Gold Fields Management Discusses Q4 2012 Results - Earnings Call Transcript

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Gold Fields (NYSE:GFI)

Q4 2012 Earnings Call

February 14, 2013 3:00 am ET


Jan Willie Jacobsz - Senior Vice President and Head of Investor Relations & Corporate Affairs

Nicholas John Holland - Chief Executive Officer and Executive Director

Paul A. Schmidt - Chief Financial Officer, Finance Director and Executive Director

Cheryl Ann Carolus - Chairman and Member of Safety, Health & Sustainable Development Committee


Allan J. Cooke - JP Morgan Chase & Co, Research Division

Derryn Maade - Renaissance Capital, Research Division

Adrian Hammond - BNP Paribas, Research Division

Andrew Byrne - Barclays Capital, Research Division

Jan Willie Jacobsz

Ladies and gentlemen, thank you very much for joining us here for the December 2012 Results Presentation of Gold Fields. Also welcome to those who are following us on Cemig TV. A special word of welcome this morning for Ms. Cheryl Carolus, the newly minted Chair of Gold Fields as of yesterday. And also on the podium, we have Nick Holland, our Chief Executive Officer; and Paul Schmidt, our Chief Financial Officer.

The process today is that Nick is going to give us a short presentation of about 30 slides, and after that, there will be an opportunity to ask questions both from the floor and for those who are watching us on the TV, you can send in your questions.

Just from a safety point of view, in the unlikely event of something going wrong here, the emergency exits are along that wall behind the curtains. Please vacate the room in that direction to the north and congregate on the driveway right next to the fence.

Now also ask you all to now switch off your cell phones or put it on silent. Once we're done with the presentation and the following Q&A, there will be a media conference behind us in the usual place, and there will also be refreshments served up there.

I'm now going to hand it to Nick to take us through the presentation. Nick?

Nicholas John Holland

Thank you very much, Willie, and good morning, everyone. Before we start the presentation, I'm delighted to have Cheryl Carolus with us today, our newly appointed chair. And as you would've seen yesterday, Dr. Mamphela Ramphele has tendered her resignation with immediate effect. And we're delighted that Cheryl could step in and take over the chair. And at the same time, I'd also like to give praise and attribute to Dr. Ramphele for the excellent input she gave in the period that she was on our board and as our chair, and also the personal guidance that I received from her. We wish her well in her endeavors, and I'm sure that you'll understand that she is embarking on a different direction, and she will obviously have her own words to say on any due course.

But for now, Cheryl has been on our board for some years. She knows the company extremely well, so I believe that this is a seamless transition that we have here, and I don't think we're going to miss a beat. At the end of the presentation, we'll take questions and if any of you want to ask Cheryl any questions in particular, she will be available to do that. We have to wrap up this whole thing by 11:00, so we'll see how much time we can dedicate to your questions.

All right. So back to the results for the quarter and for the year ended December. And let me give you a brief overview.

Attributable production for the quarter, just over 750,000 ounces, that's 7% down on the previous quarter or about 55,000 ounces. Now the dominant factor of the last quarter, and in fact, the last 2 quarters, was the illegal strike, which plagued the industry at large and, of course, Gold Fields. And during the quarter alone, it cost us 110,000 ounces as compared to around 30,000 ounces in the previous quarter.

So in fact, we did better than what you'd expect given that we had to absorb 110,000-ounce decline. We, in essence, clawed back half of that through improved performances from the international operations. And good to see that we had an 11% increase in production at the international group, and that really helped to mitigate a lot of the impact of the strike.

Of course, the fact that we had the strike meant that a lot of your costs still remained in the system in South Africa, although it was a no work, no pay. Remember, we still had the senior and middle management on the operations. All of those costs remained, as well as things like electricity costs, consumables. So of course, the unit costs went up significantly because of the strike. And I think that's a feature you've seen across the industry.

So those figures are very distorted compared to what the historical numbers have been. That's why this quarter is quite difficult to report because of this big hole in production we've seen during the quarter.

Notwithstanding that, we managed to maintain our operating profit, that's because of high gold prices. Operating profit of ZAR 5 billion compared to ZAR 5.1 billion, and of course, the impact of more production coming from the lower-cost operations around the group. In line with our policy of paying dividends in a range of 25% to 35% of earnings, we've paid a dividend of ZAR 0.75 a share, and that takes the year's dividend payout to ZAR 0.235 a share, and I believe that we're still leaders of the pack in terms of rewarding shareholders with cash payouts.

For a look at the year very briefly. It's a similar story, 3.25 million ounces of gold for the year, which of course is below where we want it to be. The strike alone cost 145,000 ounces, so if you add that back, you had about 3.4 million. And we lost around about another 30,000 ounces because of the tragic fire that took place at Ya Rona shaft and Driefontein on the 30th of June last year. So if you add those back, that really reconciles back to the previous year's production, with some pluses and minuses within the portfolio.

Cash cost, of course, were impacted again by the impact of the strike. And notwithstanding that, I believe that the cost control in the company -- and you can see that in the numbers, if you go through each region and each mine, cost control has been very good over the year.

Earnings, ZAR 6.8 billion for the year. Normalized earnings very similar to the previous year, so we managed to use the high gold price to help the bottom line, together with clawing back some of the production lost from the rest of the group.

