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South African region - Introduction

    [ South Africa ]
    Improving safety and continually upgrading infrastructure



Vishnu Pillay
Executive Vice-President: South Africa Region
Vishnu Pillay

Production outlook for the 12 months to end-June 2011

During financial 2010 the South Africa Region produced 60,124 kilograms of gold (1.9 million ounces) at total cash costs of R180,392 per kilogram (US$740 per ounce) and an NCE of R261,323 per kilogram (US$1,072 per ounce).

The objective for the 12 months to June 2011 is to produce between 2.0 and 2.2 million ounces of gold at cash costs of between R191,000 per kilogram (US$790 per ounce) and R177,000 per kilogram (US$735 per ounce) and an NCE of between R263,300 per kilogram (US$1,090 per ounce) and 246,000 per kilogram (US$1,020 per ounce).

Consistency in safe production will be underpinned by the following strategic interventions:

A further 25 per cent improvement in key health and safety statistics and a reduction in the number of unplanned safety-related mine stoppages or closures;
Increased ore reserve development rates to improve mining flexibility, especially at the long-life shafts at Driefontein, Kloof and Beatrix;
Implementation of a mining quality framework to improve the mine call factor, reduce dilution and leverage the mill head grade at Driefontein, Kloof and Beatrix, through a focus on volume, value, quality and old gold (VVQoG);
An improvement in engineering efficiency, equipment utilisation and planned maintenance across all mines in the region;
A comprehensive business process re-engineering programme aimed at realising maximum operational potential in conjunction with optimising both direct shaft costs and off-site overheads to deliver planned gold output at an overall notional cash expenditure margin of 20 per cent on a sustainable basis;
A defined plan at Driefontein, Kloof and Beatrix to stockpile underground reef tonnes on surface to ameliorate business interruptions and holiday breaks at Christmas and Easter;
Maintaining the momentum in production build-up, capital development and infrastructure installation at the South Deep project;
A strong focus on performance management, skills development and competency training; and
Continued focus on productivity improvements, technology and mechanisation implementation and the effective management of energy and utilities consumption into the future.

Introduction

The South Africa Region of Gold Fields is the bedrock on which the company is built. With Mineral Resources of 230 million ounces (inclusive of WWTTP and Uncle Harry’s) and a total Mineral Reserves of some 62 million ounces, of which more than 40 million ounces are within reach of existing infrastructure, Gold Fields holds the dominant position in the famous Witwatersrand Basin, the most prolific gold-producing region in the world. The Witwatersrand Basin is home to Gold Fields’ famous and mature Driefontein, Kloof, Beatrix Gold Mines, as well the developing South Deep project. These mines remain a key contributor to Gold Fields delivering on its vision of being the global leader in sustainable gold mining.

Central to the strategy of Gold Fields is an acknowledgement that production stability in the South Africa Region is a fundamental requirement for Gold Fields to achieve its overall target, which is to have five million ounces, either in production or in development, by 2015. In support of this target, the South Africa Region is expected to produce at least two million ounces of gold per annum sustainably over the medium to long term. However, with the build-up of South Deep project to full production of between 750,000 to 800,000 ounces by the end of 2014, production from the South Africa Region could be considerably higher than two million ounces per annum.

Since financial 2008, Gold Fields has embarked on a large number of strategic interventions to restore the integrity of the production machine in the region, and to stem the tide of declining production which has emerged over the past decade. Significant progress has been made in addressing a wide range of issues germane to the underperformance of the region over this period and, while much remains to be done, a healthy foundation has been created for the South Africa Region to return to greater stability, predictability and consistency in production, and for the region to continue to play an important part in the Gold Fields portfolio of assets for many years to come. These interventions are discussed in more detail below.

 

 

 

 

  Capex and operating profit
(R million)
 
   
  F2010 operating profit by mine
(R million)
 
   
  F2010 operating profit contribution
(%)
 
   
  F2010 gold production by mine
(kg)
 

The first and most important strategic intervention over the past two years, to restore the production machine has been in the area of safe production. During financial 2010 the region recorded the second record safety year in succession, with improvements recorded against all indicators. Most significantly, the Fatal Injury Frequency Rate showed a 19 per cent improvement from 0.16 per million man hours worked in financial 2009 to 0.13 in financial 2010. This follows on a record 50 per cent improvement achieved during financial 2009. The Serious Injury Frequency Rate improved from 3.22 per million man- hours worked in financial 2009 to 2.81 in financial 2010, which represents an eight per cent improvement. The Lost-Time Injury Frequency rate improved from 5.38 per million man-hours worked in financial 2009 to 4.91 in financial 2010.

