Gold Fields operations return to cash positive contribution

The Group had zero fatalities in the September quarter. The fatal injury frequency rate improved from 0.09 to 0, the serious injury frequency rate improved from 0.35 to 0.20 while the lost time injury frequency rate regressed from 1.23 to 1.32. The safety performance of the Group was characterised by Cerro Corona recording a second full year since the September 2011 quarter with no lost time injuries. Agnew also achieved a full year with no lost time injuries. Safety is our number one value, “If we cannot mine safely, we will not mine”, and our top priority is to continue to improve on safety performance through the diligent application of and full adherence to the Group’s safety standards and protocols.

The main feature of the September 2013 quarter was the continuation of our concerted and focussed strategy to engineer a sustainable and structural shift in the Group’s cost base, a process that started in mid-2012. Underlying the strategy of re-basing the Group’s cost structure is a fundamental shift in strategy away from a primary focus on ounces of production to greater emphasis on generating free cash flow and improving the margin.

Our goal is to rebase the Group’s all-in costs (AIC) for 2014 and beyond to sustain our business in the long-term. We have made good progress towards this goal. While this is work in progress, our success to date is reflected in the Group’s AISC (All in sustaining cost) for the September quarter (US$1,089 per ounce), which is 25 per cent lower than the June quarter. The specific interventions that contributed to this decline in costs are discussed below. NCE at US$1,064 per ounce for the September 2013 quarter is 7 per cent lower than the US$1,149 per ounce for the September 2011 quarter and 26 per cent lower than the US$1,435 per ounce for the September 2012 quarter. Specific production and cost guidance for 2014 will be provided with the publication of the December 2013 results in February 2014.

During the September quarter we concluded the acquisition of the Yilgarn South assets in Western Australia from Barrick Gold, which became effective on 1 October 2013. Following the completion of the acquisition, the Granny Smith, Lawlers and Darlot mines are being integrated into the Gold Fields portfolio. Agnew and Lawlers will be reported as a single entity, as Lawlers is being merged with Agnew in order to realise the synergies inherent in the combination of mine contiguous operations.

Operational results and guidance update

At 496,000 ounces, production for the September quarter was 10 per cent higher than the 451,000 ounces reported in the June quarter.  This brings production for the year to date to 1,424,000 ounces, which is supportive of our existing guidance for the full year of between 1,825,000 and 1,900,000 ounces, excluding the Yilgarn South assets.

Despite the fact that South Deep is a developing project and is still operating significantly below full production, it is accounted for as a fully operational mine.  If South Deep is excluded then the Group NCE is US$962 per ounce and AIC is US$1,088 per ounce for the September quarter.  This gives a good indication of the robustness of the rest of the portfolio.
 
The newly acquired Yilgarn South assets are expected to produce between 90,000 and 100,000 ounces for the December quarter.  As a consequence Group production guidance for the full year is revised up to between 1,915,000 and 2,000,000 ounces, while cost guidance remains unchanged with total cash costs of approximately US$830 per ounce and Notional Cash Expenditure (NCE) of approximately US$1,240 per ounce.

Continued cost containment key to success

During the September quarter Gold Fields made progress with its strategy to make a sustainable structural shift in the Group’s cost base with four of our six existing mines reporting much improved all-in costs:  Cerro Corona achieved an AIC of negative US$21 per ounce; Agnew US$842 per ounce; St Ives US$1,116 per ounce and Tarkwa US$1,124 per ounce.  The only exceptions were Damang in Ghana which reported AIC of US$1,727 per ounce and South Deep in South Africa, which is a build-up mine and reported AIC of US$1,599 per ounce.

The strategy to make a sustainable structural shift in the Group’s cost base includes the following interventions:

Growth and International Projects division break-up and associated expenditure significantly reduced

Following the announcement on 22 August 2013 of the review of the Group’s GIP division, which included all international growth as well as greenfields exploration projects, it was decided during the September 2013 quarter to break-up the GIP Division and significantly downscale all associated growth activities, and to relocate the remaining activities to the existing relevant regional structures.

As a consequence of these interventions the combined expenditure on all GIP related activities is expected to reduce from approximately US$220 million in 2012 to an estimated US$165 million in 2013 including once off costs of US$10 million relating to restructuring and retrenchment costs.  Further cost reductions should be realised in 2014.