One of the achievements over the last year -- I must say, it was really tragic that the trajectory that we had built up at the KDC and Beatrix operations in the first half was impacted by the strikes, because for the first time in a number of years in the first half, production in South Africa was virtually the same as the corresponding period in the previous year. And that's been a strategy, as you know, that we've been driving as a group to try and stabilize production.

Unfortunately, the second half of the year had a lot of challenges: the strike, the fire. And so it's hard to really compare the results for the year when you look at that. So really, very much a tale of 2 halves. But I think the most important achievement in 2012 was not the fact that we had a strike that hurt us, but the way that the teams reacted to it. And the fact that we were able to ensure that there were no injuries to people, there was no damage to property, and we didn't capitulate to the demands and we got everyone back to work safely.

Now, I think if you look at where we were after the events of Maricunga and where we might've been at the end of it, we certainly came out, in my mind, in a situation where we can look back with pride at how we managed to deal with the strike situation. So that, for me, is probably the most important achievement of a very challenging year.

The other thing that I'm very pleased about is the fact that we finished all of the fixed infrastructure at South Deep. And some of you may have gone on the mine visit last Friday. You would've seen that we now have an expanded processing plant to cut for full production expected in over 3 years time. We have an expanded ventilation shaft that will allow us to hoist full production. We have a new backfill plant to augment the tails facility, as well as the refrigeration facility we put in place. We've got all of the fixed infrastructure we need now for South Deep. The key challenge now is to ramp up the development underground.

Also, the most important achievement at South Deep, even beyond that, was getting a new model with the unions whereby we now work 24 hours a day, 7 days a week. And that's the international model for underground mechanized mines. That took a lot of work in negotiation, but I believe that we've made a breakthrough. I think the environment on the mine in terms of the management-workforce liaison has improved, and that sets the important benchmark for us to really drive momentum on this operation.

At St. Ives we spent a lot of money last year converting to owner mining, roundabout $60 million over and above the normal sustaining capital we spent converting the open pits to earn a mining. That should result in a drop in working costs. And from a sustainability perspective, we were ranked third on the worldwide Dow Jones Index in the mining sector, up from fourth last year, and the top-rated South African mining company on sustainability. We're very proud of that. We also undertook a major portfolio review. Some of you may have seen my presentation that I did in Melbourne on 31st of July last year, where I talked about the need for the industry to change. And we've done a lot of work on that, that we'll share with you.

Now the results in the book, of course, quite difficult to follow because we have the accounting requirements of having to share continuing and discontinued operations. And so we've split those results out, and we'll have that same issue for 2 months of the next quarter. But let me try and give you a simplified version.

What does the new Gold Fields look like on a pro forma basis if we look at the last quarter and the last year? Remember, these are just historical numbers; they're all in the book, and we've just rehashed them. So in essence, we're looking here at 2 million ounces that we produced from the new Gold Fields. You can see cash costs just under $800. NCE, fairly high given some of the inward investment I've talked about at places like St. Ives. And of course, we had a peak year of capital at South Deep. We spent ZAR 2.5 billion last year. That's the highest we'll ever see at South Deep in a single year, certainly, in today's money terms. But more importantly, you can see EBITDA about $500 million for the quarter and close to $2 billion for the year. You can see a breakdown of capital here: how much we've spent on the mines, how much we've invested in projects and a pro forma number here that doesn't add up in these numbers, the FSE expenditure, that's the Philippines project, where we spent $65 million on that project over the last year. That number will be lower next year, and I'll talk about that a little later.

But you can see the operations -- if you exclude South Deep for the moment, given the fact that it's building up, are highly cash generative. And that's the important thing. It's a defensive portfolio, and we can certainly withstand lower prices. South Deep, of course, needs to fund itself in 2013. That's a key deliverable for this team.

So let's look at what does Gold Fields look like. A lot of you have been asking how do you split the debt, who gets what, and what is the financial viability of each of the operations. Well, as you can see here, the net debt for Gold Fields, roundabout $1.2 billion. And for Sibanye -- well, I think they're in good shape because they're only taking about $400 million odd [ph].

But look at the EBITDA, historically, that's always a good measure of the ability to repay debt. And you can see both companies are well placed in terms of their ability to service their debts. So there's nothing to be concerned about in how we split the funding here. Both companies are going to be robust, and we've got facilities in place that are committed as a backstop if we need them. And more importantly, as you can see, a big chunk of our debt is actually pushed out in the long end. And it is not debt that's subject to the very vagaries of repricing of interest rates; it's fixed at 4.8%. So that gives us a lot of comfort in terms of the financial viability of both Sibanye and the new Gold Fields.

Dividends, I've talked about. We're proud of our track record. And here's the comparison against the industry. You can see Gold Fields in the blue; it's consistently outperforming the industry. So if you want to go to a company that pays good dividends, we've certainly delivered that over the last 5 years.

Let's talk briefly about the new Gold Fields and where do we want to go to. I talked earlier about Melbourne and what I believe is probably a defining moment in how the mining industry, not just the gold industry, is going to start relooking at things. Let's focus first and foremost on the gold industry.

And if you look here over the last 5 years, what do you see? You see a gold price that's been rising, and you see gold equities that are stuck in the mud. Now that's no recipe for creation of value for investors around the world. And it's clear from my roadshows around the world -- and I've just been to the United States and U.K. to talk to investors. And the level of frustration on this is high. So the industry has to change what it's doing, and I think you're starting to see a lot of that. Now what are we going to do, specifically? And we've seen what a lot of other companies are doing. Well, here's what we're doing.

