Gold Fields Management Discusses Q2 2013 Results - Earnings Call Transcript

| About: Gold Fields (GFI)

Gold Fields (NYSE:GFI)

Q2 2013 Earnings Call

August 22, 2013 4:00 am ET


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

Nicholas John Holland - Chief Executive Officer and Executive Director

Cheryl Ann Carolus - Chairman, Chairman of Nominating & Governance Committee, Member of Safety, Health & Sustainable Development Committee, Member of Social & Ethics Committee and Member of Remuneration Committee

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


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

Derryn Maade - HSBC, Research Division

Johann Steyn - Citigroup Inc, Research Division

Adrian Hammond - BNP Paribas, Research Division

Richard Hart - Macquarie Research

Christopher Nicholson - Morgan Stanley, Research Division

Kane Slutzkin - UBS Investment Bank, Research Division

Jan Willie Jacobsz

Without any further ado, I'm going to ask Nick to do the presentation. Thank you.

Nicholas John Holland

Thank you very much, Willie, and good morning, everyone. Thank you for joining us today. I'd like to extend a special welcome to our Chair, Cheryl Carolus, in the front over here; and also Gary Wilson, Chair of our Audit Committee, who is here today. We are really grateful you could make the time and appreciate your presence here today.

There's quite a lot to talk about. Let's talk first about what's happened in the quarter and the review. As you can see, our gold production on a managed basis has declined to 470,000 ounces in the quarter. And the main reason for that really is the well-publicized industrial action we had in Ghana, which meant that we lost our Tarkwa and Damang operations for a number of days. And it took some time to get them back to steady-state thereafter. In fact, if you adjust for that one anomaly, all of the other operations have done reasonably well.

Our revenue has been negatively impacted by the gold price. We've had a very significant decline in the gold price in the last quarter, so our revenue is down from $805 million to $637 million. Notwithstanding that, our costs are well controlled. In fact, we've managed to reduce our costs, helped in some part, of course, by the exchange rates in South Africa. But as you would all know now, we don't benefit or suffer that much from exchange rate movements because most of our assets are dollarized now.

Operating profit, down to $240 million, and then we've incurred a loss for the quarter of $129 million, principally because of some impairments we've made in Ghana. And I'll talk about those a little later.

If you strip those out, however, we still incurred a loss of about $36 million, the normalized loss you see there. And that's principally, again, because of the 5% drop in production, really all in Ghana, and of course, the gold price dropping around about $250 per ounce, as you can see there.

Cash costs are still well-controlled, $857 per ounce despite the lower production, and that's still within guidance we gave. Remember, at the beginning of the year, we said we'd be about $860. We're still within that. And the NCE significantly below guidance, $1,239 for the quarter, that's below last quarter but importantly, significantly below the guidance for the year, as we've continued to look for ways to rationalize our costs. I think by and large, other than the industrial action in Ghana, the operations have really hit their stride.

As I've said, the gold price is down 16% to $1,372, and obviously, the combined effects of the revenue drop -- the production drop, rather, and the price drop means that revenue has declined to $637 million. I think some key highlights in the operational performance is that South Deep is still cash negative. That obviously is a key objective for us to get away from that and get the operations back to, initially, breakeven and start generating cash over time.

We're making good progress at South Deep, and I'll talk about it later. But at this stage, we've not yet got to breakeven.

Damang has been hurt by a number of challenges, particularly as we had to close the original Damang Pit during the quarter because of safety concerns. We had a couple of rock falls on the east wall of the pit, and we decided that we're going to close the pit 3 months earlier than normal. That meant we had to go and get our fleet redeployed into lower-grade areas because we hadn't yet opened up higher-grade parts of the ore body. We had to use lower-grade stockpiles to fill the plant, and we still have some challenges, too, on a very old plant that we're fixing. So that's another opportunity for us to harness into the future, is to turn Damang around, and I think we can. Tarkwa, I've talked about. So those are the key highlights in the quarter.

