GOLD FIELDS - Quarter ended 30 September 2011

Cost and revenue optimisation initiatives through Business Process Re-engineering (BPR)

BPR commenced during the second half of calendar 2010 and is an ongoing business initiative. BPR involves a review of the mines’ operational production processes and associated cost structures from the stope to the mill. The objective is to introduce a new business blueprint, together with an appropriate organisational structure, which supports sustainable gold output at an NCE margin of 20 per cent in the short to medium term and 25 per cent in the long-term.

The BPR underpins the suite of M projects which were established during financial 2008. The BPR will effectively replace the M suite of projects by the end of financial 2011.

Project 1M is a productivity initiative with the aim of improving quality mining volumes by increasing the face advance by between 5 and 10 per cent per annum. The BPR Stoping full potential project has effectively replaced project 1M at KDC. It aims to enable the delivery of full potential at every workface by introducing standardised reporting and practices, implementing effective production management and control systems to enable teams to manage the business more effectively. In effect, addressing advance per blast to drive quality-volume and removing key constraints which affect productivity on a shaft by shaft basis, including effective face times, logistics in-flow and out-flow models and mining cycles.

A programme management office was established to steer the project, monitor progress and develop solutions. The programme consists of 10 key initiatives:

Safety. Develop new processes and systems to monitor and manage safe production, as well as interventions focused on changing people behaviour.
Target area process. Focus on creating increased visibility of the workplace, with improved actions to enable a quality blast.
Advance per blast. Focus on behaviour, practices and training to improve quality rock breakage.
Front-line labour management. Ensure daily labour availability with the right skills mix.
Monthly planning. Enhance current protocol by way of improved reports and standardisation across the operations.
Panel/face-length availability. Redesign reports, create improved visibility and actions to improve the face-length availability.
Art of cleaning. Focus on training the front-line workers and firstline supervision to effectively clean a blasted panel.
Cost management. Adherence to labour standards and norms as well as the effective use of utilities.
Leadership training. Enhance skills.
Communication and change. Drive key messages both up and down the organisation, focus on the key objectives and targets of the business.

The BPR full potential development project will be fully implemented by year end and replaces project 2M, which is a technology initiative aimed at mechanising all flat-end development (i.e. development on the horizontal plane) at the long-life shafts of KDC and Beatrix. South Deep is already a fully mechanised mine. The aim of the project is to improve safety and productivity, reduce development costs and increase ore reserve flexibility through higher monthly development advance rates.

Ninety one per cent of flat-end development metres advanced at long-life shafts were achieved by mechanised means.

The BPR NCE full potential project focuses on all categories of expenditure and replaces project 3M. BPR aims to mitigate as much of the anticipated mining inflation increases as possible. Savings since this initiative started in mid-2010 amount to R353 million, of which R59 million was achieved in the September quarter.

The second phase of the project is currently being incorporated into the 2012 operational plans, targeting cost reductions of between R500 million (US$62 million) and R1.0 billion (US$123 million) for the South Africa mines.

These cost saving initiatives will be achieved through various programmes which include productivity improvement initiatives, continued optimisation of staff structures and complements, a reduction in non-specialised contractors, enhanced supply chain management and power consumption reduction initiatives.

Project 4M focuses on the Mine Health and Safety Council (MHSC) milestones agreed at a tripartite health and safety summit on 15 June 2003, comprising representatives from Government, organised labour and mining companies. The focus is on achieving set occupational health and safety targets and milestones over a 10-year period. The commitment was driven by the need to achieve greater improvements in occupational health and safety in the mining industry.

One of the milestone targets is that no machine or piece of equipment may generate a sound pressure level in excess of 110dB (A) after December 2013. In order to achieve this target the company is focusing on reducing the noise at source.

The number of measurements expressed as a percentage of noise measurements of machinery and equipment emitting noise in excess of 110dB (A) is currently 0.8 per cent. Most of the sound pressures exceeding 110dB (A) is where two or more rockdrill machines are drilling in a panel simultaneously. Silencing of equipment is ongoing and each intervention is project managed.

