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Gold Fields' overriding strategic objective is to improve the quality of its portfolio by lowering Group All-in costs (AIC), thereby increasing our free cash-flow (FCF) margin per ounce of gold produced. The goal is to generate a FCF margin of at least 15% at US$1,300/oz. To achieve this, we employ various elements in the portfolio management process, including:
In addition to increasing the cash generating ability of our portfolio, ensuring the sustainability of our production base has been a focus over the past three years. Last year marked a turning point after almost three years of significant capital investment and net cash-outflows. In 2019, the Group recorded a net cash-inflow of US$249m after two years of cash-outflows – US$33m in 2017 and US$122m in 2018. However, between 2017 and 2019, we generated total net cash-inflow of US$94m despite spending US$644m in project capital and US$163m on developing our Salares Norte project.
With anticipated project capital on Gruyere and Damang having largely been spent, and Group production forecast to increase in 2020, FCF is expected to improve even further in 2020. Management intends to allocate a portion of this FCF to de-gearing the balance sheet and funding the initial US$111m capital needed to build Salares Norte, while at the same time maintaining the policy of paying 25% – 35% of normalised earnings as dividends to our shareholders.
Our active portfolio management approach has allowed us to build a geographically diversified portfolio with nine mines and one project in five countries, one of which is in South Africa. During 2019, the production base outside South Africa continued to grow, with the completion of the Gruyere project in Western Australia, the first full-year contribution from our 45% holding in the Asanko gold mine (AGM), and the build-up of production at Damang in Ghana. With 22Moz of attributable gold-equivalent Mineral Reserves (excluding Asanko) at 31 December 2019 being outside South Africa – 42% of the total – our international assets are well positioned to produce in excess of 2Moz per annum over the next decade.
Encouragingly, South Deep in South Africa showed a marked operational improvement in 2019 following the restructuring towards the end of 2018, outperforming guidance by 15% and generating positive FCF for only the second time since we acquired the mine in 2006. A summary of our major projects and progress at South Deep is detailed below.
In another positive development, the Environmental Impact Assessment (EIA) for Salares Norte in Chile was approved by the Atacama Environmental Assessment Commission on 18 December, earlier than anticipated. As such, an updated feasibility study (FS) indicating an internal rate of return of 23% at a US$1,300/oz gold price and a 2.3 year payback period was presented to the Board in February 2020. The Board granted final approval to proceed with the construction of the project. The US$860m (2020 basis) cost of the project is funded through cash-flow from the Group, existing debt facilities as well as US$249m from a successful equity raise completed in February 2020 soon after the Board gave the go-ahead.
During the course of 2019, Gold Fields took advantage of the favourable equity market conditions to divest a number of its non-core equity holdings, with the proceeds being used to pay down a portion of the Group's debt. A total of US$179m was raised through these sales. We made a significant return on all these investments, as seen in the table below.
|Investment||Previous shareholding||Sold for||Acquired for (date)|
|Maverix Metals||19.9%||C$91m (US$67m)||Gold Fields sold its royalty streaming portfolio in December 2016 for a 32% stake in Maverix Metals, worth US$42m. Gold Fields retains 4.1m Maverix Metals warrants|
|Red 5||19.9%||A$30m (US$21m)||A$12m (US$10m) (October 2017)|
|Gold Road Resources||9.9%||A$126m (US$85m)||A$71m (US$54m) (March - May 2017)|
|Hummingbird Resources||6.0%||£6m (US$7m)||Gold Fields sold its Yanfolila gold project in Mali to Hummingbird Resources in July 2014 for 25% of Hummingbird Resources shares, worth US$21m|
During 2019, Gold Fields acquired a strategic 16% shareholding in Chakana Copper for C$8m (US$6m). Chakana is currently advancing the prospective Soledad gold-silver project in central Peru. After the corporate actions last year, our key strategic shareholdings are shown in the adjacent table.