The impairment we've seen, $127 million for the quarter, is all related to Ghana and there's about $16 million related to stockpile write-downs at Damang, given that the price has declined. But the rest of it really relates to writing off the assets on the South and heap leach operations. We made a strategic decision to stop heap leaching in Tarkwa. And we've also made a decision not to build the new so-called TEP6 plant. We were thinking of another 8-million-tonne-a-year Carbon-in-Leach plant, and we've decided not to do that either. So essentially, what Tarkwa will become in the future is a CIL-only operation. And one of the reasons for doing that is that the dissolutions we're getting on the heap leach pads have been declining. We've been flagging that for some years. We're now down to about 55%, and we think that there's a much better scenario for the mine to take that material, instead of leaching it and getting 55% recoveries, taking it through the plant and getting 97% recoveries. That means we're going to pull back the mining, and that means we're going to stop those operations. So that meant that we had to write off all of those assets. And that's really a structural change in the business.

We have not yet assessed the carrying value of our underlying operations. That exercise will be done at the end of this year, and the principal reason for that is that we need to rerun all of our life-of-mine technical models on a bottom-up basis at $1,300 gold price, which is what we're going to use for our declaration at the end of this year. Last year's declaration, if you can recall, was done at $1,500. This year, we'll do $1,300, so we have to wait for those technical models to be done. And we expect that, that work will be completed towards the end of the year. Then we'll rerun the gold price against that, that we determine is appropriate, and we'll see what that means in terms of the operations.

So unlike some other companies that have made large write-downs on their existing assets, we have not done so at this point in time. And all I can say to you is I can't predict, at this stage, what the outcome is going to be. But it certainly is an indicator that, at the year end, we'll have to complete this assessment and decide if the carrying values of our assets are still appropriate.

One of the key focuses over the last year has been on cost control. And one of the highlights of that is the fact that if you look at our all-in costs -- remember NCE is operating costs plus capital expenditures, we've managed to keep that at the same level that we reported 18 months ago.

And that's despite inflation, which in the mining industry has been somewhere between 12% and 15% per annum over the last 2, 3 years. We've managed to absorb all of that and keep our costs flat. So I think that gives you an idea of what has been achieved.

Our dividend has been deferred, the fact that we've made a loss in the quarter, and I think the concern also that the board has expressed about the volatility in the gold price. And we're not really sure where the gold price is going in the short term and predictions are all over the place. So the best thing for us to do is hold our fire and not declare a dividend at this point. We'll reassess that again at the end of the year and see what happens. But we've always said it's our policy only to pay dividends out of earnings. We've got to make the earnings to pay the dividends, we haven't made the earnings.

Look at our guidance for the year, we're still reaffirming our production guidance of between 1.83 million and 1.9 million ounces, which we gave you in February of '13. We believe that we can come in at lower costs, and we believe that we can come in significantly below the target on NCE. We're targeting now about $1,240 per ounce. In our guidance, we told you it's going to be $1,360 per ounce. So that has helped us to offset some of the impacts of the lower gold price. The exchange rate has had some impact, but the bulk of this is real savings.

I want to look at where we've come from almost a year ago to where we are today. And on the 31st of July last year, I did a presentation to the Melbourne Mining Club in Australia about what I thought the status of the gold industry was at that time, and I think a lot of you may have seen it. But in essence, I felt that the way the gold industry has performed over the last 20 years was not conducive to investor returns, and that we needed to move away from just growth targets and production to actually getting back to putting money into the bank. That got us thinking about well, "What does that mean for us as a company?" And we engaged in an extensive review of our entire portfolio on the basis that no holy cows[ph] will be assumed. We'll take a fresh piece of paper and look at the business.

That also culminated in a decision for us to split our business and to demerge Sibanye and create a separate company that could actually then drive the best possible value out of those assets. And that deal was consummated and completed in February of this year.

And if I look back on that transaction, I think all of the rationales for doing it exist today, probably even stronger than then. And it's really good to see that the Sibanye operations are starting to really gather momentum, and they themselves are improving their own performance. I think by letting them free, by liberating them, we've incentivized that team to do a much better job. And I think the outcome is very clear.

And for us, it's meant that we had to relook at our own business because Gold Fields now has changed from one of the top companies to a mid-tier company. We're about #10 or #11. And that's meant that we've had to move away from just ounces of production, which I think a lot of people in the market are still stuck with. If they ask me, "What is your production? Why is your production going down?" What they should be asking me is, "What is your margin per ounce?" And that's what we've been focusing on. A new business plan has been put together for this year that focuses on how do we improve the margin per ounce, how do we improve our cash flow. And that's meant that we've cut ounces. We've not been afraid to say we're going to reduce marginal ounces. And I guess I'm pleased that we did a lot of the stuff that we did do at the end of last year because I didn't know the gold price was going to drop so much.

