Continuing operations

South Africa region

South Deep Project

Regrettably, a tragic accident occurred on 12 October 2018 fatally injuring Mr. Ananias Mosololi. The mine was issued with a Section 54 instruction, halting mobile machinery and secondly to conduct an investigation. A partial upliftment was issued on 18 October 2018 with a full upliftment on 31 October 2018. 18 days of production was either lost or significantly impacted. The fatality occurred shortly after the mine had achieved 2 million fatality free shifts following 18 months of being fatality free.

South Deep embarked on a restructuring process on 14 August 2018 as reported in the September quarter. The prescribed consultation process was concluded on 28 October 2018 culminating in the retrenchment of 1,092 permanent employee's and 420 contractors. The majority union, the NUM, obtained a certificate of non-resolution from the CCMA and issued a notice of intended industrial action on 31 October 2018. The protected industrial action commenced on 2 November 2018 and lasted 6 weeks. Employees participating in the industrial action blocked all roads to the mine, limiting access and the ability to continue with any mining operations. Production was therefore suspended and essential services continued on an intermittent basis when access was possible. Negotiations with all levels of the union (branch, regional and national) concluded on 18 December 2018 with the signing of a new agreement that ended the industrial action. The mine gradually resumed operations from 15 December 2018. The process had a profound impact on production with the operations suspended for 41 days with a preceding "go slow" and acts of sabotage as from the announcement of restructuring. It took an additional 8 days to start-up the underground sections post 15 December 2018.

Gold production decreased by 44 per cent from 8,748 kilograms (281,248 ounces) in 2017 to 4,885 kilograms (157,043 ounces) in 2018 due to decreased volumes. In addition to the above-mentioned incidences, production in 2018 was impacted by extensive rehabilitation work in the main access ramps during the year as well as a management restructuring process conducted in the March 2018 quarter. Production was also impacted by geotechnical constraints (associated with the previous low profile destress cuts which were converted to high profile crush pillar design) and exacerbated by geological features in front of these cuts (Fargo 2 fault in corridor 4 and the Gray ghost dyke on corridor 3). These pillars were deteriorating faster than anticipated, causing seismicity and increasingly difficult stoping and backfilling conditions. A faster stoping sequence was designed to manage the deteriorating ground conditions. To enable mining to progress in corridor 3, a bracket pillar was designed around the Grey ghost dyke. Destress is planned to commence on the opposite side of the pillar, but in the process 92,000 ounces of gold reserves were sterilised. Geotechnical conditions are expected to improve once we transition away from the low profile cuts and old pillar design.

Total underground tonnes mined decreased by 35 per cent from 1.61 million tonnes in 2017 to 1.04 million tonnes in 2018. Underground ore tonnes mined decreased by 41 per cent from 1.42 million tonnes in 2017 to 0.84 million tonnes in 2018. Underground reef grade increased by 3 per cent from 5.89 grams per tonne to 6.04 grams per tonne in 2018. Underground waste mined increased by 6 per cent from 188,670 tonnes to 200,492 tonnes as a result of increased footwall infrastructure, capital waste development and development to establish infrastructure for new destress cuts. Gold mined from underground decreased by 40 per cent from 8,364 kilograms (268,900 ounces) to 5,048 kilograms (162,300 ounces). Underground grade mined (ore and waste) decreased by 6 per cent from 5.20 grams per tonne in 2017 to 4.87 grams per tonne in 2018 as a result of ore tonnes mined as a percentage of total tonnes mined decreasing from 88 per cent to 81 per cent.

Total tonnes milled decreased by 37 per cent from 2.08 million tonnes in 2017 to 1.32 million tonnes in 2018. Underground ore tonnes milled decreased by 44 per cent from 1.48 million tonnes in 2017 to 0.83 million tonnes in 2018. Underground waste milled increased by 27 per cent from 165,000 tonnes to 210,000 tonnes. Surface tailings material treated decreased by 35 per cent from 433,408 tonnes to 281,607 tonnes. Underground reef yield decreased slightly from 5.87 grams per tonne to 5.85 grams per tonne.