We have 5 main pillars that we believe are going to underpin our strategy going forward. We have to manage our assets for cash. And I think we've got to beware of the lure of the marginal ounce, which in theory looks great. The price goes up and we say, "Gee, let's change the pit shell model." We can actually increase the size of the pit shell, we can get more gold. Often what happens is, you don't increase the margin. In fact, your cost sometimes even go up more than what you thought because you underestimated the strip ratios, et cetera. Let's rather focus on generating cash and not be fixated with growing production.

As you'll see, if you look at the major top 8 producers, which make up roundabout 60% of the industry, they haven't grown their production base anyway over the last 10 years. And despite the fact that we all stand on podiums in investor conferences around the world telling people where our production is going, we haven't achieved it. So let's not make the same mistakes as what we've made over the last few years. Let's drive the portfolio for cash. And it's not just, therefore, about ounce profiles and improve the overall margin. That means we have to focus on the all-in costs, and I'm glad to see that the industry is starting to focus on that. Hopefully, we'll see something coming up this year on how we redefine, how we look at ourselves in terms of costs. And growth, I think you really have to drive growth judiciously. You should only build new mines if they make real returns and focus possibly more on smaller mines, if you can find them. Discover them and build them or buy them. And on brownfields opportunities, much lower risk, higher returns, lower paybacks. And so our view at this stage is, let's rather focus on that and let's not commit to any long-term production targets for the group.

I think in the past, all of us have tried to answer the questions that analysts give us. What's your long-term production target? Everyone gets it wrong. Let's not do it anymore. Let's rather indicate what we can do in the short term but what our strategy is for the longer term.

South Deep is even more important now in the new Gold Fields than what it was before, and it represents real growth in the portfolio, so we've got to drive the value in South Deep. That's going to be a key issue for this year, and I believe we're set up to do it. We've got all the fleet we need. We've got the working arrangements we need. We've got most of the employees now that we need. We got all of the operators. We've increased our diesel mechanics, given the fact that we're now maintaining our fleet 24 hours a day. So we've got all the essential ingredients in place for South Deep to deliver. So I'm hoping that this year is going to be a good year for them.

The financial gearing, we've talked about. We will use our balance sheet. We believe it is attractive still to look at the long end of the debt curve. And for the right time, for the right reasons, we'll look at that. And dividends, I've spoken about. And lastly, let's not forget that if we don't focus on sustainable development in all of the countries we operate in, we're not going to be around for the long term. And that's about making sure that we make money, first of all. That's the first measure of sustainability, making sure that all stakeholders can see the benefits of mining in the countries we operate in.

This, you've seen when we announced the November split. But just to remind you, Sibanye is made up of KDC, Beatrix and various service entities; Gold Fields is the rest. The listing took place just last Monday, and the spin-off will take place next Monday. So the umbilical cord is finally broken next Monday. But as I've said before, we'll continue to provide transitional service arrangements to Sibanye and vice versa, until such time as we are completely independent. And I expect that that will be around another 6 months or so, and then we'll all be on our own. They can do what they want, compete with us on an equal footing anywhere in the world.

Let's remind ourselves why we did it. I wanted to liberate these assets and liberate the management, and get a dedicated mining management team really only focusing on these assets, not worrying about anything else. And their destiny is now in their own hands. They've got substantial cash flows, so we've done this at a time when these operations make substantial money; over ZAR 3 billion was made last year, bottom line. And they can put that money to good effect. They can either pay up nice big dividends, or they can reinvest some of it into the infrastructure, possibly into below infrastructure ounces that have been around. It's up to them. But they've got now choices, and they've got an exciting future ahead. And I think you're going to find this company is going to do very well.

I think also, the long-awaited consolidation in the mining industry, in the gold industry, in particular, in this country now has a catalyst. It's got something that can drive it. And let's see what happens. But we've been talking about tearing down the farm fences for some time and has very clear opportunities, I believe, in the Free State and on the Westford's for that to happen. So let's watch this space and see what the new team at Sibanye come up with. It's going to be exciting.

What does it mean in terms of our mix of production and reserves? As you can see on the left here, our production from South Africa was around about 48%, South Deep and KDC, Beatrix combined. We now dropped to 13% production from South Africa, post the deal. And with South Deep at full production, all other things being equal, we'll be up to 28%. So the portfolio has completely different profile than before.

The reserves, of course, is still highly concentrated in South Africa, with South Deep making up 62%. But the fundamental difference is South Deep is a mine that's very different from the other mines: fully mechanized, fairly small, but skilled workforce, so a completely different operation and reserve base from what we had previously.

So that's what the new group looks like. Australia, Ghana and Peru being the main operating platforms in addition to South Deep. And of course, we also have the international project portfolio that you can see here: APP in Finland; you can see Far Southeast in the Philippines; Chucapaca here in Peru; Yanfolila in Mali; and a whole slew of exciting advanced expiration projects below us. With a reserve base of about 64 million ounces; that's sizable. So this company is still very relevant in the international space.

That's what the new Gold Fields pro forma figures would look like in terms of our NCE margin. And if you exclude South Deep, which is a buildup, you can see the rest of the portfolio makes a very nice margin, about 25% after capital. So these assets are cash generating. With South Deep expecting to ramp-up this year, that will ease the cash pressure on the rest of the group.

