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Three years ago, Gold Fields embarked on a reinvestment programme that sought to create a portfolio of mines and projects that would ensure the Group’s long-term, safe and sustainable production profile. Our key motivation behind this investment drive was to ensure that our portfolio continued to generate cash sustainably into the foreseeable future by lowering All-in costs (AIC), extending mine life, while preserving a sound balance sheet.
We believe that Gold Fields went against the grain by spending almost US$1bn on new projects over these past few years. Unlike many of our industry peers, who have been more focused on consolidation, mergers and acquisitions, Gold Fields focused internally. Since we embarked on the reinvestment programme, we essentially built two new mines – Gruyere in Australia and the Damang Reinvestment project in Ghana – and took Salares Norte – a greenfields project in northern Chile – to a positive construction decision. Looking to the future, we think the industry will need to return to greenfields exploration to find new projects to maintain longer-dated production profiles.
Our portfolio is now in a strong position to maintain production of 2.0Moz – 2.5Moz per year for the next 10 years, of which well over 2.0Moz will be outside of our South African base. This is a level of production our mines in Ghana, Australia and Peru achieved for the first time in 2019.
For Gold Fields, the 2.0Moz – 2.5Moz range is our optimal annual production level as it allows us to maintain and grow our Mineral Reserves beyond annual depletion. In addition, we believe that a portfolio of no more than 10 mines is optimal, allowing management to properly focus on operations.
2019 was the first year that we saw the real benefits of our US$1bn investment programme. We achieved increased production, lowered our costs and continued to maintain a strong balance sheet. With a vastly improved contribution from South Deep, the Group reported attributable gold equivalent production of approximately 2.20Moz (2018: 2.04Moz), again exceeding the upper end of the guidance range.
AIC for 2019 amounted to US$1,064/oz, down 9% from 2018 and below guidance for the year. All nine mines generated cash during the year – US$552m in total. Taking into account the significant expenditure on growth projects, the Group generated cash-flow of US$249m, a significant swing of over US$371m on the net cash-outflow of US$122m in 2018.
The Board’s decision in February 2020 to go-ahead with our Salares Norte project in northern Chile – at a project capital cost of about US$860m in 2020 terms – will further strengthen our production profile. Once completed, Salares Norte is expected to add 450koz gold-equivalent production a year for the first seven years at AIC of US$465/oz, one of the lowest in the industry. The successful equity raise of US$249m, completed in February 2020, will ensure that the Salares Norte project can be funded comfortably within our existing net debt:EBITDA targets.
The Group’s attributable gold-equivalent Mineral Reserves were 51.3Moz at the end of 2019 (including the 45%-held Asanko gold mine), an increase of 6% on 2018, though our Australian mines replaced 165% of depleted Reserves after significant investments in near-mine exploration over the past few years. Attributable gold-equivalent Mineral Resources were 115.7Moz in 2019.
A further key pillar of our strategy was to set up our South Deep mine in South Africa for sustainable and profitable production after a difficult 2018, during which a significant restructuring process resulted in a 45-day strike. Pleasingly, we can report palpable progress and a strong financial and operational recovery. With the workforce reduced by approximately 35%, the fleet rationalised, marginal mining eliminated and productivity levels up significantly over 2018, South Deep stemmed its cash burn in 2019. AIC of US$1,259/oz was 37% below 2018 levels (31% in Rand terms), and the mine managed to generate US$15m in net cash-flow. There is still work to be done, and I am cautiously optimistic that South Deep is on the right track to generate sustainable cash-flows and profits.
The stronger operational performances by our mines, supported by a higher gold price received, enabled us to achieve our key financial targets during 2019: paying a total dividend of R1.60/share; reducing our net debt by over US$350m to US$1.33bn (pre-IFRS 16); and improving our free cash-flow (FCF) margin to 21% at the average gold price received of US$1,399/oz, from 16% at US$1,266/oz in 2018.
During 2019, we made significant improvements in terms of our safety culture, systems and leadership. Tragically, we recorded one fatality – that of Maria Ramela, a trackless crew leader at South Deep – and reported 12 serious injuries (2018: 17). Unfortunately, our total recordable injury frequency rate (TRIFR) increased to 2.19 per million hours worked (2018: 1.83), though this is below the industry norm of 3.41 (ICMM members – 2018 average). Our target remains zero fatalities and serious injuries, and we have put programmes and strategies in place that are starting to address some of the underlying issues.
We are also continuing to work on preventing occupational diseases and health issues impacting our workforce. In March 2020 we adopted a range of measures amid the escalating Covid-19 (coronavirus) pandemic in all our operating countries. The measures in place, both at our mines and at our offices, sought to avoid potential infections and to ensure that any disruptions at our operations are limited (more information in Our 2019 performance).
The sustainability of our operations depends on mutually beneficial relationships with key stakeholders and minimising our impact on the surrounding environment. Key programmes to address these have been incorporated into our strategy, and we continue to show good progress in advancing these programmes:
During 2019, our share price on both the JSE and NYSE improved by 94% and 88% respectively. On the JSE, our share price was one of the top five performers during the year. However, since year-end 2019 the share price performance of Gold Fields and other mining stocks has been extremely volatile, as the gold price and financial markets in general have been buffeted by economic and political uncertainty and, in particular, by the impact of the global Covid-19 (coronavirus) pandemic.
Over the next few pages, I provide a high-level analysis of the external environment shaping the gold industry and the gold market, our strategy and how we are performing against its key performance indicators (KPIs). The Group and my personal performance scorecards provide further insight into the Group’s strategy and performance.