And the fact that it has an effect that we've done what we've done has helped us to be prepared for where we are. Nevertheless, $1,300 or so is a reality today. We don't know how long that's going to be around, maybe it's going to go lower as well before it goes higher. We have to be prepared for all eventualities. So there's still more for us to do. We rationalized our head office over the last 3 or 4 months. We've cut our staff down to around about 56 people. Our corporate cost is about $10 per ounce for the group. It's been streamlined and it's not just a question of taking people out of the system, which we don't enjoy doing, it's a question of refocusing our operations on what they need to deliver. And our regions now are virtually fully empowered to operate with the minimal amount of interference from us, but in accordance with very clear strategies that are pre-agreed, in accordance with business plans that are rigorously approved and reviewed by us.

So we're looking at a very different Gold Fields where we're empowering our regions to deliver. Having said that, we won't compromise the 4 key important issues in our business, which is: safety, health, environmental issues, stakeholder relations, of course, with all of the people we interact within the communities.

We have to make sure we manage all of those relations because that's part of the mining value chain. Our total group employees, including contractors, has declined by 9% to about 17,700, and permanent employees are now 9,900, and we've had a 5% drop in those permanent employees.

And our exploration and growth division have also halved, more or less, their staff. And I think that we're still looking at further ways to rationalize. We have all of our projects under careful scrutiny at the moment, to determine whether they do have a future or not in the group, and I'll talk about that a little bit later, too.

Of our regions, I think Australia is probably the furthest down the track in terms of rationalization. They've cut their staffing by 23%. And Richard Weston and his team have done a great job in reducing their cost base by about $300 per ounce over the last year.

If we look at what we have done in terms of reducing marginal mining, these were the steps that we completed already by the end of last year. We shut down the heap leach operation in St Ives. That was producing about 40,000 ounces a year, but it was trading dollars. We're not in the business to trade dollars. Agnew, we've moved away from the more marginal low-grade operations, but we are taking our focus off the high-grade Kim ore body. That's been done and very successful, too.

Tarkwa, we've closed down the South heap leach operations. And we're also looking now, as I said earlier, to rerun all of our business plans for 2014, and our life-of-mines, at a much lower gold price and we'll see what that means. I think we're probably going to see more marginal mining reduced from the portfolio as we look to protect and enhance our margin per ounce.

The heap leach operation in Ghana, as I've mentioned, the North heap leach, is going through a process of closure. I believe that should be completed by the end of this year. And that will obviously change the production profile.

On our growth projects, what I can tell you today is that 3 of them are up for sale. We've commenced the process in Arctic Platinum, on Talas in Kyrgyzstan and Woodjam in British Columbia. And there may be others added to this list before the end of the year. We're going to take a very tough approach on our projects. And if we don't believe that we can get value out of these things in our business or they don't fit strategically, we will make decisions on the rest as well.

If we look at our Green Fields projects, Far Southeast, we have been very successful in getting our Free Prior Informed Consent from the indigenous communities around the mine, an 84% vote was achieved from all of the elders who represent the various barangays in the area. And we're exploring whether we can do a high-grade starter underground operation there, so that work continues. Our Far Southeast continues to be a world-class ore body, as you know. We have about 800 million tonnes, at about 0.7 grams a tonne gold and about 0.5% copper. World-class operation. We're going to figure out how this plays a role in the future of Gold Fields.

As you can see, we've cut our burn rate in our projects by half. This year, that's our forecast, to be about $74 million. And I think it's probably going to be lower again, because we're reviewing that still some more between now and the end of the year.

At Chucapaca, we're looking at whether we can do an underground operation there. Work continues on that, and we hope to have a scoping study on that by the end of the year. But that would be a smaller higher-grade operation if we did that.

On the Yanfolila, we're looking to complete our re-scoping study of that and make a decision on that by the end of the year. And if we don't think that works, that will also be added to the list of disposals.

What have we done in terms of cost savings just this year? Nevermind what we've done last year. And overall, we've said around about $230 million what we will save, of which we've actually banked in the first half of the year about a half of this. So this is not empty promises, half of that is already being banked, as you've seen from the NCE actuals. And we're going to continue to get more savings over the rest of the year.