Break-up of the GIP division is well underway and is expected to be completed by year-end.  While some of the anticipated savings are reflected in the results for the September 2013 quarter, the bulk of the savings will be realised over the remainder of 2013 and into the first half of 2014.

Operational specific interventions

Of the Group’s eight mines (including the recently acquired Yilgarn South assets) five are performing well and consistent with production and cost expectations (Tarkwa, St Ives, Agnew/Lawlers, Granny Smith and Cerro Corona), while three are in need of and receiving focussed attention (South Deep, Damang and Darlot) with a view to improving operational performances and reducing cost.

At Tarkwa in Ghana the South heap leach operation has now been decommissioned.  The focus for the remainder of 2013 is on the closure of the North heap leach operation which has a cost structure higher than the prevailing gold price, and to transition the mine from a combined heap leach and CIL operation, to a CIL operation only.  This will see the mining rate reduce in 2014 from approximately 130 million tonnes per annum to approximately 90 million tonnes per annum.  Following the closure of the North heap leach operation Tarkwa’s production is expected to decline to between 525,000 ounces and 550,000 ounces in 2014, and to approximately 500,000 ounces per annum thereafter.   

At Damang, also in Ghana, the focus remains on improving operational performance through improved quality mining and more consistent plant availability.  The work to determine if it is economically viable to extract all or part of the four million ounce reserve continues, with a decision on the future of the mine expected in the first half of 2014.  If a viable sustainable operational plan cannot be developed for this mine, care and maintenance will be considered.

Acquisition and integration of the Yilgarn South assets

The acquisition of the Yilgarn South assets from Barrick, which is in line with our strategy to improve the Group’s cash generating ability, was concluded on 1 October, after the close of the September quarter, and the integration of the Granny Smith, Lawlers and Darlot mines into the Gold Fields portfolio has commenced.  A thorough operational review has been concluded on each of the mines and the most appropriate strategy determined to realise the benefits of the acquisition through the application of Gold Fields’ proven low cost model in Australia, which has been successful in repositioning Gold Fields competitively on the cost curve in Australia.  The transition to Gold Fields’ management was seamless at all three mines and our attention will now turn to optimising the value of these operations.

In order to maximise the operating synergies between Lawlers and the adjacent Agnew, the two mines were immediately integrated and the Lawlers processing plant is expected to be closed by the end of November.  All newly mined ore from Lawlers is now being treated at the Agnew plant.  The consolidation of other services, infrastructure and human resources are progressing well.  At the Darlot mine the focus is on improving the operational performance and gaining a greater understanding of the reserve potential of the property.   

For the December 2013 quarter, Gold Fields will report on all three of the mines, with Agnew/Lawlers being reported as a single entity.  It is expected that the three mines will collectively add between 90,000 and 100,000 ounces to Gold Fields’ production in the December quarter at an NCE of approximately US$1,165 per ounce (A$1,215 per ounce).

Environmental management

Gold Fields’ approach to environmental management is in accordance with international standards and practices. ISO 14001 accreditation is a Group standard and we were the first mining signatory to the International Cyanide Management Code that obtained certification for all of its eligible operations.  Our most material environmental performance indicators, i.e. carbon emissions, energy usage, water withdrawal, re-use/recycling and environmental incidents, are reported annually and externally assured.  The alignment of our policies, guidelines and practices to the International Council of Mining and Metals’ (ICMM) 10 Sustainability Principles, which include environmental management, is also assured annually.  Gold Fields reports environmental incidents using a grading scale of 1 to 5.  Levels 1 and 2 involve minor incidents or non-conformances with negligible or limited impact.  A level 3 incident is a limited non-conformance or non-compliance with limited environmental impact, but is often a repeat of the same incident.  Level 4 and 5 incidents include major non-conformances or non-compliances that could result in long-term environmental impact with company or operation threatening implications and potential major damage to the company’s reputation.

No level 4 or 5 environmental incidents have been recorded at any of Gold Fields’ operations in the past five years.  Six level 3 environmental incidents were recorded during 2012 compared with two during the first half of 2013.  No level 3 environmental incidents were recorded during the September 2013 quarter.

SEC Investigation
 
As announced on September 10, 2013, the Company has been informed that it is the subject of a regulatory investigation in the United States by the US Securities and Exchange Commission relating to the Black Economic Empowerment transaction associated with the granting of the mining license for its South Deep operation. Given the early stage of this investigation, it is not possible to estimate reliably what effect, the outcome this investigation, any regulatory findings and any related developments may have on the Company.