There were no material developments regarding the Far Southeast (FSE) project in the Philippines during 2019. The project is held by Far Southeast Gold Resources, in which Gold Fields has a 40% interest with an option to increase its stake to 60%, and is adjacent to an existing mining operation with established infrastructure. Lepanto Consolidated Mining Company of the Philippines (Lepanto) holds the remaining 60% interest and manages the existing mining operation. Gold Fields impaired its investment in FSE to US$82m in 2019, indirectly derived from Lepanto's market value on the Philippine Stock Exchange.
|Investment||Shareholding||Market value (US$m)|
|Consolidated Woodjam Copper||19.9%||1|
|Maverix Metals warrants||12|
|Total value (including warrants)||66|
Gold Fields' holding costs in FSE are approximately US$0.1m, related mainly to staff and administrative costs, managing existing drill core, environmental monitoring, community relations work, as well as activities to support the permitting process.
Following the restructuring at the end of 2018, South Deep demonstrated a notable improvement in most production and financial metrics during 2019. These were the result of a culmination of initiatives driving safety, organisational culture, systems, processes and technical improvements. Among the key initiatives were:
In addition, management implemented a leadership programme called 'Siyaphambili' (which means to move forward together), the primary focus of which is to improve the competencies of middle management and frontline teams to achieve the strategic culture change required to drive operational performance. We made good progress in 2019, with the new way of working reflected in improved production metrics throughout the mine:
The mine's overall productivity in 2019 improved by 53% to 33.4 tonnes per employee costed (TEC) from 21.7 TEC in 2018. The overall efficiencies for development and destress improved to 60m/rig per month in 2019 from 39m/rig per month in 2018. These productivity improvements were underpinned by:
As 2019 progressed, South Deep performed increasingly better, recording continuous quarterly improvement throughout the year. Production increased by 41% to 6,907kg (222koz) in 2019 from 4,885kg (157koz) in 2018, and was 15% ahead of guidance of 6,000kg (193koz). The mine also contributed US$15m in net cash-inflow to the Group (Strengthening the balance sheet). South Deep has issued guidance of 8,000kg (257koz) in production at AIC of R625,000/kg (US$1,340/oz).
In November 2016, Gold Fields entered into a 50/50 joint venture (JV) with Gold Road Resources for the development and operation of the Gruyere gold project in the Yamarna belt of Western Australia. The JV comprises the Gruyere gold deposit and 144km2 of exploration tenements. Early work on Gruyere began in December 2016 and started in earnest in April 2017, which saw the start of the building phase completed in June 2019.
Pleasingly, Gruyere commenced production during 2019, with first gold recovered in June 2019 and sold in July 2019, in line with the revised project schedule. Commercial production was attained at the end of September 2019, slightly ahead of this schedule. The ramp up was successfully completed during December 2019, with production hitting nameplate capacity of 8.2m tonnes per annum during the month.
Gold Fields' portion of capex for 2019 was A$104m (US$72m) (2018: A$180m (US$134m)), with the funds spent primarily on the completion of the Gruyere construction project and stripping activities at the Gruyere pit. The final capital cost for Gruyere's construction was A$610m (100% basis), below the forecast of A$621m, Gold Fields' share being A$329m.
Gruyere produced 99koz (100% basis) in 2019, hitting the upper end of revised guidance. The mine also ended the year with 3.2Mt in stockpiles. AIC post-commercial levels of production for the three months from September 2019 were A$983/oz (US$684/oz). AIC for the full year were A$4,170/oz (US$2,900/oz) compared with the revised guidance of A$4,450/oz (US$3,095/oz).
Guidance for Gruyere is 270koz (100% basis) in 2020 at All-in sustaining costs (AISC) of A$1,140/oz (US$785/oz) and AIC of A$1,150/oz (US$795m). This boosts Gold Fields' attributable production in the Australian region to approximately 1Moz (Improving operational performance).
Gruyere is currently the only Gold Fields site in Australia that has a comprehensive Native Title Agreement in place with the relevant traditional owners of the land on which the operations are located. The Gruyere and Central Bore Native Title Agreement provides consent to mine, as well as other financial, contracting and employment benefits for the community, and comprehensive processes for the management of Aboriginal heritage at Gruyere.
The Damang Reinvestment project commenced in December 2016 and entailed a major cutback to both the eastern and western walls of the Damang pit to extend the life-of-mine to 2025.