In order to reduce dust exposure targets the company continuously refines interventions, which include:

Building health rooms at each of the mines training centres to assist with the coaching of employees on potential exposures and wearing of protective instruments.
The use of foggers to trap dust particles liberated from tipping points. The foggers are placed in intake airways to prevent dust from entering the main air stream.
Footwall treatment to bind dust onto the footwall and prevent it from being released into the intake airways; and
The analysis of individual filters to assist in determining exposure.

Continued consolidation of several productivity, cost saving and efficiency initiatives, has resulted in cost savings of US$14 million for the year to date of which US$4 million was achieved this quarter.

As identified in the previous quarter, North heap leach recovery and mining volumes were the focus areas in the September quarter. The removal of bottlenecks at the North heap leach has resulted in a 10 per cent improvement in gold output from heap leaching since the March quarter. This was mainly due to the installation of three new large tertiary crushers which were commissioned during May. Insofar as mining operations are concerned dump truck efficiency has improved, resulting in a 6 per cent improvement in utilisation. This increased utilisation did not result in an increase in mining volumes as truck availability was hampered by the excessive rainfall during the quarter.

Focus for the December quarter will be directed towards mining performance, with the aim of realising additional mined tonnes. Utilisation improvements will be maintained with increased focus on productivity and equipment availability of the load and haul fleet.

Focus during the quarter was on maximising the benefits realised on the conversion from contractor to owner operation and owner maintenance. To date, benefits of US$18 million have been achieved, of which US$7 million was realised in the September quarter.

Phase 2 of the BPR continued during the September quarter, with the focus on mining and processing efficiencies. To date, satisfactory improvements in the use of mining equipment availabilities have been recorded.

In the December quarter we will continue to focus on mining and processing efficiencies. Additional opportunities to be pursued will include improving the mine call factor through the introduction of the blast movement monitoring system, and the introduction of an additional mining shift to maximise the use of the mining fleet.

At the end of July, St Ives transitioned from an underground mining contractor to owner operator for production at the Argo and Cave Rocks mines. This has allowed for an elimination of contractor margins and for greater control of mining activities. Savings of over A$1 million per month have been realised in the first two months, with significant opportunities for further improvements identified. Development remains with the contractor and an improved performance has resulted from this sole focus.

The heap leach operation has had a step change in throughput levels. This was achieved through the installation and commissioning of a diverter gate to automatically discharge all magnetic material which previously stopped production until a manual inspection and restart occurred. The diverter gate transfers any detected material to a bunded area, allowing the flow of ore to continue. Commissioned late in the September quarter, the benefits will only be fully realised from the December quarter.

The Lefroy mill also realised increases in ore production volumes through improved coarse ore stockpile management during planned shutdowns of the primary crusher. Previously throughput dropped by approximately 10 per cent during fortnightly preventative maintenance shutdowns due to excessive coarse ore feed during these events. The manual loading of fine material to restore optimum blends during these periods has resulted in a 55 per cent reduction of this lost throughput.

During the December quarter focus will be on completing a centralised data room at Lefroy and the transition to remote bogging from surface at Athena, which is expected to realise additional ore loading capacity.

During the September quarter, BPR focused primarily on the underground operations. Emphasis was placed on the delivery of key projects, optimisation of the mine planning process, refinement of operational data collection and reporting systems. Short-term interval control remains a key focus area. This ensures supervisors closely monitor production rates during each shift, quickly reacting to any element of the process which could negatively impact production. Specific focus has been on trucking efficiency.

The key production metrics are tracked and displayed at the Waroonga information centre to ensure all members of the production team are aware of the operational performance on a day to day basis. The focus and involvement of the entire production team has assisted in delivering more than 50,000 ounces during the September quarter.

Additional BPR initiatives will be introduced in 2012 to maintain the momentum that has been built in 2011. Performance monitoring and improvement initiatives together with training and deployment to the entire underground production team are part of maintaining the drive into 2012.

Operational review