Development decreased by 27 per cent from 6,897 metres in 2017 to 5,047 metres in 2018. New mine capital development (phase one, sub 95 level) increased by 1 per cent from 976 metres in 2017 to 988 metres in 2018. Capital footwall development on 100 level and below was suspended during the restructuring process in the September quarter, as it was ahead of schedule. On reef-plane stope access development and destress cut access development decreased by 31 per cent from 5,921 metres in 2017 to 4,059 metres in 2018 due to the suspension of development activities in 87 1W and 2W in the September quarter. The suspension of activities in the section formed part of the restructuring process. Destress attributable square metres mined decreased by 44 per cent from 33,419 square metres in 2017 to 18,793 square metres in 2018 due to the implementation of a new support standard and related backlog catch-up together with negotiation of geological features as well as a result of the industrial action from the restructuring process.

Longhole stoping volume mined decreased by 40 per cent from 766,857 tonnes in 2017 to 463,348 tonnes in 2018 mainly due to the backfill leakages in the stopes, restructuring, as well as the industrial action.

The current mine (95 level and above) contributed 55 per cent of the ore tonnes in 2018, while the new mine (North of Wrench) contributed 45 per cent.

The mine implemented six key focus areas through a business improvement framework to drive improved performance and a number of supporting initiatives and projects are being initiated. The six focus areas are:

These initiatives have started to yield positive results, notably, a 45 per cent improvement in total recordable injury rates as well as a reduction on the lost time injuries. In addition, there has been a marginal and steady improvement in the reliability of equipment (high profile rigs in particular), improvement in the shaft schedule arrangements and improvements in excavation quality and face advance.

Cost of sales before amortisation and depreciation, decreased by 12 per cent from R4,062 million (US$305 million) in 2017 to R3,586 million (US$272 million) in 2018. The decrease was mainly due to lower production exacerbated by the industrial action in the December quarter. Cost of sales before gold inventory change and amortisation and depreciation decreased by 15 per cent from R4,083 million (US$306 million) in 2017 to R3,459 million (US$262 million) in 2018 due to the industrial action in November and December 2018. The re-setting of the fixed cost base through the restructuring that amounted to R148 million (paid as separation packages) is planned to realise savings of ~R600 million in 2018 terms on the labour bill in 2019 (If the restructuring did not take place, the labour bill for 2019 would have been R1.9 billion against the current plan of R1.3 billion). Consumable costs decreased as a result of tighter cost management through the implementation of bills of material on mining consumables and standards and norms on metallurgical plant consumables. Contractor costs decreased as a result of the completion of the artisan training by various business partners in 2017. Labour costs decreased due to the restructuring in 2018, control around overtime and fixed allowances and lower bonuses paid as a result of lower production. Utilities were lower year on year as a result of lower production and lower consumption during the strike period in the December 2018 quarter. This was partially offset by a gold inventory charge to cost of R127 million (US$10 million) in 2018 compared with a gold inventory credit to cost of R21 million (US$2 million) in 2017.

Capital expenditure decreased by 30 per cent from R1,099 million (US$82 million) in 2017 to R770 million (US$58 million) in 2018.

Sustaining capital expenditure decreased by 40 per cent from R874 million (US$66 million) in 2017 to R528 million (US$40 million) in 2018 mainly due to lower spend on fleet, and surface infrastructure. Non-sustaining capital expenditure increased by 8 per cent from R225 million (US$17 million) to R242 million (US$18 million) due to higher expenditure on new mine development infrastructure and more metres developed compared to 2017.

All-in sustaining costs increased by 41 per cent from R574,406 per kilogram (US$1,340 per ounce) in 2017 to R807,688 per kilogram (US$1,903 per ounce) in 2018 mainly due to lower gold sold, partially offset by lower sustaining capital expenditure and lower cost of sales before amortisation and depreciation.

Total all-in cost increased by 42 per cent from R600,109 per kilogram (US$1,400 per ounce) in 2017 to R854,049 per kilogram (US$2,012 per ounce) in 2018 due to the same reasons as for all-in sustaining costs as well as higher non-sustaining capital expenditure.

Guidance
The estimate for calendar 2019 is as follows: