In addition, three serious injuries were
reported for H1 2019, compared with two
in H1 2018. These incidents serve as a
stark reminder that our focus on safety
has to be relentless. In this regard, in
2017 our Executive team initiated a
Safety Leadership Group, which is
chaired by Stuart Mathews, Executive
Vice President Australia. One of the key
strategic objectives of this group, is to
develop a culture of safety leadership
within the organisation and firmly embed
safety management through systems,
behaviour and leadership.
A workshop was held in July 2019, where
a dedicated safety leadership training
package called Courageous Safety
Leadership was launched. The training
will be rolled out across the organisation
and will be standard for all new
employees. We will also be extending our
Australian behaviour-based programme,
Vital Behaviours, to entrench safe
behaviours and choices within every
activity across the entire business.
Turning net cash flow positive in H1 2019
We are pleased to report that after a two-year
reinvestment period (2017 and
2018), Gold Fields turned net cash flow
positive in H1 2019, earlier than originally
anticipated, generating US$49m for the
six month period (after taking into
account all costs in the business
including debt service costs and all
project capex), which compares to the
net cash outflow of US$79m in H1 2018.
We expect the Group's cash generating
ability to increase in H2 2019 and into
2020 as the project capex reduces and
contribution from the new projects
increases.
Looking at the core operations (excluding project spending on
Gruyere), the group generated net cash flow of US$198m in H1
2019 compared with US$128m generated in Q2 2019.
As reported in Q1 2019, Gold Fields adopted the new lease
accounting standard (IFRS 16) on 1 January 2019, which has
impacted the reporting of net debt and the net debt to EBITDA
ratio. On the new classification, the net debt balance at the end
of June 2019 was US$1.79bn, with a net debt to EBITDA ratio
of 1.59x. Using the old classification (pre-IFRS 16), the net debt
balance at the end of June 2019 was US$1.50bn, which is an
improvement on that reported at the end of December 2018 of
US$1.61bn. The net debt to EBITDA also improved over the six
month period to 1.36x at the end of H1 2019 from 1.45x at the
end of FY 2018.
As reported in the recent trading statement, attributable gold
equivalent production for the six months ended 30 June 2019
increased by 9% YoY to 1,083koz (H1 2018: 994koz), mainly
due to the inclusion of the contribution from Asanko in H1 2019.
On 14 November 2018, the World Gold Council (WGC)
published an update to its guidance on the interpretation of all-in
sustaining costs (AISC) and all-in costs (AIC). Gold Fields has
adopted the revision prospectively from 1 January 2019. Based
on the revised WGC guidance, AISC for the Group is US$891/oz
for H1 2019. On the previous interpretation, AISC for the period
was US$973/oz (H1 2018: US$965/oz), marginally higher YoY.
Whilst cognisant that Gold Fields has been funding two major
projects (Damang and Gruyere) over the past two years, AIC for
H1 2019 was 5% lower YoY at US$1,106/oz (H1 2018:
US$1,169/oz) as project capital started to decrease. AIC
reporting was not affected by the revised WGC guidance.
Normalised earnings for the six months ended June 2019 were
US$126m or US$0.15 per share, compared with US$43m or
US$0.05 per share in for the six months ended June 2018.
In line with our dividend policy of paying out between 25% and
35% of normalised profit as dividends, we have declared an
interim dividend of 60 SA cents per share, which compared with
the 2018 interim dividend of 20 SA cents per share.
Update on projects
Gruyere
Gruyere reached the milestone of pouring first gold just post the
close of the June 2019 quarter, with three dore gold bars
totalling 1,139oz being produced from the Carbon-in-Leach
(CIL) and elution circuits. With delivery of first gold, focus shifted
to commissioning of the final components of the processing
plant, in particular the ball mill was completed and brought into
production in July – August.
Mining activity has delivered 2.5 million tonnes of ore mined
year-to-date and is ahead of plan. Ore delivery comprised 1.3
million tonnes of ore at a grade of 1.04g/t for 43koz, and a
further 1.2 million tonnes of low grade at 0.61g/t for 22koz
(100% basis). Low grade ore has been used for initial plant feed
during commissioning, final construction and sheeting of the
Run-of-Mine stockpile platform, reclaim stockpile, and planned
building of low grade stockpiles for the longer term.
Practical completion (plant running uninterrupted for 96 hours)
was achieved on 10 August and the ramp-up to steady state is
progressing well.
As previously announced, production for FY 2019 is now
expected to be between 75koz to 100koz (100% basis), while the Final Forecast Capital Cost estimate remains unchanged at
A$621m (100% basis).
