As reported in the recent trading statement, attributable gold equivalent production, for the six months ended 30 June 2017, was 1.047Moz (H1 2016: 1.044Moz). All-in sustaining costs for the period were US$980/oz (H1 2016: US$992/oz), with allin costs of US$1,103/oz (H1 2016: US$1,024/oz) as a result of the increased growth capital.
As mentioned above, normalised earnings in H1 2017, decreased to US$77m, from US$103m in H1 2016 due to the impact of stronger exchange rates on converting local currency costs and amortisation to US dollars and secondly an increase inamortisation at Tarkwa linked to newreserves published in March 2017 as well asincreased mining volumes at this mine.
Normalised earnings from continuing operations were US$80m or US$0.10/share.
In line with our dividend policy, we have declared an interim dividend of 40 SA cents per share which compares with the 2016 interim dividend of 50 SA cents per share.
Gold Fields reported a net cash outflow for the half year of US$102m, compared with an inflow of US$60m in H1 2016, mainly due to the growth capital spent at Gruyere, Damang and Salares Norte. Stripping out the project capital of US$141m at these three projects, the net cash flow would have been an inflow of US$39m. Consequently, the net debt balance increased to US$1,365m from US$1,166m at the end of FY 2016, with the net debt to EBITDA ratio edging higher to 1.12x (from 0.95x at 31 December 2016) but still well below the debt covenant level of 2.5x.
Update on projects
Damang
The Damang reinvestment project, which commenced on 23 December 2016, has got off to a strong start and is currently tracking well against the project plan. During H1 2017, total tonnes mined were 18.9Mt while gold production was 77koz, underpinned by highgrade material from the Amoanda pit. Construction of the Far East Tailings Storage Facility (FETSF) commenced during Q1 2017 and is on track for completion by the end of 2017. It will provide cost effective tailings capacity of 44Mt.
Given the strong start to the project total tonnes mined in 2017 are now expected to be 41Mt vs. the project schedule of 33Mt, with the key focus on capital stripping.
Gruyere
During H1 2017, the Gruyere JV undertook a detailed review of the Feasibility Study, which resulted in a number of improvements and enhancements to the project.
The capital cost budget has been revised to A$532m to include certain other costs, including those associated with complying to the International Cyanide Management Code.
The project construction schedule remains unchanged, with engineering progress at 13.5% (budget: 14.8%) and construction progress in-line with budget at 9.3%. The Gruyere Village, which includes 648 rooms, offices and recreational facilities, was commissioned during H1 2017. As scheduled, Stage 1 (installation of the first 288 rooms) in March 2017 and Stage 2 (installation of a further 360 rooms) was completed in May 2017. Six of the eight planned boreholes at the Anne Beadell borefield were commissioned during H1 2017. These are expected to provide the majority of water required for construction works and potable water for the Gruyere Village.
The Bulk Earthworks contract was awarded to MACA Civil in May 2017. The contract covers the development of the main access road, borefield access tracks, sealed airstrip, and access roads to the process plant and the tailings storage facility. MACA began resourcing and mobilising its workforce in early May for an expected construction duration of 15 months.
The Engineering, Procurement and Construction (EPC) contract for the design, procurement and installation of the Gruyere processing plant and the associated infrastructure was awarded to Amec Foster Wheeler Cimvec Joint Venture and executed in June 2017. Contracts for the supply of key long lead equipment items have been awarded, including the ball mill and primary crusher to FL Schmidt and the SAG mill to Outotec.
During H1 2017, a power supply contract was signed with APA Group, a leading Australian energy infrastructure business. APA will design, build, own and operate a 198 kilometre gas pipeline and a 45 megawatt gas-fired power plant which will supply Gruyere's energy needs for the life of the project. Commissioning of both the pipeline and the power station is planned for Q4 2018. Procurement of the LPG will be undertaken by the Joint Venture.
Finally, the tender process for the mining contract is underway, with the award of the mining contract expected in Q4 2017. Mobilisation of the successful mining contractor is scheduled for Q1 2018.
Australia
Gold production in the Australia region for H1 2017 was 1% higher YoY at 469koz, with all operations except Darlot increasing production. AIC for the region was 3% lower YoY in A$ terms at A$1,228/oz and largely flat in US$ terms at US$924/oz. The net cash outflow from the region for H1 2017 was US$9m. However, if the US$60m spent on Gruyere is excluded, the region recorded an inflow of US$51m.
During H1 2017, A$47m of the exploration budget was spent, with 331,100 metres drilled during the period. There have been encouraging results at all operations including extensions at Wallaby at Granny Smith, both laterally and at depth, as well as extensions at Invincible and Invincible South at St Ives. At Agnew, infill and step-out drilling at Waroonga North yielded positive results, indicating that this ore body which is in close proximity and in a parallel shear zone to the high grade substantial Kim orebody, is increasing in size.
Subsequent to quarter end, Gold Fields announced the sale of Darlot, through a wholly owned subsidiary, to ASX-listed Red 5 Limited for a total consideration of A$18.5m, comprising A$12m in cash and 130m Red 5 shares. The cash component is made up of A$7m upfront and A$5m deferred for up to 24 months. The deferred consideration may be taken as additional shares in Red 5 or as cash at Gold Fields' election.
Red 5 intends to undertake a rights issue in order to assist with the funding of the cash component and general working capital purposes. Gold Fields will underwrite the rights issue up to A$7m. The transaction is subject to customary conditions, including Red 5 shareholder approval, and is scheduled for completion and ownership transfer in September 2017.