So portfolio review. After the Melbourne speech, we said to ourselves internally, "Well, what does it mean for us? What are we got to do?" And I think for the first time in the industry, we started to look more at making money as opposed to making ounces. And saying, "Are we prepared to actually streamline the cost base, the production base to generate more money?" So what have we done? We've cut our regional structures in our corporate office. And with Sibanye, there'll be a number of people going across, so we've cut that footprint.

Exploration has come down from about $125 million to $80 million this year. So we've certainly cut back roundabout $40 million to $50 million in exploration. At St. Ives in Australia, we cut out the high cost heap leach operations, which were giving us low dissolutions and very small, inefficient operation that we've been running for some years. We decided to bite the bullet. At Agnew, I think that's a fundamental change. That was probably the worst performing operation in our group in the second half of last year -- sorry, the first half. And in the second half, it was the best performing operation because we cut out the low grade mining. We concentrated on the high grade Kim load, which is around 10 grams a ton. And we now got an operation that's going to be smaller but more profitable and cash generative going forward.

Tarkwa, we cut out the South Heap Leach Operation, where we were using a high pressure grinding roller to take some of the harder material and try to leach them. It wasn't really making much money for us, trading dollars as they say, so we've cut that out. Damang, is a mine in transition and so that hasn't had a good year. But we now have to capitalize on the significant exploration potential we've unlocked through the drill rig: 10 million ounces of resource, 3.5 million ounces of reserves. We have a wonderful opportunity here to recapitalize that mine, and that's going to be the big focus in 2013 and '14. I talked about focusing on low risk, high return brownfields opportunities. We have the potential at Tarkwa, Damang and Corona to do exactly that.

Tarkwa, we could potentially build another plant, or we could actually expand existing plant. But there's an opportunity here for us to reconfigure the operation and see how we can improve the overall recoveries given the fact that we're getting deeper into the pits, and we're mining more harder material that doesn't leach as well on the pads as it would do going through the carbon and leach plants, so we're looking at that.

Damang, I think I've spoken about. And Corona in Peru, there is the potential for us to build another sulphide plant, bring forward production. And we've had 7 million tons of oxides that have been stockpiled for 5 years, which was essentially the top part of the mine. The mine was essentially a hill. The cap was an oxide cap. We couldn't put it through the sulphide plant. And we're now looking at a heap leach operation to capture the 300,000 ounces that is sitting there. So that's an interesting little project that we'll add to Corona. So those are all the things that could augment and improve the base.

Greenfields' portfolio is very exciting in a sense that 5 years ago, we had very little up here. These are your more advanced stage projects. So we had a lot down here and very little up here. So we've moved that. We now have 5 projects either in feasibility or resource development, and we have 3 projects in advance drilling. And once you get through this hurdle into advance drilling, there's value here; there's clear value. So we've got a number of different opportunities for us to capture the value.

We can't do all of this at once. It's clear now that we have to pick the winners. We have to prioritize and see which ones will go first. If we could get a new mine into construction within 2 to 2.5 years as a target, I think that will be a great outcome. And certainly, that's what we're driving for. Who's going to be the winner? Well, we'll have to see how things go.

So Chucapaca in Peru, we did say that we weren't particularly enthralled with the outcome of the feasibility study. It didn't give us a big enough return. So we didn't value engineering on that. We're looking at changing the plant configuration from maybe 30,000 tons a day to 20,000 or 25,000 tons. We think there is a potential for underground operation next to an open pit. We're looking at that. We're looking also at the potential for an underground operation. But also, there's significant exploration potential in the area. And we have another deposit that we believe could be another can of weary, which essentially what Chucapaca is, or even better, that's right next to, probably a 1.5 kilometers away, and we want to start drilling that next year.

I think in time, this will be mine. I think we've just got to be patient. And we'll -- this could well be one that's still gets the nod from us in the future. But there's more work to be done; we're not ready to go.

Philippines, our big focus is to get the license -- what we call the FTAA that allows foreigners to own a majority interest in those particular assets. That's the process that is preceded by an ethnic process, free prior and informed consent, and that's run through a national committee of indigenous peoples. That process is slow. We're hoping that we'll have that finalized during the course of this year. And in the meantime, we're continuing to wrap up the underground drilling. Remember, we did announce a resource here of 42 million ounces last year, and that will place us in the position for 2014 to start with the pre-feasibility study. A wonderful ore body for sure.

Finland, the Arctic Platinum, we've been busy there. We've done pre-feas study that looks like it gives a good return, certainly acceptable return, and we're now evaluating opportunities. That study is not quite finished, but it's almost finished. So one of the reasons I'm not talking more today is there's still a few bits and pieces to do. Now we have to ask ourselves, "What is the best way for us to capture the value in Arctic Platinum?" Do we build it? Do we joint venture it? Do we spin it out? Do we sell it? We haven't decided. But I think we will come to a decision point on that during the course of this year. This represents a very interesting opportunity. Remember, it's a polymetallic deposit, palladium rich, which I think strategically makes it even more interesting in the PGM space.

Mali in the Yanfolila Project, which is on the southwest boundary with Guinea, far away from the action, in case you were worried. Now the action in Timbuktu in Ghana is probably 1,000 kilometers north of that, so we haven't been impacted. But as an abundance of caution, we've pulled out our ex-pats. And we continue to drill that. The resources expanded significantly, and this represents a potential new mine in Gold Fields, has a potential to be a reasonably small but profitable mine, which is not going to cost a lot of money to build.

