4.3.4 Growth in 2015

Existing portfolio
During 2015 Gold Fields continued to focus on improving the cash-generation performance of its existing operations. This included:

  • Protecting the commercial sustainability of its mines by avoiding high-grading and investing in ore development on an ongoing basis (p78)
  • Brownfields exploration for life-of-mine extensions (p78)
  • Production and strategic planning based on the delivery of a healthy FCF margin at prevailing gold prices
  • Extensive reviews of two of our more marginal mines – Damang in Ghana and Darlot in Australia – to ensure that they will continue to contribute in the long-term to the growth potential of Gold Fields. These reviews are ongoing
  • Bringing South Deep into a position where it halts cash outflows on a continued basis

To ensure that our business has a strong future, we have made continued exploration and development of our mines’underground and surface ore bodies a strategic priority. These are among the last activities we would cut, even in a sustained low gold price environment and costs associated with maintaining the integrity of our ore bodies is built into the mines’ cash flow models.

The strength of our portfolio is evident in the continued free cash flow generation of our international mines in Australia, Ghana and Peru, which collectively generated a net US$334 million during 2015, despite the average lower US$ gold price received. Furthermore, our portfolio’s FCF margin for 2015 was 8% despite the fact that, at US$1,140/oz the actual annualised gold price received was 12% below the US$1,300/oz planning price. If the price received for the year was normalised to US$1,300/oz, then the free cash flow margin would have been 15% – in line with our stated target.

At the South Deep mine in South Africa, we are targeting cash breakeven by the end of 2016 with steady-state production metrics to be published early in 2017. Progress at South Deep is discussed on page 73.

Sales and divestments
As part of stringent evaluation of its assets Gold Fields has, since 2013, disposed of a range of projects that did not meet its long-term cash-generation criteria. In 2014, we disposed of our holdings in the Chucapaca project in Peru, Yanfolila in Mali and Talas in Kyrgyzstan.

In 2015, we continued the programme of disposing of growth assets which did not meet the Group’s strategic growth parameters. Gold Fields sold its 51% interest in the Woodjam copper-gold-molybdenum project located in British Columbia (BC), Canada to its joint venture partner in the project, Consolidated Woodjam Copper, as it is not a majority gold project. As payment Gold Fields was issued with new Woodjam Copper shares to take its aggregate holding in Woodjam Copper from 1.1% to 19.9%. As in similar transactions previously, Gold Fields will retain a future royalty in the project, in this case a 2% net smelter return (NSR) royalty over all unencumbered land owned by Woodjam Copper. This ensures that Gold Fields retains some upside to future production in the project.

The table below shows the status of our sales of holdings in key projects over the past two years.

Gold Fields’ divestment 2014 – 2015

Project Year Buyer Price NSR
royalty
85% of Yanfolila (Mali) (85%) 2014 Hummingbird Resources 19.9% in Hummingbird shares 0
51% of Chucapaca (Peru) 2014 Buenaventura US$81 million 1.5%
100% of Talas (Kyrgyzstan) 2014 Robust Resources US$10 million + Robust shares
(since cashed out)		 2%
51% of Woodjam project 2015 Consolidated
Woodjam Copper		 19.1% in Cons Woodjam
Copper shares		 2%


Gold Fields still retains 100% in the Arctic Platinum Project in Finland, but the project remains up for sale since it is a majority Platinum Group Metals operation.

Near-mine exploration
Gold Fields’ significant investment in greenfields exploration over the last 15 years has not delivered any new mines. Instead, all new mines brought into the Company’s production portfolio have been through acquisition – with Gold Fields adding subsequent value through the optimisation of their operations.

Near-mine exploration therefore offers one of the best opportunities for cash-generative growth for Gold Fields. This is due to synergies offered by:

  • Knowledge of the mine’s ore bodies – which supports its ability to identify additional ore bodies within common, nearby geological systems
  • Operational capabilities – including Gold Fields’ proven ability to effectively develop and mine orogenic ore bodies
  • Regional and operational infrastructures – including its existing processing spare capacity and regional management teams

As well as adding to Gold Fields’ Mineral Resource and Mineral Reserve base, near-mine exploration:

  • Extends the life of the Group’s existing mines – whilst maintaining and/or increasing their value
  • Ensures each region can continue to leverage its existing infrastructure

The benefits of effective near-mine exploration can be seen in the historical sustainability of the Agnew and St Ives mines. In 2002, at the time of their acquisition, the mines had a combined Mineral Reserve of 2.9 million ounces. Since then, the mines have produced over 8.5 million ounces – and their combined Mineral Reserves remain mostly unchanged. Gold Fields believes that most of its mines in Australia (which share similar orogenic ore bodies) will be able to repeat this success. Orogenic ore bodies offer a number of advantages in this respect, making this a priority region for near-mine exploration.

Orogenic ore bodies
Orogenic ore bodies are an important source of global gold production. While known orogenic reserves characteristically do not extend much further than several years on any particular deposit, they can have significant vertical and horizontal dimensions and ‘grow volumetrically’ as extensional exploration and development advances. They can therefore provide mines with long-lived, sustainable gold operations particularly as orogenic ore bodies are well understood geologically and are often large and of good grade.