After outperforming the project plan in both 2017 and 2018, the project continued to progress well during 2019. At the end of 2019, 36 months into the project, total material mined amounted to 120m tonnes, 17% ahead of the project schedule. Gold produced for the same period was 533koz, 17% ahead of the planned 456koz. Project capital spent as at 31 December 2019 was US$347m, ahead of the US$313m budget, largely driven by the additional capital waste tonnes mined.
2019 was the last year of significant capex on the project, declining to US$71m from US$125m in 2018 and US$115m in 2017, in line with schedule.
During H2 2019, production was impacted by lower grades as the mine transitioned through the Huni sandstone lithology, which will continue during H1 2020. By mid-year, mining will transition into the higher and more consistent grade Tarkwa phyllites. As such, we expect a much stronger H2 2020.
Damang generated net cash-flow of US$24m in 2019 compared with a cash-outflow of US$68m in 2018. This is the first year of positive free cash since the start of the project. The mine is expected to produce 215koz in 2020 at AISC of US$990/oz and AIC of US$1,030/oz.
Gold Fields entered into a 50/50 incorporated JV with Canada's Asanko Gold in March 2018. Our 45% stake in AGM is equity accounted as Asanko Gold remains the operator of the mine.
AGM is a multi-deposit complex with two main deposits, Nkran and Esaase, and nine satellite deposits. The mine is situated 100km north of Gold Fields' Tarkwa and Damang operations along the prospective and under-explored Asankrangwa greenstone belt in Ghana.
Work on embedding the acquisition of our 45% stake in AGM continued during 2019. The mine produced 251koz (100% basis) at an AISC of US$1,112/oz and AIC of US$1,214/oz in 2019. Guidance for 2020 is 255koz (100% basis) at an AISC of US$1,000/oz and AIC of US$1,130/oz.
Together with our JV partners, we developed a new life-of-mine model based on updated geological modelling, with the main focus being on how to best develop and mine the sizeable Esaase deposit. The highlights of the life-of-mine model are:
The Salares Norte project is 100% Gold Fields-owned. It is a gold-silver deposit in the Atacama region of northern Chile, with mineralisation contained within a high-sulphidation epithermal system, offering high-grade oxides. The project is elevated 4,200m – 4,900m above sea level.
Land easement was granted on 30 May 2016 for 30 years. Water rights for the project were obtained in December 2016, with the DGA granting Gold Fields access to more than four times the amount of water that the project requires. As at end-December 2019, detailed engineering was 58% complete, with the plan to be 80% complete by mid-2020 and 100% complete by year-end.
The initial FS on the project was completed in late 2018, and the EIA approved by the Atacama Environmental Assessment Commission in December 2019. This was earlier than estimated and, given the healthy position of the Company, an updated FS and the decision to proceed with construction and development of Salares Norte was approved by the Board in February 2020.
The results of the updated FS did not differ materially from the initial FS, with updated estimated capex slightly higher at US$860m (in 2020 terms). Capex is scheduled over a 33-month period commencing in April 2020. US$138m is budgeted to be spent on the Salares Norte project in 2020, which comprises US$27m of pre-development expenditure and capex of US$111m.
The other key elements of the updated FS include:
The project is expected to meaningfully change the future profile of Gold Fields, providing growth in production and a reduction in Group AIC. The project capital of US$860m will be funded from Group cash-flows, existing debt facilities as well as an US$249m equity raise, successfully completed after the Board gave the go-ahead for construction. We have also finalised Group gold and foreign exchange hedges for the Chilean Peso to further ease funding pressures during the construction period.
Salares Norte controls 84,000ha of mineral rights in the Salares Norte district and has carried out extensive district-wide exploration within a 20km radius of Salares Norte. During 2019, the district exploration yielded encouraging results at the Horizonte Project with further step-out potential in targets near the main Salares Norte pit. We will continue investing in exploration in the area, with the objective of adding to the production pipeline from 2025 onwards.
While there are no indigenous claims or community presence on the concession, Salares Norte has embarked on an extensive engagement programme with four indigenous communities in the wider vicinity of the project. The principal area of social influence of the project is the Diego de Almagro municipality, approximately 125km away. A long-term framework agreement has been signed with the municipality and its communities to govern the relationship.