Very simple geology, simple metalogy, high-grade oxides for probably the first 100 meters into the ore body, about 2.5 grams a ton as you would have seen from the Resource and Reserve statement. Interesting project. If the politics in Mali can be resolved, now this could well be something that looks interesting for us. So we're advancing all of these projects slowly, and the one that we think is the best we will push that along.

All right. Very briefly, I want to spend about 5, 10 minutes just looking at where we're going and what we've done. Let's go through this asset by asset. South Deep, as you can see here; over the last year, production reasonably flat. The new operating model, of course, is the key. That will put us in a position, we believe, to increase production by about 10% to 15%. You could see the guidance block in the top and the bottom left corner. And for cost to be similar in dollar terms, which means we can absorb inflation because of the increase and NCE coming down. We've had probably our biggest year of capital. As I mentioned earlier, we spent ZAR 2.5 billion last year. This year, we expect to spend much less than that, roundabout ZAR 1.85 billion. So we're over the hump of the capital. And South Deep is being structured for us to get to a breakeven position in the second half of 2013. And that's important for the new Gold Fields because we don't have the significant cash generation from the other assets to cushion that. So every asset now has to stand on its own. And I think the timing of what we've done in terms of creating Sibanye is appropriate in terms of where this asset is. It's now going to wash its face certainly in the second half of 2013.

I mentioned earlier some of the capital projects, and you can see all of the green lines where we'd actually completed them. So the infrastructure is there. The union agreement has been signed. De-stress, which is opening up the ore body, bearing in mind that we're mining at 3,000 meters here, and we're mining big cavities, open stope cavities. And to de-stress the ore body enables us to mine those cavities on open stoping basis without the sort of rock pressures that you would normally get. Typically outside of the shadow that we create through de-stressing. We have pressures of about 500 megapixels inside -- megapascals inside. We have about 50. So we have a 1/10 change or 1/10 impact of being in the de-stressed area.

So that is the key for opening up the ore body for creating the crisscross development that allows us to do the open stoping that will make up 60%. So 75% up year-on-year, that is a big change. We need another big year. We don't need to get as much as that. Certainly, we're looking to increase it again appreciably, but the momentum is now there for South Deep, so we're feeling a lot more confident about where we're going.

If you look at Tarkwa, very good operation, over 700,000 ounces in the last couple of years. Production will be declining as we stop the South Heap Leach, as I mentioned. There's about 30,000 to 35,000 ounces that come out. Fairly high cost production, as I mentioned. The other thing is the mining grade now is, I think, going to be more reflective of the life of mine reserve grade. And a combination of those 2 things is we're looking at roundabout 650,000 ounces a year. Cash costs are impacted by the fact that our strip ratio is increasing as we expected. And in particular, operational wastes, so you're seeing more of it come through in the mining costs as opposed to capital. And that's a function of where we are in the different ore bodies. 10 million ounces of reserve, 15 million ounces of resources, and this will be an operation that makes good cash flow for us well into the future with upside.

Damang, we expect to be similar in terms of production next year. We are going to be reinvesting all of the cash flow we make in opening up this ore body. We still have to aggressively strip Huni and Juno, which of the northern and southern extremities of the demand. But to get to the sweet stuff at the bottom, we've done some more drilling over the last 4 months or so to confirm our understanding of that geology dip. So that's so that's a plan now that's based on good confidence. And we're going to start picking away the better parts of the Damang pit cutback and start removing some of the overburden and exposing some of the higher grade material there. So this is a mine in transition. But ultimately, one of the decisions we have to make is whether we do a pushback of the original high-grade pit. And we're doing all of the sums on that. I know a lot of you have questions about Damang, but we'll give you an update on that into the future, probably in the second half of the year. But for now, let's keep the production where it is and let's recapitalize the ore body and set up a mine for 10 or 15 years that will produce between 200,000 to 250,000 ounces a year at competitive all-in costs.

Cerro Corona in Peru, truly been a great asset for Gold Fields. And as you can see over the last 2 years, we've produced 380,000 ounces, 2011; 342,000 ounces, 2012. Your cash costs are amongst the lowest in the industry. And we expect to recoup our full investment this year. We spent $750 million building this mine. We brought it into production in 2008. We expect to recover all that capital by the end of this year. And that would still leave a mine with reserves of roundabout 5 million ounces and an 18-year life. So I think you'll agree with me that we should get our investment back, all things being equal, many times over, and there is still upside beyond that.

We're starting to see our reserve grades now being more reflective of what we mine. As we expected, we're starting to see copper grades get closer to 0.5%. Gold grades getting down to 1 gram or lower. So we're now seeing an operation that is performing exactly as we thought it would, in terms of the reserves and resources. And that's why you're seeing a drop in production. This is entirely anticipated from the outset. And that has a consequential impact, of course, on unit costs, as you can see there.

