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Every year Gold Fields sets itself key performance targets to ensure that we meet our strategic goals. These fall into four categories:
Below is an update on the Covid-19 (coronavirus) pandemic and its impact on Gold Fields, followed by an overview of Gold Fields' strategic goals within these categories and how we performed against them during 2019.
Covid-19 pandemic and Gold Fields' actions
Subsequent to year-end - and at the time of finalising the financial statements - the Covid-19 (coronavirus) pandemic required Gold Fields to support government protocols and directives in countries in which we have a presence to contain the spread of the virus. Our operations introduced a wide range of measures to reduce the risk of potential infections of people at our operations and limit disruption at our mines. We are in full support of the governments' measures and our further actions going forward will be determined by the nature and extent of incidences of infections at our mines and in the countries in which we operate. In line with the directive by the South African government on 23 March 2020, South Deep has been placed on care-and-maintenance during the resultant 21-day lockdown in South Africa. Prior to that directive being announced, we had implemented other measures to manage the risk to its people and business, including international business travel restrictions, self-quarantine for people displaying flu-like symptoms and comprehensive hygiene awareness campaigns.
There is of course the possibility of further lockdowns and restrictions in the countries in which we have a presence and contingency plans are being formulated to deal with these potential eventualities. Gold Fields management believes Gold Fields is in a strong financial position with significantly reduced debt compared to prior periods. As at the date hereof, the Group has approximately US$600m in cash and in excess of US$1.5bn of committed, undrawn debt facilities. As a result, management believes that the Group has sufficient liquidity to withstand an interruption to our operations for a considerable period of time, but that notwithstanding, we will continue to work towards minimising the impact of Covid-19 on our employees, mines and offices.
We have evaluated the potential effects of these conditions on the basis of a three-month operational closure period across the Group (period used is based on periods of total lockdown experienced in China and South Korea). Over this period there could potentially be no production and approximately 50% savings on cost and capital. Gold Fields is of the view that it will be a stable, going concern for the foreseeable future. However, this estimate is inherently uncertain as it is based on expectations of future events, including the length of the closure period, which is currently unknown.
Safety and health
For details - Safety
Our targets of zero fatalities, serious injuries and safe production are embedded, through the Group scorecard, in the performance scorecards of all Gold Fields' employees. It will always remain our most important priority.
Most tragically, we lost a colleague during 2019. Maria Ramela, a 38-year-old trackless crew leader at our South Deep mine in South Africa, was fatally injured after being struck by a rock ejected from the rock face following a series of four seismic events. We again express our sincere condolences to her family, friends and colleagues. We also had 12 serious injuries in 2019 (2018: 17) and a regression in the TRIFR to 2.19 per million hours worked (2018: 1.83). However, the severity and duration of lost-time injuries (LTIs) improved markedly.
We have made progress on the implementation of health and safety strategies, including a Group-wide roll-out of the Courageous Safety Leadership (CSL) programme. Training for this programme commenced in 2019 and will be completed during 2020, teaching all employees to prioritise safety and giving them the opportunity to become safety leaders. We believe that the CSL programme, combined with the expansion of the Vital Behaviours programme already successfully implemented at our Australian operations since 2016, will entrench safe behaviours and choices in our workplace. We continue with the critical controls initiative commenced last year.
We are also investing in technical and engineering safety solutions, such as proximity detection, collision avoidance and fatigue management systems, while at the same time deploying fit-for-purpose management systems.
On the health front, a South African court endorsed the settlement reached between six gold mining companies, including Gold Fields, and attorneys representing
ex-mineworkers suffering from Silicosis and Tuberculosis (TB). An independent trust has been established to compensate ex-mine workers by distributing just over R5bn (US$380m) funded by the gold mining companies. We have made a provision of R297m (US$21m) for our share of the settlement. The nominal value is R408m (US$29m), which is in effect our contribution to the trust over the next 10 years. The trust began its work in March 2020.
For details - Improving operational performance
Our strategic priority is to sustainably improve our total shareholder return. While this may suggest a strong focus on investors as our key stakeholder, we need strong cash-flow generation to share the benefits of mining with all our stakeholders - our workforce, business partners, communities, governments and, of course, shareholders. As such, we have set an annual target of generating a FCF margin of 15% at a gold price of US$1,300/oz.
After the three-year, US$1bn reinvestment programme between 2017 and 2019, we turned cash-flow positive in H1 2019, earlier than originally anticipated. As the projects neared completion by mid-2019, we started seeing benefits in H2 2019, during which normalised profits for the Group were almost double that of H1.
Group performance highlights
|TRIFR||/million hours worked||2.19||1.83|
|All-in sustaining costs (AISC)1, 2||US$/oz||970||981|
|All-in costs (AIC)1,2||US$/oz||1,064||1,173|
|Net cash-flow1, 3||US$m||249||(122)|
|Free cash-flow (FCF) margin1||%||21||16|
|Net debt (pre-IFRS 16)1||US$bn||1.331||1.687|
|Net debt (post-IFRS 16)1||US$bn||1.664||–|
|Total value distribution||US$bn||2.577||2.711|
|Water recycled/reused (% of total)||%||68||66|
|CO2 emissions||million tonnes||1.94||1.85|
|Host community procurement (% of total)||%||34||27|
|Host community employment (% of total)||%||55||56|
|Gross mine closure liabilities||US$m||436||400|
|1||These non-IFRS measures have been defined in management's discussion and analysis in the Annual Financial Report (AFR), and have been reconciled to IFRS|
|2||2019 AISC on the revised World Gold Council interpretation|
|3||Net cash-flow = cash-flow from operating activities less net capex, environmental payments and finance lease payments|
|4||The sum of direct and indirect energy consumption reflects a conversion factor used by Granny Smith, Gruyere, Agnew, Tarkwa and Damang power stations to account for generation losses|
As a whole, in 2019 the Group generated US$249m in net cash-flow compared with a net cash-outflow of US$122m in 2018. Mine cash-flow for the year, which excludes project capital, was US$552m, compared with US$345m in 2018. The 2019 FCF margin was 21% at an average gold price received of US$1,399/oz.
All our operations performed in line, or better, than guidance during 2019, both in terms of their operational and financial metrics. Gold Fields' attributable gold-equivalent production increased 8% to approximately 2.2Moz in 2019 (2018: 2.04Moz), exceeding the upper end of the guidance range of 2.13Moz – 2.18Moz.
AIC for 2019 were US$1,064/oz, 9% lower than 2018 and below 2019 guidance of US$1,075/oz – US$1,095/oz. AISC were US$970/oz (2018: US$981/oz) on the original World Gold Council interpretation, and US$897/oz on the revised interpretation. AISC (original interpretation) guidance for the year was US$980/oz – US$995/oz.
Headline earnings for 2019 were US$163m (2018: US$61m), while normalised profits of US$343m for 2019 were up twelve-fold from the US$27m reported in 2018.
A critical achievement for the year was the notable progress of South Deep, which met and exceeded its production and cost guidance for 2019 after the significant restructuring process during 2018. As the year progressed and the changes entrenched throughout the operation, South Deep started to meet targeted operational benchmarks. For 2019, the mine reported record cash-flow of R221m (US$15m), compared with an outflow of R1.92bn (US$146m) in 2018, boosted production by 41% to 222koz and reported a 37% reduction in AIC.
Other major contributors to the improved Group production figures were the first full-year production from our 45% holding in the Asanko Gold Mine (AGM) in Ghana, a 15% increase in production at Damang, and the initial 50koz contribution from our share of the Gruyere mine in Western Australia. Gruyere, in which we hold a 50% stake and have management control, produced first gold in June 2019 and ramped up to steady state by September 2019.
The benefits of our investments are set to continue into 2020, with Group attributable production expected to be about 5% higher and AIC 2% lower than 2019 levels, notwithstanding the first year of capital expansion at the Salares Norte project. The current higher gold price (including our hedges for 2020) places the Company in a strong position to generate substantial FCF for 2020 while sustaining our current operations, further reduce debt and continue our policy of paying dividends equal to about a third of our normalised earnings to shareholders.