People centricity continues to be the key to value addition of the organisation and is vital to enabling the region to deliver to its potential. This represents the most fundamental aspect of the management and leadership of our business and over the next 12 months an increased focus is planned on our people through, in particular, the further improvement of the 24 Hours in the life of a Gold Fields employee programme. There will be a renewed focus on skills development and competence building at all levels; health and well-being; and the attraction and retention of quality people.

The South Africa Region is fully committed to the Group’s number one value if we cannot mine safely, we will not mine, and during the year significant progress was made to entrench this as the defining value of our production culture. We deeply regret the 18 fatalities that we had during the year and we view each one of these as a fundamental failure of our safety efforts, which has to be corrected. Despite these tragic events, the leadership and management of the region remains committed to its quest for zero harm and maintaining a safe and healthy working environment for all employees. Our unambiguous commitment and goal is the total elimination of all serious and fatal accidents on our mines. Our conscious and carefully planned efforts towards this goal will continue during over the next 12 months and our objective is to achieve a further 25 per cent improvement against all safety indicators in the region.

Our signature interventions during the year under review were the further institutionalisation of the Safe Production Rules, the Safe Production Management Programme, and the stop, think, fix, verify and continue campaign. We also completed the first follow-up review of our entire safety management system by DuPont. The results of this review were particularly encouraging in that it confirmed that the new safety culture in the region had achieved significant traction since the first review conducted by DuPont in financial 2009.

To ensure the sustainability of our safety interventions and to ensure that we achieve the 2013 mine health and safety milestones set by the Department of Mineral Resources (DMR), we introduced two overarching strategic thrusts during the year. The first is a plan to engineer out risk and the second a programme to ensure compliance.

Engineering integrity is a fundamental requirement for safe production in South Africa’s deep-level mines. The programme of infrastructure rehabilitation across all mines in the region continued during the year with the principal projects being the replacement of the water pump column in the Kloof main shaft, the elimination of the secondary support backlog at the Kloof and Driefontein Gold Mines and the introduction of a new planned maintenance system in the region.

  • Good progress was made with the installation of the new water pump column at the Kloof main shaft and completion is scheduled, as originally planned, by December 2010.
  • The secondary support backlog at all mines in the region has now been eliminated.
  • After the implementation of updated ground support protocols in all mines, dedicated support crews now consistently maintain secondary support within 120 meters of current development faces.
  • The enhanced maintenance system introduced during financial 2009 was a prime focus during the year and revised protocols are now in place to facilitate rapid management of all planned maintenance issues.

Transformation remains a key objective in the South Africa Region. During the latter part of financial 2010 a significant step forward was taken when the Department of Mineral Resources approved and executed the conversion of the South Deep old-order mining right into new-order mining right. All four mines in the South Africa Region are now in possession of their new-order mining rights. Gold Fields also announced a number of BEE transactions during 2010 which will ensure that the company will achieve its 2014 BEE ownership requirements (full details in the Directors’ Report).


Miner at Beatrix headgear.
Miner at Beatrix headgear.

In financial 2009 Gold Fields also introduced a Seismic Task Team, comprising both internal and external experts, to study and advise Gold Fields on six priority activities aimed at reducing the prevalence and impact of seismic-related incidents. The priority areas are: operational control to standards; mine layouts and support systems; estimating and managing risk; modelling rock responses to seismicity; seismic data collection, processing and analysis; and support to rescue operations. The impact of the task team has been significant in that its recommendations have resulted in a 65 per cent reduction in all seismic-related injuries and an improvement of 82 per cent in the number of seismic-related fatal injuries, from 11 in financial 2009 to two in financial 2010. (For more details refer to page 108 of the sustainability report.)