St. Ives, in Australia, a mine where we spent a lot of effort in taking both the underground and the open pit operations to owner-mining. That is largely now done. We've shut down the high cost heap leach, as I mentioned earlier. So this will be a mine that's going to be somewhere around 400,000 ounces going forward. And we've been able to essentially absorb a significant part of our inflation that we've had at St. Ives as a consequence. Power costs are going to increase significantly at St. Ives, as they are, I believe, across the world. We've had to renegotiate our power agreement. So you'll see that coming through in 2013. But we've been able to cushion most of the impact of that by reengineering the operation. As you can see here, we have reserve of 2.8 million ounces, a resource of 5 million ounces. Highly prospective areas still, 2 very exciting opportunities: Invisible and Greater Neptune. Invincible is on the lake, the circle [ph] salt pan for those of you who have been out to St. Ives. And normally, the mineralization is hosted in parallel sheers. This is in the breakaway sheer, and so we haven't seen it before. But so far, there's about a 1.5 kilometers strike, and this has the potential to be a significant open pit and underground operation. We should be able to get more confidence on this by the end of the year. And then there's a whole new system called Greater Neptune, which is a series of deposits that link up and could be another big trend. So lots ahead for St. Ives. Remember, when we bought it, it only had 1.4 million ounces of reserves back in 2002. We've mined 5 million ounces since then. And we've still got a reserve of 2.8 million ounces and resources of 5.3 million. So I think you can see that this mine has delivered and will continue to make good money for us.

In a jurisdiction that is pretty low risk, Agnew, the turnaround mine of the year. As you can see, we are projecting to be slightly lower in our production, but our cash costs is going to come down $100, which includes the impact of inflation. So in real terms, that's probably somewhere around about $200. And certainly, on NCE, down almost $200 million. But if you adjust for inflation, it's more than that. So that's going to make nice cash flow for us. We're focusing on the high-grade Kim zone. The indications are that, that will continue at depth, and there's potential for more deposits in the underground area that we could augment Kim with in due course, so it's a great little asset for us.

So in conclusion, guidance is in the book. I think you've all seen that. We put figures down here that we really keen to make sure that we hit. So those are the numbers you see. They do reflect, of course, the fact that we have closed, as I mentioned, the Heap Leach Operation at St. Ives, the South Heap Leach in Tarkwa, the fact that we're focusing on only the high-grade portions of Kim. And that enables us to keep our cash cost increase restricted to somewhere around about 8%. If you adjust for the impact of the Cerro Corona grades alone, you drop that to about 4%. And as we know, mining inflation over the last 5 years has been at around 10%. So that's the headwind that you are facing, but we've been able to cushion a lot of those headwinds in the forecast that we're giving you an NCE, which includes our investment in the capital projects, flat year-on-year. So again, we've cushioned the impact of inflation. We've had a prudent approach to exploration, a prudent approach to capital development. And I think this sets this company up to generate good returns and cash flows for shareholders into the future.

So cash generation is key, and that's more important than production. Dividends will continue to be important. We'll pick the winners in the brownfields and the greenfields projects. And we're not afraid to turn around and say that if we can't get any of them over the line, we won't build them. We're only going to build them if they make sense. And that is really focusing our mind. We're not averse-ed to M&A. We'll look at it, but I think it's always going to be opportunistic. And the probability of success is probably less than 5% because it's very tough to get value out there. But there's got to be a clear part to value if we do that. And just in case anyone was wondering, we're still going to be a gold company.

I think with that, we're going to provide time for questions.

Question-and-Answer Session

Jan Willie Jacobsz

Thank you very much. We'll take questions now. May I ask you to please just state your name and the company that you're from when you stand up or -- sorry, when you get the microphone so that the people on the television calls will know who you are. Let's start with Brendan Ryan on the front row.

Brendan Ryan

Brendan Ryan, [indiscernible] media. Could I ask you to elaborate on these comments of yours about the "long-awaited consolidation" of the Sibanye [ph]industry? And you're identifying Sibanye as a catalyst and something the company can drive this consolidation. What exactly do you think is going to happen? And how is Sibanye going to do it?

Nicholas John Holland

Well, I think, first of all, there hasn't really been a company of substance that could be a recipient for assets disposals in the past. And what you've done with Sibanye, you've actually created the largest producer in South Africa. And to the extent that other companies might be looking to rationalize their portfolios. I'll say to the extent, they may not be, but should they want to, there's a company here with currency that could well be an important contributor to helping them to change the shape of their companies. And I think that is overdue. There's certainly opportunities on the Westfords, as I've mentioned. There are mines that are contiguous, we're working together. We could more quickly exploit those ore bodies than working alone. And we've tried, I think, to drive some of that in the past, but without success. And in the Southern Free State, it's like a jigsaw puzzle. If you find all the missing pieces, all of a sudden you've got the picture. So I will leave you to figure out what that means. And maybe it leads to nothing, Brendan. But maybe, it creates something different. And that might be what's needed to save the gold industry because continuing along the path that we've been continuing along, you've seen the trend and the trend is your friend, or in this case, your enemy. We need to break that trend. And it may well be beneficial all around for employees, for the government, for the country, for communities and for the industry at large. But let's see what happens. I think we will see something, but I'll leave it up to your imagination as to what you think will transpire.

Jan Willie Jacobsz

Can we go to Allan Cooke here please? And then Derryn Maade.

Allan J. Cooke - JP Morgan Chase & Co, Research Division

It's Allan Cooke from JPMorgan. Nick, South Deep is your most important asset now, well, more important in your lives than before. Could you perhaps indicate what your expectations are for costs and production and CapEx through to 2015 when you hit that 700,000 ounces of gold production per year? And then, perhaps also, just highlight what are the concerns or what are the key risks to that ramp-up, if you don't mind?