Growth of our portfolio
For details - Asset portfolio management
While improving the FCF per ounce of gold produced is one of management's top priorities, ensuring the longevity of our portfolio and the sustainability of its cash generating abilities are as critical. As such, over the past three years the Group has been in a reinvestment phase at a time when many of our peers have been focused on cost rationalisation in the face of pressure from some market participants.
Between 2017 and 2019, we spent approximately US$1bn in project capital and building two new mines – Gruyere in Western Australia and Damang in Ghana – as well as acquiring a 50% share in the Gruyere project and a 45% stake in AGM in Ghana, and bringing our Salares Norte project in Chile to a positive construction decision. These investments will not only extend the overall life of our portfolio, but will also improve the quality thereof by lowering the Group AIC.
An overview of our key growth projects for 2019 is as follows:
Gold Fields' total capex for 2019 was US$613m (2018: US$814m), of which US$476m was sustaining capital and US$137m was growth capital. Capex of US$630m has been budgeted for 2020, of which US$224m is growth capital earmarked primarily for Salares Norte (US$111m), the Australian operations (US$60m), Cerro Corona (US$28m), South Deep (US$15m) and Damang (US$10m). The capex excludes Gold Fields' share of AGM's total capex of US$34m for 2020.
A further indication of our sound growth prospects is Gold Fields' strong Mineral Reserves and Resources position. In 2019, the Group had a strong performance with regards to Reserves replacement, net of depletion. Total attributable, gold-equivalent Mineral Reserves at the end of 2019 were 51.3Moz (2018: 50.3Moz), including our 45%-held AGM. Some of the significant developments during 2019 were:
As at the end of 2019, 22Moz of Gold Fields' Mineral Reserves (including AGM) were outside South Africa, representing 42% of the Group's Reserves base. As recently as 2015, only 28% of our Reserves were not from South Deep. At the time our international Reserves were a mere 13Moz.
The total attributable, gold-equivalent Mineral Resources at the end of 2019 were 115.7Moz (2018: 108.2Moz).
Strengthening the balance sheet
For details - Strengthening the balance sheet
Our capital programme of the past three years inevitably put pressure on the balance sheet. Tactical hedge positions and better-than-expected gold prices for the most part of the past three years enabled us to limit the pick-up in net debt, as did stronger than anticipated cash-flows and the sale of non-core equity investments for a combined US$179m during H1 2019. Furthermore, we successfully refinanced US$1bn in debt during 2019 and signed a new US$1.2bn revolving credit facility.
As a result, we managed to significantly reduce our net debt to US$1.33bn (pre-IFRS 16) from US$1.69bn at end-2018, while the net debt:EBITDA ratio was 1.08x (end-2018: 1.57x). Under the new IFRS 16 lease accounting standards, our net debt was US$1.66bn and the net debt:EBITDA ratio 1.29x at the end of 2019. With further strong cash-flow predicted, management has set itself the target of paying down US$300m – US$400m of debt in 2020, notwithstanding the first capital outlays at the Salares Norte project. Beyond that, we plan further deleveraging of the balance sheet.
To protect cash-flows and underpin debt reduction, we have extended our gold and foreign exchange hedging programme, putting structures in place which mature during 2020.
Gold Fields' policy allows for hedging to protect cash-flows at times of significant expenditure, for specific debt servicing requirements, and to safeguard the viability of higher cost operations. Given the high levels of project capital incurred over the past three years, the Group has deployed short-term, tactical gold hedges to protect cash-flows and the balance sheet.
With the project capital having largely been spent by mid-2019, the underlying purpose of the programme shifted to underpinning a significant reduction in debt. Our intention is not to put additional hedges in place once the current hedge book expires, other than possible downside protection, without limiting the upside, given the large capital expenditure for the Salares Norte project in 2021.
In line with our dividend policy of paying out 25% – 35% of normalised earnings as dividends, we declared a total dividend for the year of R1.60/share (2018: R0.40/share).
Energy and climate change
For details - Energy management and climate change
During 2019, Gold Fields shifted further away from the use of carbon-intensive energy sources and, for the first time, started using renewable energy to power our mines. Our mines in Ghana, Australia and Peru are now largely powered by low-carbon sources, though diesel is still being used for the majority of our mining fleet. During 2019, 67% of total electricity consumption was generated by gas, with coal accounting for 28%, hydro-electricity for 3%, diesel for 2% and renewables for just under 1%.