Sustainable development is a core principle of the overarching Gold Fields approach to business. We will continue to pursue appropriate international best practices that will contribute to the attainment of our longterm goal of the sustainability of our business. During financial 2010 all of the mines in the South Africa Region retained ISO 14001 certification, with South Deep achieving its first certification. Gold Fields became the first mining house with all of its operations meeting in full the requirements of the Cyanide Code, and all of the mines in the region again maintained their OHSAS 18001 certification.

A fundamental requirement of a safe mining culture is full compliance with safety protocols, norms, standards and operating procedures. While we have made significant progress in our overall safety performance over the past two years, there remain a number of areas in which a quantum shift is still required. Foremost amongst these is employee behaviour and adherence to full compliance. Of the 18 fatalities recorded in our South African mines during financial 2010, only two can be attributed to seismicity. All of the remainder were preventable, so-called, shopfloor accidents, resulting from risky behaviour, non-adherence to established safety protocols and standards, or inadequate supervision and leadership at different stages of the production process. Our main priority during the next 12 months is to ensure that the safe production rules are rigorously adhered to by strengthening the values of personal and collective safety amongst our employees.

One of the unintended consequences of safety incidents has been the large number of unplanned and often mine-wide safety-related closures imposed by industry regulators on mines following accidents. To mitigate the occurrence of unplanned safety-related mine closures, Gold Fields embarked on a renewed effort to improve and strengthen its safety-related collaboration with all stakeholders, including, specifically, the unions active on our mines, as well as the Mining Inspectorate of the Department of Mineral Resources (DMR). This collective approach to safety lies at the core of the progress that we have made in our management of safety generally.

As a consequence of the much-improved management of safety overall, combined with closer cooperation with the DMR, we saw a significant reduction in the number of safety-related mine-wide closures during the second half of the year. This is a critical development in our efforts to stop the decline in production that has been evident in the South Africa Region over the past few years. Until then, unplanned safety-related production interruptions had been one of the main causes of production volatility in the region. Our single most important objective over the next few years is, through safe production, to prevent unplanned safety-related closures on our mines.

The second strategic intervention over the past two years to restore the production machine in the South Africa Region, is in the area of ore reserve development.

Ore reserve development has fallen behind largely as a result of the redeployment of crews to catch up with the backlog in secondary support which had been allowed to develop over the past decade. The objective is to restore all of the long-life shafts at the Driefontein, Kloof and Beatrix Gold Mines to at least 24 months of opened-up ore reserves. A new ore reserve reporting protocol has been implemented at all conventional mining shafts, which rovides for detailed management of strategies to establish and maintain the targeted 24-month ore reserve position. This protocol differentiates and classifies areas as either “development in progress”, “mineable ore reserves”, “immediately stopeable reserves” or “remnant and temporarily unavailable areas”.

To achieve the required reserve flexibility all flat-end development at the long-life shafts has been converted from conventional to mechanised development, which is significantly more productive and safer. To date more than two-thirds of all development crews at these shafts have made the transition to mechanised development and an improvement in safety, productivity and increased reserve flexibility is already evident.

The third strategic intervention to boost production in the South Africa Region are the mine call factor (MCF), dilution and quality mining.

All three of the established mines in South Africa (Driefontein, Kloof and Beatrix) have significant and well-defined Mineral Reserves. During the past few years, however, the recovered grades at these mines have been under pressure as a result of technical challenges in the areas of MCF, dilution and quality mining. Our immediate challenge is to improve the quality of grade delivered to the mill through a significant focus on volume, value, quality and old gold. To this end key variables are monitored, including face advance, fragmentation, mining widths, tonnage accumulations, sweepings and mining mix, to realise tangible improvements in the core areas of reduced dilution and gold loss, reduced grade gaps, increased old gold production and improved mine call factors. These initiatives have been incorporated in a new mining quality framework which has been introduced in the region. This framework forms the cornerstone of our operational management approach and was implemented to assist us in raising gold production levels at the mature mines.

The fourth strategic intervention is improved energy and utilities consumption, with a specific focus on electricity, diesel and water.