Nicholas John Holland

Yes. Look, at full production, if we hit that at the end of 2015, that'll mean that 2016 then will be 700,000 ounces. That's important because that's the run rate. There will obviously be a steep buildup as the de-stress gathers momentum. We need to get the de-stress up, probably another 40% or so this year compared to where we were. We did 75% last year. We've got 18 attack points into the ore body, 7 in the current mine, 11 in the future mine. That's 3x what we had 2.5 years ago. So it makes a big difference. We've got all of the equipment we now need. We've got the new working arrangements. So I think you'll see a steep ramp-up in 2014 and in 2015. But in essence, you're now sitting with 3,500 employees at South Deep. You're sitting with most of the overhead and infrastructure personnel that you need to run the shafts and all of the surface facilities. So we only need another 1,500 people in the trackless underground section of the mining, as well as the associated engineering and maintenance sections to hit full production. So you can figure out that the leverage from here on out is significant. And I would expect at full production that South Deep is going to be looking at all-in costs, including sustaining capital, of somewhere between $900 and $1,000 per ounce in today's money, which would mean that they'll make substantial cash generation. The biggest risk to the buildup is the de-stress. If we can continue the significant momentum that we've made in 2012, we'll get there. We're pretty close; I don't think we'll be far away. But it's going to be important to have another very good year on de-stress. With the new operating model, however, I think we've significantly improved the potential to achieve exactly that.

Jan Willie Jacobsz

Could we get a microphone across to Derryn, please?

Derryn Maade - Renaissance Capital, Research Division

Just wanted to ask you about what you feel is your kind of level of capital project spend that you can sustain now that the company has obviously been transformed, with the 2 million-ounce base and you maintained your dividend policy of the 25% to 35%. I mean, potentially, with the pipeline that you've got, those 2 could be at odds. Could you just give us a sense for what you feel the company can maintain in terms of projects spend?

Nicholas John Holland

I'm going to ask our CFO to take this one.

Paul A. Schmidt

I think for the next 2 years, we don't see a big uptick in the capital spend, as we have no approved projects coming down the line as such. We're still busy with pre-feasibility and some of the work. Time will tell in 2 years as to what those projects will cost and how we're going fund them, whether we're going to use more of the balance sheet, et cetera. But we're still committed to our sticking to our dividend policy, but we're watching this closely. But for the next 2 years, we've got a bit of headroom because there will be no physical construction of projects.

Derryn Maade - Renaissance Capital, Research Division

Maybe just as a follow-up, on the brownfields project expansions at Tarkwa and Cerro Corona, the north expansions in particular, you seem to be a little less upbeat this time around as compared to the last results presentation where it seems almost a sure thing that we were going to get -- you were going to go ahead with that. Do you have any comments on -- in terms of when are we likely to see a decision in terms of actually going ahead with the brownfields projects?

Nicholas John Holland

Yes, we -- it's not that we're less upbeat. I think we're in the middle of a process of really getting resolution around the numbers. And the fact that we've conducted this portfolio review and the fact that we're introducing a lot more rigor into our investment decisions, we're setting the bar higher for ourselves. But all of these opportunities, I think, really represent value for the company. I think in Tarkwa, we have to look at what is the optimal size and configuration of additional processing capacity. That's, I think, the key decision. Because otherwise, you potentially end up chasing tons again and not necessarily improving the overall margin. So we've got to make sure that in the lights of the new philosophy that we're talking to you about today that we make sure that our decisions reflect that philosophy. That's all it is. But I think these projects have all got a reasonable chance to go in the short to medium term. We'll update you further in the year.

Jan Willie Jacobsz

Can we come -- sorry?

Derryn Maade - Renaissance Capital, Research Division

Sorry, can I have one final.

Jan Willie Jacobsz

One more.

Derryn Maade - Renaissance Capital, Research Division

Just to Ms. Carolus, if you could maybe give us a few minutes of just outlining your vision for the new Gold Fields as you see it?

Cheryl Ann Carolus

I must -- it's on, it's on. Thanks. It's all still a bit fresh and new at some levels, sitting as the chair. But having been on the board since 2009, it's been quite exciting to see how it's evolved. And I must say, again, under the next leadership, just the kind of vision around the safety issues, I think that's been a huge achievement. And then I think the whole restructure with Sibanye. I think it's quite an exciting leadership that's been provided in the gold industry. And so I am not going to spend a few minutes as you had asked me to. I can just say that I think from a board perspective and certainly just a short 4 years that I've been with the company, I think it's been interesting to see how we've managed to stay the course at some levels and that, I believe, has not been scared to innovative. And the most exciting thing is the question of cash and understanding what shareholders want and being able to do that. But at the same time, having a fairly proactive stance about seeking out new opportunities. I think the South Fareast [ph] would be one example, but with the necessary caution, and then the approach to Cerro Corona. So I think that it's a very steady trajectory that the company has been on. We haven't compromised safety. I think that has been something that we cannot underestimate. And then just the focus on cash, I think, is absolutely the right way. And I think we've listened to shareholders over the years on that. And I think we've got the formula right. So I don't think we're going to be doing anything wildly mad, but I think there's enough innovation in the pipeline. And the Sibanye transaction has proven that there's a boldness in the company and a confidence that I feel that I like, that I'm very excited to be part of in the next years.