West Africa
Attributable gold production from the West Africa region was 4% higher YoY at 323koz in H1 2017 due to higher production at both Tarkwa and Damang. However, AIC for the region increased 9% YoY to US$1,142/oz driven by the US$53m in project capital spent at Damang during the half. The region generated net cash flow of US$21m for the six months to June 2017. If the project capital for Damang (US$53m) is excluded, the region would have generated net cash flow of US$74m.
South America
Attributable equivalent gold production at Cerro Corona increased by 7% YoY to 136koz, underpinned by slightly higher recovered grades and the higher copper price. Consequently, AIC decreased by 7% YoY to US$677 per equivalent ounce. The mine generated net cash flow of US$27m during H1 2017.
Over the last 12 months our technical and operational teams have been working on options to extend the life of Cerro Corona. At the present time initial studies have been completed that show by using existing mineral resources and alternative tailings disposal methods (specifically in-pit tailings and as an alternative, a new tailings dam) mine life could potentially be economically extended to 2030. This initial work has been encouraging and a pre-feasibility study is expected to be completed in early 2018.
South Deep
After a challenging start to 2017, with a number of incidents impacting Q1, production at South Deep in Q2 2017 increased by 61% QoQ. The recovery continued into the July month, during which 1,008kg (32koz) was produced. Despite the slow start to the year, the integrity of the rebase plan is still intact and largely on track. We strongly believe that the production schedule of the rebase plan over the next few years is on track.
For the six months to 30 June 2017, production at South Deep decreased by 15% to 3,710kg (119koz) from 4,356kg (140koz) in H1 2016, driven by decreased volumes and grade. Two fatalities and three falls of ground impacted negatively on the March quarter's production output. However, the June quarter demonstrated a significant improvement. AIC in H1 2017 increased 7% YoY to R662,973/kg (US$1,557/oz).
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Safety continues to be a priority at South Deep, with no fatalities reported in Q2 after a bad start in Q1. The TRIFR improved 25% YoY to 2.18 in H1 2017 from 2.89 in H1 2016. |
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The net cash outflow for the period was R630m compared with an outflow of R50m in H1 2016, in part due to the lower gold price received of R525,042/kg compared with R601,187/kg in H1 2016. |
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Development decreased by 7% to 2,853 metres in H1 2017 from 3,078 metres in H1 2016. |
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Destress mining decreased by 19% to 16,134 square metres for the six months ended 30 June 2017 from 19,845 square metres for the six months ended 30 June 2016 (a change in the rib pillar design from 2016 to 2017 resulted in a change in the measurement of destress square metres). Destress tonnes in H1 2017 were 109kt, compared with 163kt in H1 2016. |
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Longhole stoping volumes increased by 29% to 387kt in H1 2017 from 301kt in H1 2016, in line with the mines build-up plan, and accounted for 50% of total tonnes broken. |
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Secondary support increased by 19% YoY to 4,625 metres from 3,891 metres from H1 2016. |
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Backfill placed was 17% lower YoY for the six months to June 2017 at 164m3 from 198m3 in H1 2016. Operational constraints in Q1 2017 impacted negatively on backfill placed. In addition, the rib pillar destress method requires significantly less backfill. |
The improved performance from Q1 2017 to Q2 2017 is scheduled to continue for the remainder of the year. This is primarily as a result of additional mining cuts becoming available and improved access and infrastructure capacity particularly in the higher grade corridors. The forecast improvement will be further enabled by debottlenecking the ore handling infrastructure as well as improved primary equipment availabilities and utilisation. This is based on improved maintenance strategies and practices.
Significant focus is being placed on integrating and optimising the overall mining cycle including the constraining ancillary activities of secondary support and backfill to improve overall productivity. There has been an improvement in compliance to mine design parameters and this is steadily translating into improved overall mining conditions, mining area availability and output.
As a result of this, we envisage steadily increasing the rate of destress mining to further improve volumes and create mining stock.
Mining Charter
We endorse the process undertaken by the Chamber of Mines with regards to the 2017 Mining Charter published on 15 June 2017. The interdict application is likely to be heard in mid-September 2017. Gold Fields supports achieving a solution that is viable to support economic growth and create a sustainable mining industry in South Africa in which investment is encouraged. A preference is to craft a solution through a win-win outcome for all. Unfortunately, the current envisaged charter renders this impossible.
Silicosis
As reported in our recent trading statement, Gold Fields has raised a provision of US$30 million (R390 million) after tax for a possible settlement of the silicosis class action claims. We remain committed to finding a sustainable solution for the industry and claimants.
FY17 guidance intact
Attributable equivalent gold production for 2017 is expected to be between 2.10Moz and 2.15Moz, with AISC of between US$1,010 per ounce and US$1,030 per ounce. As previously guided, due to the increased project capital spend, AIC is expected to be between US$1,170 per ounce to US$1,190 per ounce.
Looking beyond 2017, we believe that we can at least maintain our current production profile for the next 8 to 10 years. In the chart below, we show the five-year production and AIC profile. The benefits of the investments in Damang, Gruyere and South Deep start to come through from 2019 onwards, with production approaching 2.3Moz and AIC approaching sub-US$900/oz. Importantly, this profile is largely achieved from lower risk, less capital intensive organic projects. Any further upside and capital expenditure potential from Salares Norte is excluded.