The West Wits Tailings Treatment (WWTTP) project (uranium project) progressed significantly during the year under review with the completion of the initial feasibility study during financial 2010. This project aims to assess the viability of extracting gold and uranium, as well as sulphuric acid, from existing tailings facilities. Pursuant to an evaluation of the initial feasibility study it was decided that an additional phase of work was required to further optimise the project and to improve returns. This work is currently underway and will be completed during this calendar year.

Savings of approximately R130 million per annum were realised by the end of financial 2010. This was achieved by way of a ten per cent reduction in power consumption over the past two years at the Driefontein, Kloof and Beatrix Gold Mines, offset by a 17 per cent increase in consumption at the South Deep project, as it deployed more equipment to facilitate the build-up in production. The total saving in diesel consumption over the same period was about three per cent. These initiatives are essential to offset the known and anticipated cost increases in these commodities over the next number of years. During financial 2010, Eskom, South Africa’s electricity utility, announced a 25 per cent tariff increase per year for each of the next three years. Over the next two years our intention is to save a further five per cent in electricity consumption a year. Also in support of these objectives, and in line with the Group’s new carbon policy, we have commenced with a number of carbon credit-related projects throughout the region. These are discussed in more detail on pages 116 and 117 of the sustainability section of this report.

Of significant importance is the upside inherent in South Deep above the base-case target of 750,000 to 800,000 ounces by the end of 2014. This target is premised on a base-case hoisting capacity of only 330,000 tonnes of ore per month from the twin shaft complex, which will be available once the ventilation shaft is completed by mid-2012. However, the previously abandoned south shaft complex which is 1.5 kilometers away from the twin shaft complex and linked to it on the 95-level, has a potential hoisting capacity of an additional 120,000 tonnes per month. This south shaft complex is in the process of being refurbished with a view to bringing it back into production. Already about 60,000 tonnes per month of hoisting capacity is available at this shaft. Once the full refurbishment is concluded, by mid-2012, the combined hoisting capacity available at South Deep will increase from the base-case of 330,000 tonnes per month, to a new level of 450,000 tonnes per month. The implication is that, based on a new higher level of hoisting and processing capacity, the full production target for South Deep could be significantly higher than the current plan of up to 800,000 ounces. Its potential will be evaluated in greater detail over the next six months.

The fifth strategic intervention is a comprehensive business process re-engineering programme (BPRP), which was launched during the latter part of financial 2010.

Total cash cost and NCE
(US$/oz)
  F2010 capital expenditure by mine
(R million)
  F2010 total development by mine
(km)
Total cash cost and NCE (US$/oz)   F2010 capital expenditure by mine (R million)   F2010 total development by mine (km)

The BPRP includes a review of the regional business model and underlying organisational structure, as well as the operational production processes from the stope to the mill in each of the three established mines. The objective is to introduce a new business blueprint, together with an appropriate organisational structure, which will support sustainable gold output at an NCE margin of 20 per cent over the next four quarters and 25 per cent over the medium to long term. Specific objectives are to flatten the organisational structure, improve the flow of workers and materials to and from the stope and reduce the cost-intensive footprints of all operations, with commensurate improvements in operating costs resulting in lower pay limits and increased mining flexibility.

The South Deep project is rightly considered to be the most significant development project in the Gold Fields Group. While the three established mines in the South Africa Region are fully capitalised and will continue to make a significant contribution to the Group, the South Deep project will secure the sustainability of the region for many decades to come.

The South Deep project had an outstanding financial year 2010. Production increased by 52 per cent from 175,000 ounces to 265,000 ounces and the build-up is on track to reach its targeted full production run-rate of between 750,000 and 800,000 ounces by the end of 2014. During the year under review the capital development and infrastructure projects that support this build-up progressed to plan. High levels of capital efficiency were achieved with all milestones delivered on time and at costs below budget. During the year the build-up in development meters gathered momentum and the South Shaft was recommissioned for single-shift hoisting. We also started with the mission-critical deepening of the ventilation shaft which is scheduled for completion by the middle of the 2012 calendar year, while concurrent equipping of the upper sections of this shaft is proceeding as planned. Construction of the new tailings storage facility is approximately 50 per cent complete and the first tailings depositions are planned for May 2011. Bringing South Deep into full production, on time and within budget, will remain a priority until the end of 2014.