Jan Willie Jacobsz

Thank you. Can we come to the front here? Thank you, go ahead.

Adrian Hammond - BNP Paribas, Research Division

It's Adrian Hammond from BNP Cadiz. I have 2 questions. Firstly, you mentioned a couple of production cutbacks. How will you address the fixed cost overheads in order to reduce the unit costs that you say you will?

Nicholas John Holland

We've already done quite a lot of restructuring in the regions. We knew that this was coming, and over the last quarter, in particular, we've restructured a lot of the regions. We've put back resources at the mines where necessary. We looked at the corporate footprint that we have here in South Africa. We've cut back the capital spend. Now the capital spend that we were going to spend last year, initially, and what we ended up spending was substantially down. What we're going to spend this year is going to be significantly less. And as Paul has indicated, we're going to operate within our means. I think once the dust settles and we get a better handle on what the new Gold Fields looks like, we're going to have to hard look again at what we really want to be. And not forget why we're here. We're here to drive value and some of the nice-to-haves, we're going to have to think carefully about. But as our chair has said -- and I'm glad she mentioned it, we won't compromise on safety, health, environmental stewardship or community engagement. And in fact, we're embracing the concept of shared value across the world as a means of making sure that mining becomes relevant for those people who see the headgear turning and not just an interesting spectacle when I wake up in the morning.

Adrian Hammond - BNP Paribas, Research Division

And my second question is, obviously, with Sibanye unbundling the earnings base, takes a bit of a knock. Have you considered revising the dividend policy to restore dividend yields?

Nicholas John Holland

Yes, but we're still going to pay out 25% to 35% of our dividends -- of our earnings, rather. And that's just off a lower base. So we'll operate within the same policy. Paul has had a good look at it and -- maybe you want to comment on your comfort on that, Paul?

Paul A. Schmidt

No. I mean, I think we're comfortable, obviously, sticking to the policy. The share prices you've seen has really moved down corresponding to what we've given up, and we'll stick to it. The reason we went with the 25% now is understanding that we are paying -- the Gold Fields leadership [ph]is paying the full final dividend, but we are reporting a lot of Sibanye's earnings in it. That's why we didn't go to the higher end of the spectrum for this final dividend, because I'm paying some of the earnings this quarter.

Jan Willie Jacobsz

Okay, could we get them microphone to the back there, please? Put up your hand. Thank you. Oh, you've got one. Okay, go ahead.

Andrew Byrne - Barclays Capital, Research Division

It's Andrew Byrne from Barclays Absa Capital. I had a couple of quick questions. First of all, you outlined the cut you're making on exploration. Were you're looking to take out the corporate cost base kind of year-on-year with the unbundling of Sibanye? Question #1. Secondly, on Tarkwa and Damang, the decisions around expanding those assets or optimizing them as you suggest. Are they dependent still on revisions to the tax or realty regimes in the country as you've discussed in the past? And finally, the question is just on debt levels and gearing. You're 0.6, 0.7x net debt EBITDA at the moment. Do you feel that as being the optimal level that you are looking to maintain through the cycle? And should we expect any more debt issuances over the next year as you see it in your plans at the moment?

Nicholas John Holland

Okay. Paul will deal with the last question. I'll deal with the first 2.

Paul A. Schmidt

You want me to do the debt first?

Nicholas John Holland


Paul A. Schmidt

In terms of the net debt to EBITDA, we've always said the level of around 1, long term is our comfort level. In terms of issuing more debt, obviously, we like to have long-term debt as opposed to short-term debt. We just restructured; we've just finalized a 5-year and a 3-year term in RCF, post the bridge that we will give them for the whole Sibanye deal. We was looking at the markets if we want to expand in the bond market going to tenure; it just depends on what the markets are. But we're quite comfortable with the debt levels at the moment. And as Nick said early on, we've got it in the right debt maturity categories at the moment. It's all effectively long-term for the new company.

Nicholas John Holland

I think in terms of your first question on all of the overhead and corporate structures, the Sibanye transaction allowed us to transfer a number of people from the corporate to Sibanye. So I think that's helped us to share the resources between the 2 companies, and that'll help us to have a right-sized corporate. And I must say where I sit today, I think it's one of the most efficient smaller corporate structures you'll see in the gold industry. So I think we're done on that as we see things today. On the Tarkwa and Damang expansions, clearly, there has been some changes in the fiscal regime in Ghana. And we continue to engage with government on how best we can take forward the gold industry in Ghana for the benefit of all stakeholders. And that is obviously something that is an ongoing debate, and I can't give you, Andrew, a timeframe of when and where we might get to. But certainly, it's not an irrelevant issue. You've got to look at this in the context of the entire project. And I'm pretty hopeful that we're going to come to a situation where we get a win-win deal for everyone. More tax into the coffers for the fiscals, more jobs potentially in the mining industry in Ghana and more benefits for our investors. That's what we're looking for, is that everyone benefits. So let's see how we go.

Jan Willie Jacobsz

Good. Thank you very much, ladies and gentlemen. We've run out of time. If any of you still have questions that we have not answered, please call or email to us, and we'll endeavor to get back to you by the end of the day today. Please join us for some refreshments in the room behind you. And could we ask the media to please move straight through to the media interview room where we normally go. Thank you very much for joining us today.

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