We see renewable energy sources as becoming increasingly important, and our initial focus is on the mines in Western Australia. Agnew became the first mine in our portfolio to be powered by solar energy when it connected a 4MW solar farm in August 2019. Five wind turbines, providing an additional 18MW, will be added to the system by mid-2020, as will a 13MW battery energy storage system. By end-2020, Agnew will become one of the first gold mines in the world to receive over 50% of its power from renewable energy sources, with the remainder of its electricity needs being supplied by a gas plant.
The Granny Smith gas power plant integrated 8MW of solar energy into its power system in Q1 2020, alongside a 2MW battery energy storage system. A further 40MW of solar capacity is being developed at South Deep in South Africa pending regulatory approval. Gold Fields is committed to 20% renewable energy generation over the life-of-mine at all new projects, including the newly approved Salares Norte mine in Chile. When it starts production in early 2023, we envisage that at least 15% of electricity will be generated by solar.
Energy accounted for 20% of Group operating costs in 2019, the second largest cost component at our mines. While energy consumption rose by 7% in 2019, energy spending declined from US$302m in 2018 to US$300m despite the increase in our gold production. This is attributable to mine planning optimisation and energy efficiencies.
Greater use of renewables has the added benefit of reducing our carbon footprint, which is one of Gold Fields' key environmental priorities. In 2016 we set ourselves an aspirational target of cumulative carbon emission reduction of 800kt CO2-e between 2017 and 2020. We reached 54% of these savings by end-2019 and are on track to achieve 75% of this target by the end of 2020.
During 2019, total CO2-e emissions increased to 1.94m tonnes (2018: 1.85m tonnes), as a result of higher Group tonnes mined and the inclusion of the Gruyere mine for the first time, but we expect longer-term benefits arising from the energy efficiency, fuel-switching and renewable energy projects we have put in place at our mines.
In 2018, Gold Fields become the first South African mining company to endorse the Financial Services Board's TCFD recommendations and, in 2019, we published our baseline 2018 TCFD Report. This report will monitor our climate change-related performance and replaces previous submissions under the CDP (formerly the Carbon Disclosure Project). The 2019 TCFD Report is being released in conjunction with this IAR.
For details - Environmental stewardship
This year, for the first time in its history, Gold Fields recorded no serious environmental incidents. This is an important achievement, as environmental incidents could potentially impact not only on operations, but also the communities and the environment around us.
We classify environmental incidents on a scale of 1 to 5, with Levels 3 to 5 incidents resulting in medium- to longer-term environmental damage and regulatory sanctions. Gold Fields has had no Levels 4 or 5 incidents for well over a decade and for the first time in 2019, there were no Level 3 incidents (we reported two Level 3 incidents in 2018). The number of Level 2 incidents, which have a limited environmental impact but could escalate to more serious incidents, declined by 46% last year.
Water is a particular focus of our environmental strategy, as it is an increasingly scarce and expensive resource around the globe. During 2018, our operations invested in improving water practices, including pollution prevention, recycling and conservation initiatives. Key to responsible water stewardship is to reuse or recycle much of the water we use in our processes and, in line with industry best practice, we have set ourselves a target of 65%. We achieved the target in 2018 and 2019, when the total water recycled or reused amounted to 66% and 68% respectively.
A key focus of both management and the Board was the governance and management of TSFs, following the catastrophic failure at the Feijão iron ore mine in Brumadinho, Brazil, during January 2019, which resulted in 270 deaths. We studied the report of the independent investigation panel to identify any lessons we could learn.
All Gold Fields' operations carried out additional safety inspections at our 34 TSFs, including 18 decommissioned TSFs and three managed by JVs, and concluded that Gold Fields-managed TSFs were not at risk. We also responded to requests from environmental, social and governance (ESG) investors to all global mining companies by detailing the specifications and technical standards of our TSFs. This report is available on our website.
