 41.5Mt, while gold produced was 181koz, compared with guidance of 160koz. There will be a material increase in Damang's production in 2019, with guidance of 218koz. Encouragingly, AISC of US$813/oz and AIC of US$1,506/oz both came in below guidance of US$860/oz and US$1,520/oz, respectively. For an update on the Damang reinvestment plan, see Managing our portfolio.

Despite total managed gold production for the region falling 1% to 706koz (excluding Asanko) in 2018, it came in 4% ahead of guidance of 680koz, driven by the better-than-expected performance at Damang. Total managed production (including AGM's contribution from 1 August 2018) increased to 751koz from 710koz in 2017.

Cost of sales before amortisation and depreciation for the region increased by 1% to US$433m in 2018 from US$428m in 2017. Capital expenditure decreased to US$295m in 2018 from US$313m in 2017, mainly due to lower expenditure on the mining fleet at Tarkwa. AIC for the region was US$1,098/oz, in line with guidance of US$1,100/oz and 2% lower than the US$1,119/oz reported in 2017.

Despite the significant amount of project capital incurred at Damang, the region as a whole reported a net cash-inflow of US$25m during 2018.

Mine performances

During 2018, Tarkwa transitioned from owner mining to contractor mining in an attempt to address cost inflation in the region. The mining contract was demarcated into two zones and awarded to two local contractors: BCM for Zone 1 (Pepe, Mantraim, Atuabo and Teberebe pits) and E&P for Zone 2 (Akontansi and Kottraverchy pits). BCM started operations in Zone 1 in March, with E&P following in April. As part of the tender process, the contractors undertook to purchase the fleet, which largely covered the retrenchment costs incurred through the process.

Tarkwa's production decreased 7% to 525koz in 2018 (2017: 566koz). However, production beat guidance of 520koz, a notable achievement given the transition to contractor mining. The mine's Carbon-in-Leach plant throughput increased slightly to 13.8Mt (2017: 13.5Mt), while its yield decreased to 1.18g/t (2017:1.30g/t) due to the lower head grade mined and processed.

Cost of sales before amortisation and depreciation increased by 1% to US$309m in 2018 from US$306m in 2017 due to a gold-in-process charge to cost, partially offset by lower mining costs. Capital expenditure decreased 14% to US$156m in 2018 from US$181m in 2017. AISC and AIC increased by 1% to US$951/oz in 2018 from US$940/oz in 2017, and were comfortably below guidance of US$970/oz.

Tarkwa generated a net cash-inflow of US$92m during 2018.

Damang produced 181koz in 2018, which is 26% higher than the 144koz produced in 2017 and 13% higher than guidance of 160koz. While the reinvestment plan entailed an increase in both operating costs and capital expenditure, both AISC (US$813/oz) and AIC (US$1,506/oz) came in below guidance. This is a result of the strict cost controls and better than expected efficiencies from the contractors used.

Cost of sales before amortisation and depreciation increased by 2% to US$124m in 2018 from us$122m in 2017. This increase was mainly due to higher operating tonnes mined, partially offset by a gold-in-process credit to costs of US$19m in 2018. Capital expenditure was US$139m in 2018 from US$132m in 2017.

Damang recorded a net cash-outflow of US$67m in 2018, underpinned by the US$125m in project capital spent during the year.

Asanko produced 223koz in 2018, of which 45koz was attributable to Gold Fields for the five months from August to December. AISC was US$1,069/oz in 2018 and AIC US$1,175/oz for the five-month period.