Now the most important thing on cost savings is to make sure we don't repeat the sins of '99. And I suppose one of the benefits of having been in this company for 16 years, as I have, is I saw what happened when the gold price was very low in the late '90s. What was happening there is high-grading, in that the reserve grade that was in the ore body was actually not being adhered to. The companies were mining much higher grades, and that meant that they were actually sterilizing the ore body down the road. And they were catching on development, stripping, and that's impacted the integrity of the operations. And we spent years trying to catch that up. We're going to try not make the same mistake again. And one of the key challenges for us is to retain the operational integrity of our operations. Keep the development going, keep the waste stripping going because we need to make sure we've got a mine for tomorrow, when the gold price will be higher.

Let's do what I would like to call a health check on where we are. South Deep, as you know, we put in a new operating model at the end of last year, whereby South Deep is now working 24/7. That model is bedding down nicely, and we've seen a nice pickup in our reef tonnes, as you can see in the second graph over there. There's been a very nice pickup, about 12% increase quarter-on-quarter. That's been increasing steadily over the year. Our development last quarter has gone up by 51%. We're seeing improvements there, and our de-stress is up 39% quarter-on-quarter. And that's one of the key elements of opening up the ore body for the future production profile.

I must say, I think the labor relations on the mine is still challenging. We're having quite a lot of teething issues in bedding down the new operating model as the workforce gets used to it. But I'm comfortable that Kgabo Moabelo and his team have got this under control and we'll make sure that we deal with all of these issues.

The concern at the moment is we have a gap between our broken grade and our mill yield. Our broken grade is tracking what the ore body tells us it should do. And the problem with the yield is we're not getting all of the broken rock out from underground. That's a function of a lack of ore passes. We thought we had sufficient ore passes. Some of them have hung up. And in some cases, we've not been able to get the logistics to work, and we've also had some equipment availability issues in getting stuff to the ore passes. So we're dealing with those issues and we believe that with the addition of additional ore passes at South Deep -- and we're looking to go from 6 ore passes to 9 ore passes over the next 12 months, that will alleviate this problem. And importantly, one of those ore passes will come in by the end of the year.

That will help us to get a much better reconciliation of the grade. But notwithstanding all of that, we believe that given the rate of build-up -- and the rate of build-up is positive, it's not positive enough for us to achieve what we believe is the 2016 target. We said earlier that we hope to be at 700,000 ounces a year by 2016. The view today is we don't believe we're going to achieve that. And as a consequence of that, we think that the operating cost base is out of sync with where we are in the production profile.

So the first step is for us to restructure the cost base. We're doing that now. That's going to entail a reduction across the board of our activities and ancillary services. And at the same time, we're reevaluating what we think the build-up will look like for South Deep. That work is probably going to be finished by the end of the year, and we'll give you a better view. So the key issue in the short term is how do we get South Deep to breakeven cash flow as soon as possible. Even if the build-up is going to take longer, that is the first and most important objective and we're driving hard to achieve that.

Secondly, what is the right build-up? And how can we get there? What's the timeframe? And that work is being done now, as I've said, and I'll give you an indication.

But this in no way reflects our changed view on South Deep. We still believe this is a fantastic ore body, and we believe that we have a much better understanding of the issues. And it just means it's going to take longer to get there, but the prize is worth it.

If we look at Tarkwa, we had the strike action that impacted us in the last quarter, as I've mentioned. And we're talking about closing the North heap leach as well. And this gives you an indication of why. With the lower recoveries and dissolutions we're getting off the heap leach, the costs are now way above spot prices, about $1,600. It makes no sense to mine ounces for a loss. So we've got to pull that back.

There will be about 500 people impacted on the mine, which is around about 15% of the workforce. Our mining volumes are going to be pulled back as well, because if we're only going to feed the plant, we don't need 140 million tonne a year, and we're probably going to be at around 100 million tonne a year, which would mean a pull back of 30 million to 40 million tonnes. There will be a commensurate reduction in our costs. We're not going to build the new plant, as I've mentioned. And we will then focus on a CIL plant of between 12 million and 13 million tonnes a year. That will mean that Tarkwa's profile will drop from the current guidance of about 630,000 ounces to between 525,000 and 550,000 ounces next year.

The other key issue is we are still engaging with the government on a -- what we believe to be a fair dispensation on fiscal rules. And we need a leveling of the playing field as well between the major producers, which we currently don't have. And we're hoping to have further discussions with the government over the next couple of months on this particular aspect.