During 2019, we further strengthened technical and governance oversight over all of our TSFs through, among others, providing quarterly updates to the Board and increasing the tailings expertise of our corporate technical team. We reviewed available real-time monitoring and surveillance technologies, including drones, and are applying them to specific TSFs as appropriate. Longer term, our teams are working with our peers at the ICMM to provide input into independent global tailings standard that will be published during 2020, and to which all ICMM members have agreed to adhere to.
The total gross mine closure liability for Gold Fields increased by 9% to US$436m in 2019 from US$400m in 2018. During 2019, we further enhanced our integrated approach to mine closure management with each operation implementing the first of three-year progressive environmental rehabilitation plans.
For details - Managing and growing our people
In 2018, the profile of our workforce underwent a major change with the retrenchment of about a third of the workforce at South Deep, as well as the move to contractor mining at our Tarkwa and Damang mines in Ghana. This meant that the ratio of contractors to full-time employees changed significantly over the past year. At the end of 2019, approximately 12,000 of our total 17,656 workforce were contractors. This requires a different Human Resources (HR) approach, but one that still considers the Company's values, standards and policies.
Within the entire workforce, we are increasing our focus on diversity and inclusivity and employing people from our host communities. During 2019, the Board approved a Group diversity policy. We are making progress on this journey:
Another important HR initiative entrenched in 2019 is the drive to ensure that all our people are appropriately skilled. With the increasing shift towards mechanisation and automation at our mines, we have found that, in addition to the continued development and training of our workforce, it is increasingly important to recruit people that have a strong science, technology and mathematics background. During 2019, we spent over US$12m globally on training and development.
Stakeholders and communities
For details - Government relations
The Group's value distribution to national economies in 2019, amounting to US$2.58bn, was slightly lower than the US$2.71bn in national value distributed in 2018. Of this, 68% was paid to suppliers and contractors, 15% to employees, 10% to governments in taxes and royalties, and 6% to equity and debt investors.
Within our total value distribution, Gold Fields continues to focus on maximising in-country and host community economic impact. Within our procurement spend, 96% is from in-country suppliers.
Communities, in particular, are a key focus for Gold Fields as sustainable community jobs, procurement from community enterprises and community investments will have significant economic and social benefits. During 2019:
These initiatives ensured that US$782m, 33% of our total value contribution, remained with our host communities. It is pleasing to see that as a result of this and our increased engagement our relationship assessment surveys show improved ratings of Gold Fields across all our jurisdictions, while community grievances decreased by 39% in 2019 compared with 2018.
Guidance for 2020
Gold Fields' business plan for 2020 has been built around an average gold price of US$1,300/oz (A$1,850/oz, R600,000/kg) and assuming exchange rates of R14.50 per US Dollar and A$0.69 per US Dollar.
As stated, we believe that the benefits of our three-year investment programme will continue into 2020, with the Damang Reinvestment project set to be finalised and the Gruyere mine contributing for a full year for the first time.
Group attributable production is expected to be about 5% higher at 2.275Moz – 2.315Moz, and AIC 2% lower at US$1,035/oz – US$1,055/oz when compared to 2019. Excluding spending on the Salares Norte project, our AIC guidance would be between US$975/oz – US$995/oz. AISC is guided 4% lower at US$920/oz – US$940/oz. Capex for the year has been budgeted at US$630m.
The main drivers behind production guidance for 2020 are:
Note of thanks
I would like to express my gratitude to my fellow directors, led by our Chairperson, Cheryl Carolus, for their support and guidance during 2019. The composition of our Exco has remained stable over the past two years, and I believe the commitment of this team has been one of the main reasons behind our recent successes. Going against industry trends, as we have done with our US$1bn reinvestment programme, would not have been possible without the support and expertise of this team.
Most importantly, I would like to express my sincere appreciation and gratitude to all the employees of Gold Fields. They have gone through some difficult times over the past few years, with wide-ranging restructuring initiatives impacting their work lives. Rightfully, now that their efforts have translated into strong profitability for the Group, they will be rewarded for their efforts. But I also know that our employees' resilience, hard work and dedication will not let up. It gives me great comfort to know that I have this team behind me to drive Gold Fields forward.