In 2015, Gold Fields raised its total near-mine exploration expenditure by 20% to US$72 million (2014:US$60 million) in pursuit of this strategy, the majority of which – US$68 million (A$91 million) – was at our four Australian mines. This budget supported a total of 638,766 metres of near-mine drilling (2014: 349,511 metres). For 2016 we have budgeted for US$65 million in near-mine exploration of which A$86 million (US$63 million) will be at our Australian operations.

Much of this activity was focused on the Australia and West Africa regions where the six mines in the Gold Fields portfolio have strong growth potential. Following is a breakdown of the operations’ reserve and resource reconcilation for 2015.

St Ives      
Mineral Resource reconciliation     Mineral Reserve reconciliation
   

2015 saw a reinvigoration of the St Ives exploration effort with expenditure increased to A$43 million and 31.3km of drilling completed. This delivered 68,000 ounces of new reserves to the Neptune deposit and 34,000 ounces of new reserves at the North-West Palaeochannel. New resources were defined primarily at Invincible South with an increase of 192,000 ounces, and at Invincible Underground with 134,000 new ounces. Maiden resources were defined at Incredible with 90,000 ounces and at North-West Palaeochannel with 37,000 ounces. Further growth potential exists at all of these projects.

Encouraging results were returned from broad gold intercepts in shallow drilling at the Retribution project. Extensive follow up drilling will be completed during 2016 to further define the gold mineralisation and to define resources.

The exploration strategy at St Ives is to continue to develop the exploration pipeline and define further resources, with a priority on open pit resources. Resources defined during 2015 will be expanded and converted to reserves.

Agnew      
Mineral Resource reconciliation     Mineral Reserve reconciliation
   

Agnew saw strong focus on growth through exploration in 2015. Exploration expenditure of A$21 million delivered additional near-mine reserves of 55,000 ounces at Cinderella and total new resources of 367,200 ounces. The resource expansion came primarily from Cinderella with an increase of 116,000 ounces and at New Holland with 107,000 ounces. Maiden resources were reported at Kath (94,500 ounces) and Himitsu (49,700 ounces).

Highly encouraging results were observed from drilling in the Waroonga North project in late 2015. In 2016, resource definition drilling will be accelerated from surface and an underground drill platform established.

The exploration strategy at Agnew is to identify high potential targets outside the current Waroonga – New Holland mining complex but within the tenement package. To this end, high-resolution magnetic data for the Eastern Limb tenements was acquired and analysed during 2015. This information, combined with historic exploration results, has enabled definition of 15 early stage targets to be tested in 2016.

Darlot      
Mineral Resource reconciliation     Mineral Reserve reconciliation
   

Darlot's 2015 focus was on self- funded exploration programmes to replace production depletion and to extend the life-of-mine.

Key successes in the underground exploration programmes were the initiation of stoping in the Lords South Lower area with positive grade reconciliations. Incremental expansion options have also been identified. Further upside potential exists for Darlot from ongoing in-mine exploration drilling with the Centenary Oval area delivering a small maiden Inferred Resource in 2015.

Further Resource conversion drilling was well advanced by end-2015. In addition there was a significant ramp up of surface exploration activities, inclusive of detailed structural and geophysical targeting, aimed at identifying hidden ore bodies at depth analogous to the Centenary ore body. The increased exploration budget in 2015 focused on both underground and surface prospective areas.

Direct exploration expenditure in 2015 amounted to A$10 million on underground and surface drilling. A total of 50,278 metres of drilling was completed.

Granny Smith      
Mineral Resource reconciliation     Mineral Reserve reconciliation
   

Increased exploration expenditure was directed to co-ordinated work on a range of activities from earliest stage target identification through to the definition of extensions to the Wallaby deposit. A large number of target areas were uncovered that warrant a wide-ranging, early stage air-core drilling project involving 57km of drilling across both the land-based tenements and Lake Carey – a large salt lake beneath which limited exploration work has been conducted to date.

Some targets identified by the early stage work, were tested with 16km of reverse-circulation and diamond drilling. An intense programme, including 87km of extensional and in-fill diamond drilling, targeted the Wallaby ore body to increase the reserves and resources around and ahead of the current production zones.

The exploration programme was successful, revealing promising prospects for further investigation in 2016 and, at Wallaby, resulting in net additions of 1,500,000 ounces in resources and 440,000 ounces in reserves. Overall a post-depletion increase of 43% in resources and 50% in reserves was achieved.

Tarkwa      
Mineral Resource reconciliation     Mineral Reserve reconciliation
   

Initial auger and diamond drilling was carried out at Tarkwa during 2015 at a cost of around US$840,000. This was undertaken in areas identified under the geochemical soil sampling programme, which was carried out in 2014 to explore parts of the concession that previously had limited exploration.

Even though some good results were returned in a number of framework holes, continuity and thickness still need to be confirmed. These areas will be the focus for 2016, for which a budget of US$1.5 million has been allocated.