AIC for FY 2019 is expected to be A$4,450/oz (previously
A$3,178/oz), based on gold sold (associated with the upper end
of production guidance) and assuming commercial levels of
production are achieved at the end of Q3 2019.
Damang
Damang put in another solid performance during H1 2019,
beating plan on both production and costs, and is on track to
meet full year guidance of 218koz. The mine produced 112koz
during the first half (Q2 2019: 55koz) at AISC of US$652/oz (Q2
2019: US$673/oz), based on the original WGC interpretation,
and AIC of US$1,061/oz (Q2 2019: US$1,097/oz).
Encouragingly, Damang generated free cash after all capital for
H1 2019.
At the end of the June 2019 quarter, and 30 months into the
Damang Reinvestment Project (DRP), total material mined
amounted to 103Mt, 19% ahead of the project schedule. Gold
produced during the same period was 436koz, 27% above the
DRP ounces of 344koz. The project capital spent to date is
US$320m versus the original DRP budget to-date of US$275m,
largely driven by the additional capital waste tonnes mined,
which has generated additional production and got the project
ahead of schedule.
Salares Norte
The focus at Salares Norte during H1 2019 was responding to
queries related to the Environmental Impact Assessment (EIA)
as well as progressing detailed engineering, which was at 33%
completed at the end of the period. We expect the EIA to be
granted within the next 12 months.
District exploration continued at Horizonte, a concession near
the proposed processing plant site, with further encouraging
results.
Regional performance in H1 2019
Australia
Gold production for the Australia region for the six months
ended June 2019 was 2% lower YoY at 435koz from 442koz in
H1 2018, due to lower production at all operations. AIC for the region
(excluding Gruyere) increased by 26% YoY to A$1,465/oz
(US$1,035/oz) from A$1,166/oz (US$900/oz). The increase in
AIC during the period was mainly due to the net gold-in-process
movement at St Ives of US$42m (reflects the change from a
build-up in the previous year to a drawdown in the current year
of stockpiled ore) and the extraordinary one-off capital of
US$22m at Agnew that related to the construction of the new
accommodation village. The GIP build-up at St Ives in 2018
related to mining significantly more material in the open pits
than what could be processed (due to capacity and blending
constraints) and in line with the mining plan that was optimised
given that the Invincible open pit is nearing completion.
Based on the revised WGC interpretation guidance, AISC for the
Australia region was A$1,191/oz (US$841/oz) for H1 2019. The
region remains on track to meet cost and production guidance
provided in February 2019.
Net cash inflow from the region for the six months ended June
2019, excluding the US$65m spent on Gruyere, was US$92m
(compared with US$86m in H1 2018).
During the six months ended June 2019, A$44m of the
exploration budget was spent, with 190,512 metres drilled during the period. The Invincible complex at St Ives continues
to grow laterally and at depth and is expected to be a key ore
source for years to come. At Agnew, drilling at Waroonga North
continued to yield positive results with indications of being open
laterally and at depth. Similarly, Redeemer along with Barren
Lands are emerging as likely new ore sources for the future.
Resource and reserve delineation is underway and is expected
to be completed by the next declaration, early in 2020.
On the back of the increased prospectivity at Agnew, Gold
Fields has invested in two key projects at the mine:
• |
The construction of a new accommodation village, which
was completed during H1 2019, at a total cost of A$40m
(US$28m) which is expected to be recouped within five
years through lower operating costs; and |
• |
Gold Fields and global energy group EDL announced a
A$112m investment in a world-leading energy microgrid
combining wind, solar, gas and battery storage. The
microgrid will be owned and operated by EDL, which will
recoup its investment via a 10-year electricity supply
agreement with Agnew. This will provide incremental power
supply beyond the base at a lower cost. |
Granny Smith has materially increased resources (4x) and
reserves (3x) since acquisition. The mine is now operating at a
depth approaching 1.2 kilometres. As mining is getting deeper
there has been changing geotechnical conditions and risk as
well as increased haulage distances to surface. Mineral reserves
have been defined to Zone 135 level at a depth of approximately
1.4 kilometres and exploration has defined mineralisation
extending to a potential Zone 150 level at a depth of up to 1.9
kilometres. The mine has committed to an in-depth mining
method and haulage study which is expected to be completed
over the next 18 months, including a possible shaft haulage
option, to set up the mine for the longer term and realise the full
value potential of the existing and future mineral resources.
West Africa
Attributable gold production at the West African operations
(including Asanko), increased by 25% to 400koz in H1 2019
from 319koz in H1 2018 due to the inclusion of 55koz (45%
basis) from Asanko for the six months ended 30 June 2019 as
well as increased production at Tarkwa and Damang.