Near-mine exploration plays a key role in Gold Fields' strategy as we believe it offers one of the lowest-cost opportunities for growing cash-flow, particularly on a per share basis. The value in near-mine exploration lies in:
In addition to adding to Gold Fields' Mineral Resources and Mineral Reserves base, near-mine exploration:
In 2019, Gold Fields spent US$73m on near-mine exploration (2018: US$80m), which supported a total of 428,980m of near-mine drilling (2018: 507,497m). The majority of this spending – US$58m (A$84m) (2018: US$63m (A$85m)) – was incurred at our Australian mines. US$13m was spent in Ghana, including US$5m at Asanko, amid a renewed focus on extending the life of our Tarkwa mine. In addition, we spent US$5m at Cerro Corona and a further US$13m on district exploration activities in the vicinity of our Salares Norte project.
For 2020, Gold Fields has budgeted US$70m for near-mine exploration, of which A$74m (US$52m) will be at our Australian operations. The 2019 performance numbers for Mineral Reserves on the next page are net of depletion.
St Ives Mineral Reserve reconciliation
At St Ives, total exploration spend in 2019 was A$36m (US$25m). A total of 138,333m were drilled during the year, resulting in a 12% increase in Mineral Resources to 4.4Moz and a 31% increase in Mineral Reserves to 2.3Moz, net of depletion.
Agnew Mineral Reserve reconciliation
A$26m (US$18m) was spent on exploration at Agnew during 2019, and a total of 74,914m were drilled during the year. Encouragingly, Agnew managed to replace Reserves after depletion again during 2019. Mineral Resources increased 23% to 2.5Moz, while Mineral Reserves increased 38% to 0.8Moz.
The exploration efforts of the past few years are starting to bear fruit, with Waroonga North growing laterally and at depth. A maiden Reserve has been declared at Redeemer Zone 2, while we are seeing further extensions of Genesis and Sheba at New Holland.
Granny Smith Mineral Reserve reconciliation
Total exploration spend at Granny Smith amounted to A$20m (US$14m) in 2019. A total of 142,891m were drilled during the year, which resulted in a 473koz (6%) increase in Mineral Resources. The team was unable to replace what it mined, with Mineral Reserves decreasing 168koz (8%) at the Wallaby Underground mine during 2019.
As at 31 December 2019, Granny Smith's Mineral Resources and Mineral Reserves were 8.3Moz and 2.1Moz, respectively.
Gold Fields portion (50%) of the exploration spend at Gruyere was A$2m (US$1m) in 2019. A total of 11,309m were drilled during the year. Changes to the Mineral Resource and Mineral Reserve were relatively minor at the end of 2019. Further study work is planned during 2020 that will assess the potential to incorporate the results of the 2019 drilling.
As at 31 December 2019, Gold Fields portion (50%) of the Gruyere Mineral Resources and Mineral Reserves was 3.3Moz and 1.8Moz, respectively.
Tarkwa Mineral Reserve reconciliation
Gold Fields spent US$6m in near mine exploration at Tarkwa during the year, drilling 27,007m. Pleasingly, Tarkwa was able to replace depletion in 2019, the first time the mine was able to do this in 15 years. Tarkwa's Mineral Reserves increased 2% to 5.9Moz, while Mineral Resources increased 9% to 10.9Moz.
Early exploration drilling has signalled untapped down dip potential along 22km of strike length.
Damang Mineral Reserve reconciliation
While we focused on implementing our Damang Reinvestment plan, Gold Fields also spent US$2m in near-mine exploration during the year. A total of 13,190m were drilled. Despite the exploration effort, Mineral Resources decreased 2% to 5.9Moz and Mineral Reserves decreased 17% to 1.3Moz, net of depletion.
Gold Fields portion (50%) of the exploration spend at Asanko was US$5m in 2019. A total of 5,971m were drilled during the year. As at 31 December 2019, Gold Fields portion (45%) of the Asanko Mineral Resources and Mineral Reserves was 1.7Moz and 1.1Moz, respectively.