If we look at Damang, the issue here has been the fact that we've closed the original Damang Pit early due to safety concerns. And that meant that we had to then move into, what we call, the Huni Saddle. The Huni Saddle is essentially part of the Huni extension, which is in the north. But the saddle itself is very close to the original pit. And what we're seeing in the saddle is very similar mineralization and style of mineralization in terms of ore thickness to what we've mined in the original Damang.

We're seeing a lot of conglomerates with epithermal overlays, and we mined that very successfully in the original Damang Pit. And we believe that this is a replica or an analogue of what we are mining there. That's good news, because if we can get the grades back up to the original Damang Pit grade, that bodes well for the future.

The other thing is that the plant is old, 16 years. We have done maintenance over the years that we've owned Damang, which is the last 11 years. But it's now come to a point where it needs significant rehabilitation to fix that. And that's meant that we haven't always had high availability in the plant, which has reduced the volumes.

The operation is being cash negative. We're putting in a short-term recovery plan to stop the cash going out and get this as close as we can to breakeven. And then we're looking at the longer term. Let's remember, this is a world-class ore body, 4 million ounces of reserve, 8 million ounces of resource. How do we bring that to account in a way that can be profitable at current gold prices? So we've got a study underway at the moment to look at that.

So the short-term recovery plan for us is to focus mainly on the high-grade Huni Saddle area. The grade looks good. We've stripped a lot of the waste away so we're starting to access the ore body. We're getting a much better reconciliation now between what we're mining in the pit and what we're turning into the plant. And we're going to be reducing our people there by around about 150 by moving from 3 shifts to 2. We don't need to do that anymore with where we're going, and we can comfortably achieve our mining targets with 2 shifts. So that's the short term.

Our processing plant is undergoing a number of key remediation measures. And this is more important because, in the past, it's operated at about 5 million tonnes a year, but with a strong mix of oxide to supplement the harder fresh material. And of course, the oxide material, as you know, is very soft and crumbly and doesn't need a lot of crushing, if any. Now we are moving almost exclusively to hard ore. And that's meant we've had to upgrade the front end of the plant, the crushing in particular. And what we did in 2009 didn't really work for us. I think we've underestimated the hardness of the ore. Now we're putting in a much better secondary crusher, which has been put in place, a CS660 Sandvik crusher. That's done. So that's already going to make a big impact. We're looking at whether we redeploy the HPGR that we had at Tarkwa, the high pressure grinding roller, which basically crushes the ore down to a very fine fraction, to again improve throughput and recoveries. We're thinking about that at the moment. And we've also replaced the old gravity shaking tables with an intensive leach reactor, relying more on leach cyanidation to capture the free gold and get that in the front end of the recoveries as opposed to the back end. We put in a pre-leach thickener as well, that's improved both water balance and use of reagents and will improve recoveries. And we're virtually complete with another leach tank. So a lot of these measures will get Damang, we believe, back up to somewhere around 4 million to 5 million tonnes per year of processing capacity. Currently, we're doing about 3.3 million, 3.4 million so there's a lot more upside here. And with the grade coming out of the Huni Saddle looking better and getting more reliability in the plant, I think the future for Damang is exciting.

So here's the project study team we're putting together. We expect to have a report for you by February as to how best we're going to take the longer-term future for Damang and bring that to account for the benefit of the shareholders.

Cerro Corona in Peru, and again, I must welcome Ernesto Balarezo. I don't know if a lot of you have met Ernesto, maybe you can stand up for a moment. He has come from Lima. He's taken over from Juan-Luis Kruger, who served us with distinction for many years. And I think the only thing I can say to Ernesto is there has been a seamless transition. I think the operation is performing exceptionally well, and the challenge for Ernesto is how do we keep this excellent performance going. And as we know, it's one thing getting to the top of the pile, it's even harder to stay at the top of the pile. Lowest cost in our group, the operations for the quarter have performed exactly in line with plan with what we would have expected. Some slightly lower grades, but the rest of the year looks good. The guidance looks good.

And an important thing we're doing here is we're deciding that we're not going to pursue a tails dam that goes up to 3,815, which would allow us to process about another 1 million ounces. We believe that the costs of doing that are not warranted. It would cost an extra $300 million to $370 million over life. We don't think that, that's worth doing now, so we're stopping that work. But more importantly, we don't lose the optionality of those ounces today.

But we will be cutting our capital, and you'll see that already in this year that we'll be reducing our capital spend, but particularly in 2014 and beyond. We think that's a very smart decision and we're also looking to see whether we can take the oxide stockpiles we have. We have about 7 million tonnes of oxides at 1.5 grams, whether we can actually treat that through the sulfide plants and co-mingle with the hardest sulfide ores and get some of that out.

