Integrated Annual Review 2012 Annual Financial Report 2012 Mineral Resources and Mineral Reserves Regional overview  
 

2.4 Operation: South Deep

Introduction

South Deep is a long-life, deep-level mechanised gold mine operating at between 2,000 and 3,000 meters below surface. The mine was acquired by Gold Fields in 2006 and is located 45km south-west of Johannesburg.

South Deep is one of the largest undeveloped ore bodies in the world.

Strategic overview

South Deep is still undergoing development and ramping up production towards 700,000 ounces a year by 2016. It is set to offer a mechanised, efficient and low-cost operation focused on a world-class underground ore body – with an estimated life of mine in excess of 80 years.

Our application of advanced mining techniques and mechanised underground mining at South Deep is helping prove that – despite prevailing presumptions – deep underground gold mining can be carried out in an efficient, profitable and safe way.

Under the terms of the recent unbundling of Sibanye Gold, South Deep will remain under the management of Gold Fields. As such, it will play a vital role in the Group’s long-term commercial sustainability – in terms of cash generation, production volume and inventory. Indeed, the mine currently accounts for 69% of Gold Fields Mineral Resources and 65% of its Mineral Reserves.

Performance overview

During 2012, gold production remained relatively stable at 270,400 ounces (2011: 273,000 ounces). This reflected a 33% surge in production in the second quarter, balanced out by declines in production in the third and fourth quarters. These falls related to the anticipated disruption following the implementation of the new operating model on 21 November (see below).

Destress mining progressed extremely well during the year, increasing by about 75% year-on-year – and reaching new, record levels.

During the fourth quarter, South Deep also marked three important milestones in its journey towards its long-term production target. These included:

  • Completion (within budget and on time) of the deepening of the new Vent Shaft and the initiation of its commissioning for hoisting. Once it reaches full capacity (planned for late 2013), this will provide additional rock hoisting capacity of 195,000 tonnes per month – more than doubling mill-feed potential to 330,000 tonnes per month
  • Completion and commissioning of the gold plant expansion, which increased plant capacity from 220,000 tonnes per month to 330,000 tonnes per month – three years ahead of full production
  • Signing of a landmark agreement with the National Union of Mineworkers (NUM – representing over 70% of employees at the mine) and UASA, on the terms of a new ‘24/7/365’ operating model at South Deep. This is supported by a new bonus system designed to deliver appropriate rewards to employees who achieve production targets, as well as more competitive employment grading. The new operating model, which was implemented on 21 November 2012, is ultimately expected to increase face time by 23%. It also resolved all outstanding labour issues with the NUM dating back to the strike at South Deep in 2010 – and lays the basis for establishing South Deep as a world-class mine for the next 50 years and beyond, to the benefit of all of its stakeholders

Operating costs increased by 16% from R2.14 billion (US$296 million) in 2011 to R2.48 billion (US$303 million) – reflecting annual wage increases, an effective 25% electricity tariff increase implemented by state power utility Eskom, workforce expansion ahead of the expected production build-up, and general cost inflation.

In 2012, the mine’s NCE margin regressed to -37% (2011: -34%). Capital expenditure increased from R1.98 billion (US$275 million) in 2011 to R2.58 billion (US$315 million) in 2012 and was mainly focused on supporting the production ramp-up. This included expenditure on:

  • Deepening of the Vent Shaft
  • Expansion of the processing plant
  • Completion of the backfill plant
  • Ore reserve development (including destressing)
  • Acquisition of mobile underground equipment and vehicles

In addition, work continued on the development of further infrastructure projects that will support productivity at the mine. These included:

  • A Trackless Engineering Skills Training Centre, which will use advanced training and electronic simulators to produce a cadre of world-class underground mechanised miners. This is due for completion in the first half of 2013
  • The new, underground 93-level Main Workshop, which will maintain our mechanised underground mining fleet on a 24-hour, double-shift basis

South Deep achieved three million fatality free shifts during the third quarter and reported no fatalities during the year.

The ‘twin’ shafts at South Deep, South Africa
The ‘twin’ shafts at South Deep, South Africa

2013 outlook

Planned production for South Deep is estimated at between 305,000 and 320,000 ounces of gold at a total cash cost of US$1,100/oz and an NCE of US$1,800/oz. This plan assumes:

  • The embedding of the new operating model by the end of the first quarter – including the implementation of relevant training and the end of any disruptions linked to the transition in working arrangements
  • The achievement of full capacity hoisting via the new Vent Shaft
  • Selective outsourcing of equipment maintenance

The new operating model is expected to increase production by between 10% and 15%, helping the mine achieve its target of becoming cash generative by the end of 2013 subject to appropriate gold prices. Thereafter, the total cash cost and NCE are likely to fall as the production build-up progresses over the next three years.

At full production, South Deep is expected to be globally competitive from a cost perspective.

Key indicators

Figure 2.14: Optimising our operations indicators – South Deep

Category 2012   2011   2010   2009   2008  
Gold produced – attributable (kg) 8,411   8,491   8,524   7,373   5,124  
Gold produced – attributable (’000oz) 270   273   274   237   165  
Total cash cost (R/kg) 290,952   249,146   215,157   183,358   226,776  
Total cash cost (US$/oz) 1,105   1,073   914   677   860  
Notional Cash Expenditure (NCE) (R/kg) 601,141   485,314   431,335   379,004   403,044  
Notional Cash Expenditure (NCE) (US$/oz) 2,283   2,091   1,833   1,398   1,529  
Gold price (R/kg) 438,961   363,538   288,022   259,921   231,187  
Gold price (US$/oz) 1,667   1,566   1,224   959   877  
Operating profit (Rm) 1,212   948   584   509   (24)  
Operating costs (Rm) 2,480   2,138   1,871   1,408   1,209  
Operating margin (%) 33   31   24   27   (2)  
NCE margin (%) (37)   (34)   (50)   (46)   (74)  
Fatal Injury Frequency Rate (FIFR) 0.00   0.04   0.07   0.08   0.94  
Lost Time Injury Frequency Rate (LTIFR) 1.95   1.67   2.87   2.74   12.45  
Energy consumption (TJ) 2,053   2,092   2,171   2,039   1,719  
CO2 emissions (’000 tonnes) (Scope 1 & 2) 537.9   546.7   572.5   559.1   463.0  
Water withdrawal (million liters) 3,847   4,674   2,926   2,770   3,870  

Figure 2.15: Growing Gold Fields indicators – South Deep

Category 2012   % of Group total  
Attributable Mineral Resources (million oz) 73.03   41  
Attributable Mineral Reserves (million oz) 36.02   53  

Figure 2.16: Securing our future indicators – South Deep

Category 2012   2011   2010   2009   2008  
Total employees 3,540   3,503   3,077   2,683   2,488  
Silicosis submissions (Rate per 1,000 employees) 0.33   n/a   n/a   n/a   n/a  
Employees on Highly-Active Anti-Retroviral Treatment (HAART) 3.92   n/a   n/a   n/a   n/a  
Employee wages and benefits (Rm) 1,067   934   742   565   578  
Total taxation and royalties paid (Rm) 19   15   0   0   0  
SED spend (US$m) 161   7   n/a   n/a   n/a  


1
Higher figure reflects the inclusion of maintenance provisions and operating costs in 2012