AIC for the
region (including Asanko) decreased 10% YoY to US$1,007/oz
from US$1,114/oz due to higher gold sold, lower sustaining
capital and lower expenditure on the Damang reinvestment
project. Capex for the Damang reinvestment project was
US$46m for the six months ended June 2019, compared with
US$66m for the six months ended June 2018. The AISC for the
Ghana region (which excludes the project capex for Damang)
decreased 3% YoY to US$892/oz.
The region (excluding Asanko) generated net cash inflow of
US$72m for H1 2019 from an outflow of US$2m for the six
months to June 2018.
South America
Attributable equivalent gold production at Cerro Corona
increased 14% YoY to 156koz from 137koz in H1 2018 mainly
due to mining of higher grade areas, in line with the mining
sequence. AIC decreased by 5% YoY to US$698 per equivalent ounce
from US$737 per equivalent ounce in H1 2018, due to higher
equivalent ounces sold, partially offset by higher capital
expenditure and higher cost of sales before amortisation and
depreciation. Based on the revised WGC interpretation, AISC
was US$684/oz for H1 2019. The mine generated net cash flow of US$52m, compared to US$41m for the six months ended
June 2018.
South Deep
After an expected slow start in Q1 2019 following the
restructuring at the end of 2018, South Deep continued to make
positive progress on most of the performance metrics during the
second quarter. Gold production increased by 67% to 1,782kg
(57koz) in the June quarter from 1,069kg (34koz) in the March
quarter and production performance was in line with
expectations, supporting production guidance for the year.
Destress mining increased by 63% to 6,310 square metres in
the June quarter from 3,881 square metres in the March quarter.
This improvement was due to enhanced operational
performance and an increase in the number of destress cuts
available. Longhole stoping increased by 34% to 137,500
tonnes from 102,500 tonnes.
AIC decreased by 34% to R590,492/kg (US$1,275/oz) in the June
quarter from R900,408/kg (US$1,992/oz) in the March quarter,
mainly due to higher gold sold and lower sustaining capex.
Encouragingly, net cash flow for the quarter was a positive
R71m.
For the six months to 30 June 2019, production at South Deep
decreased by 5% YoY to 2,851kg (92koz) from 3,003kg (97koz)
for the six months ended June 2018. Underground reef yield
increased by 24% YoY to 6.5g/t mainly due to loading of
previously mined ore in higher grade areas which was
inaccessible due to ramp rehabilitation work and higher grade
ore mined from the proximal portion of the orebody (the
proximal section of the orebody is generally associated with
higher in-situ grade), in line with the geotechnical mining
sequence.
As part of the restructuring in 2018, the mobile underground
production fleet was rationalised. The drill rig fleet was reduced
by 29% from 21 rigs to 15 rigs. Coupled with the reduced fleet
and in line with the productivity interventions introduced, the
average metres per rig (development and destress) have
increased by 49% YoY to 55 metres per rig per month for the
six months ending June 2019 from 37 metres per rig per month
for the six months ending June 2018. Similarly, there was a
significant increase in stoping tonnes per rig (long hole stoping
and benching) to 10,253 tonnes per rig per month in H1 2019
from 5,518 tonnes per rig per month in H1 2018.
AIC for the
six months ended June 2019 decreased 2% YoY to
R698,982/kg (US$1,529/oz) (H1 2018: R715,373/kg or
US$1,816/oz). Net cash outflow for the six months ended 30
June 2019 was R238m (US$17m) compared to an outflow of
R656m (US$54m) in H1 2018.
The focus at South Deep remains on optimising the entire value
chain to open, mine and fill voids as efficiently as possible along
with enabling factors around fleet management, training and
coaching, all underpinned by a commitment to safety and
health.
Successful debt refinancing
New bonds issued
On 9 May 2019 Gold Fields successfully concluded the raising
of two new bonds – a US$500m 5-year bond with a coupon of
5.125% and a US$500m 10-year bond with a coupon of 6.125%
– raising a total of US$1 billion at an average coupon of 5.625%.
The proceeds of the bond raising were used to repay amounts
outstanding under the US$1,290m Credit Facilities Agreement
and to buyback US$250m of the outstanding 2020 notes at
102% of par.