Damang     Damang
Mineral Resource reconciliation     Mineral Reserve reconciliation
   

Although no greenfields exploration projects were carried out during 2015, a number of resource infill and extension drilling programmes were conducted at the various pits that encompass the Greater Damang ore body, as well as the Amoanda pit.

The primary objectives of the year’s drilling campaign were to:

  • Enhance the understanding of the geology and controls on grade distribution in critical areas
  • Increase confidence in the resource models
  • Add Mineral Resources by the further development of projects with infill drilling

The 2015 phase of reverse circulation and diamond drilling which were completed at the Huni, Saddle, Juno and Juno South pits, have been included in the 2015 Damang resource model. The total exploration expenditure for 2015 was US$1.7 million.

Update on growth projects
Two advanced growth projects justified continued inclusion in Gold Fields’ growth portfolio. Salares Norte in Chile meets all of the key criteria. It is in ‘the right address’, offers the right metal and is commercially sustainable. Far Southeast in the Philippines offers a world-class copper-gold deposit with the potential to deliver substantial strategic benefits to the Group in the long term.

Salares Norte, Chile
The Salares Norte advanced drilling project is 100% Gold Fields owned and is focused on a gold-silver deposit in the Atacama region of northern Chile. Mineralisation is contained within a high-sulphidation epithermal system – offering high-grade oxides. The project is located within a core 900ha concession area – and Gold Fields enjoys an option to purchase two adjoining concessions that would add a further 2,100ha.

In December 2015, Gold Fields updated the project's Mineral Resources, reporting a total 26.8 million tonne Mineral Resource of 3.3 million ounces of gold at a grade of 3.9g/t, and 42.1 million ounces of silver at an average grade of 48.9g/t. We upgraded 31% of Mineral Resources from inferred to indicated status. Preliminary indications, supported by metallurgical test work, suggest Carbon-in-Leach processing could deliver recovery rates of around 90% for gold.

Water security remains a challenge to project execution and operation. While Salares Norte has access to a nearby reservoir with sufficient supplies, the project team is currently meeting with officials from the Water Bureau and the Ministry of National Assets in dealing with the administrative applications that have been submitted. Gold Fields is also in the process of obtaining land access for the project's development and is in negotiation with the state over the land valuation.

Finally, a new Environmental Impact Declaration study was presented to the authorities in January 2016 and is currently under evaluation.

Although there are no indigenous ancestral lands present within the direct project area, the project team is engaged with the surrounding indigenous communities. During 2015, the project made a total of US$40,000 contribution to social investment projects and will continue supporting these communities during 2016.

Salares Norte offers significant potential in terms of future cash generation, provided that the requested water permits are granted. A project manager has been appointed for Salares Norte overseeing the work of a team of 100 people. A budget of US$56 million has been made available for further drilling and studies in 2016, following on the US$17 million spent in 2015.

Far Southeast, Philippines
The Far Southeast project is a proposed underground mine located in northern Luzon province – 250km north of Manila. The 900 million tonne copper-gold porphyry ore body has grades of approximately 0.7g/t gold and approximately 0.5% copper. At the end of December 2012, it declared an Inferred Mineral Resource of 19.8 million ounces of gold and 9,921Mlb of copper.

The project is held by Far Southeast Gold Resources (FSGRI) 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 of the Philippines holds the remaining 60% interest and manages the existing mining operation. In late 2015, Gold Fields impaired its investment in Far Southeast by US$101 million from US$230 million to US$129 million, as determined by an evaluation of Lepanto’s market value on the Philippine Stock Exchange.

For Gold Fields to obtain a further 20% interest in the project, a Financial or Technical Assistance Agreement (FTAA) is required from the Philippine Government, and is dependent on obtaining the Free, Prior and Informed Consent (FPIC) of the local Kankana-ey indigenous people. In mid-2013 the Kankana-ey people voted in favour of the project and a formal Memorandum of Agreement (MOA) was signed with the Council of Elders in February 2015. The MOA and supporting documentation are currently being considered by the National Commission on Indigenous Peoples (NCIP) before issuance of a formal Certification Precondition, which will complete the FPIC process.

Lepanto and FSGRI jointly applied for the renewal of the mineral tenement in June 2014, to pre-empt the expiration of the initial 25-year term of the mineral tenement in March 2015. In February 2015, Lepanto and FSGRI commenced arbitration proceedings against the Philippine government on whether an FPIC is also required for the renewal of the mineral tenement. In November 2015, the arbitration panel issued an award that FPIC may not be validly imposed as a requirement for the renewal of the mineral tenement and that it should be renewed. This arbitration is now under dispute by the Philippine government. Similarly, conversion of the mineral tenement into an FTAA has been declined at this stage by the mining regulator and FSGRI is appealing the decision.

Amid the legal and administrative delays, the holding costs of this project have been reduced to approximately US$250,000 per month, related mainly to community engagement work as well as activities to support the permitting process.

Further material development of the project will be dependent on Gold Fields obtaining the majority ownership and receiving an FTAA.