US$1,200 million revolving credit facility
On 25 July 2019, Gold Fields Orogen Holding (BVI) Limited and
Gold Fields Ghana Holdings (BVI) Limited entered into a
US$1,200 million revolving credit facilities agreement, with a
syndicate of international banks and financial institutions. The
new facilities which became effective on the same day comprise
two tranches:
• |
US$600m 3+1+1 (upfront extension option subject to bank
consent) year revolving credit facility (RCF) – at a margin of
1.45% over Libor; and |
• |
US$600m 5+1+1 (upfront extension option subject to bank
consent) year revolving credit facility (RCF) – at a margin of
1.70% over Libor. |
Gold Fields was upgraded to Baa3 by Moody's on 26 June 2018
and the new transaction allowed the Company to align the
documentation to Investment Grade terms and conditions. Gold
Fields has also adopted IFRS 16 and improved its financial
covenants to accommodate the treatment of operating leases
as follows:
• |
Net Debt to EBITDA covenant has moved from ≤2.5 times
to ≤3.5 times; and |
• |
Consolidated EBITDA to Consolidated Net Finance Charges
covenant has been reduced from ≥5 times to ≥4 times. |
The purpose of the new facilities is:
• |
to refinance the US$1,290m credit facilities agreement
dated 6 June 2016; |
• |
to repay the Gold Fields bonds maturing in 2020; and |
• |
to fund general corporate and working capital requirements
of the Gold Fields group. |
Sale of non-core assets
During H1 2019, in-line with its key strategic objective of paying
down its debt, Gold Fields sold its shareholdings in two of its
non-core investments, Maverix Metals and Red 5, for combined
proceeds of US$88m, which were used to retire debt. Both
positions were sold at a significant premium to the look-through
acquisition costs.
2019 outlook and guidance – unchanged
Attributable equivalent gold production for the Group for 2019
is expected to be between 2.13Moz and 2.18Moz. AISC is
expected to be between US$980/oz and US$995/oz based on
the original WGC interpretation. AIC is planned to be between
US$1,075/oz and US$1,095/oz. These expectations assume
exchange rates of R/US$:13.80 and A$/US$:0.75.
Production for South Deep is expected to be 6,000kg (193koz),
with AIC of R610,000/kg (US$1,394/oz).
For 2019, Gold Fields has undertaken certain gold price
hedging, in order to secure short-term cash flow and protect the
balance sheet from the volatility of the gold price as we
complete our investment phase and ramp up the projects.
Post H1 2019 events
Tarkwa-Damang road
On 9 July 2019, Gold Fields officially commissioned the
reconstructed 33km road in Ghana's Western Region linking the
Tarkwa and Damang mines. The asphalt road, which cost
approximately GHS145m (US$27m) and has a life span of over
20 years, cuts travel times by more than half and reduces safety
risks significantly. It also serves several communities along the
road and is expected to ease transportation of people, goods
and services as well as boost economic activities. Ghanaian
contractors undertook the construction, with the Ghana
Highway Authority responsible for managing and maintaining
the road. It is the largest-ever public infrastructure project
funded by Gold Fields and a notable example of our philosophy
of shared value working in practice.
Silicosis settlement
On 26 July 2019, the Johannesburg High Court approved the
R5.2bn settlement of the silicosis and tuberculosis class action
suit between the Occupational Lung Disease Working Group –
representing Gold Fields, African Rainbow Minerals, Anglo
American SA, AngloGold Ashanti, Harmony and Sibanye
Stillwater – and lawyers representing affected mineworkers.
After a mandatory three-month period, during which potential
beneficiaries can opt out of the settlement agreement, the
settlement funds will be used to establish the Thiamiso Trust.
The trust will track and trace class members, process all
submitted claims, including the undertaking of benefit medical
examinations, and pay benefits to eligible claimants. Gold Fields
has provided R384m for its share of the settlement cost.
Asanko update
Asanko and Gold Fields have agreed to a way forward on a
revised life of mine plan. The updated Mineral Resources and
Reserves are expected to be released in Q1 2020 and will be
based on the following key assumptions:
• |
Mine plan based on the open pit mineral reserves at Esaase
and Nkran (reflecting Cut 2 with stripping now nearing
completion and a further Cut 3 pushback) as well as mineral
resources from satellite pits at Akwasiso, Adubiaso, Abore
and Asuadai; |
• |
Production based on the existing processing plant and
infrastructure treating 5.4 million tonnes per annum of ore; |
• |
Targeting a remaining life of mine of 8-10 years with gold
production of 225koz to 250koz per year; |
• |
Ore will continue to be transported from the Esaase pit to
the processing facility via road trucks. The existing 27km
haul road will be upgraded as required to support higher
haulage rates in the future; |
• |
Significant capital expenditure is expected to be limited to
the relocation of the Tetrem village (commencing in Q3
2019), an upgrade to the Esaase ore haul road (anticipated
in 2022), waste stripping of Nkran Cut 3 and ongoing Tailing
Storage Facility capital. |
In addition, the JV partners are progressing an updated
exploration strategy over the entire land package.
Nick Holland
Chief Executive Officer
15 August 2019