At St Ives in Australia -- Richard could not be with us today, and I think when I tell you a bit later what we've been up to, you'll understand why. Here, I think we've done a very good job in restructuring our operations. And we've taken about $300 per ounce out of the cost base in St Ives relative to last year.

We're now in a situation where we've got significant life extension at Cave Rocks, one of our operations. And we're at an NCE of about $1,250. We're looking at opportunities for us to reduce that further and trying to target more savings towards that $1,100. That's going to require a step change in productivity and efficiencies, but given what St Ives has done, I believe that we can replicate that performance yet again.

One of the exciting developments at St Ives is the addition of Invincible, which is a new open pit and underground deposit that is hosted in one of the shear zones that run perpendicular to the main shear zone. And we have a strike here of almost 2 kilometers. It's still open. We're getting very good drill intersections in the ore body, and we've already had a significant addition to our reserves and resources last year, 250,000 ounces. We can see 1 million ounces here. And more importantly, it's high grade as well. This is not going to be a low-grade deposit. That is exactly what St Ives needs, it's the addition of a long-life higher-grade ore body. That can help address the cost structures and help drive down our cost of the $1,100 over time.

Agnew continues to perform exceptionally well. And as you can see, our NCE is down to $879 per ounce. Now that's right in the lower quartile, not only in Australia, but also in the rest of the world.

The Kim ore body continues to show fantastic grades. We're getting around about 9 to 10 grams a tonne. It continues to extend the depth, and we're seeing the potential for additional ore bodies around the Kim ore body that could be as exciting over time. I'll talk about that a little bit later, too.

Might as well talk about it now. So if we look at the Kim ore body here in the middle, you could see it there, Kim. We're looking at another shear-hosted ore body with a very similar dip, called Waroonga North. We've done some drilling into that, and we're seeing almost an analogue of Kim in that particular area. Then we've got something called Kath, which is next to Kim, which we think is indicating that Kim is swelling out a bit. And it could be an extension of the original Kim ore body. And then something that you see there, called FBH, at depth is a higher grade, much higher grade core of mineralization that seems to be an extension of both Kim and Main to the right there. And one of the theories we have is that this is one bigger mineralized zone. We just haven't managed to join all of the dots here. That'll be the challenge over time. So we're allocating more exploration dollars to Agnew to look at how we can further extend this operation.

I want to talk about something we've announced this morning, the fact that we've acquired Barrick's Yilgarn South assets in Western Australia. Let's give you some of the background to the deal and the rationale for that.

We bought 3 mines in Western Australia that are in the same area as Agnew and St Ives. Granny Smith, Darlot and Lawlers. The purchase price is $300 million, with a likely rebate of about $30 million for working capital adjustments between now and closing. We're buying 2.6 million ounces of reserves and 1.9 million ounces of resources, in addition to the 2.6 million ounces of reserves.

We're paying $104 per reserve ounce for in-production ounces. We're paying $60 per resource ounce for in-production ounces.

We have the election of paying the consideration either all in cash or half in shares. We have most of the approvals we need. The only thing outstanding is the Federal Investment Review Board and the Minister of Mines in Australia. We hope to have those within the next couple of weeks.

Let's talk more about what we've bought. So these are the 3 mines, you can see over here. Lawlers is adjacent and virtually contiguous to Agnew. In fact, if you stand next to the old Waroonga open pit, you can actually see the Lawlers office block just over the way. That's how close it really is. Darlot is not far away from Lawlers, and then Granny Smith is between Agnew and St Ives.

Last -- or this first half production on an annualized basis for these assets is 450,000 ounces a year. The all-in costs, as reported by Barrick, $1,137. That's what they have generated in terms of cost structures. The mine site employees are about 1,300, which includes 300 of contractors, and I've given you the resources and reserves already. That's the long-term production profile you see at the bottom.

So how does this benchmark in terms of what we're buying against other deals, particularly in Australia, over the last few years? And as you can see, on a price per production ounce, we benchmark very well. On a price per reserve ounce, we look just as good.

Our chair was saying last night, "When things are cheap, you should go shopping." And so we've gone shopping. We think that this is an attractive acquisition for us.

So why are we doing this? Well, first of all, we're in Australia. We have a very strong platform and we have a strong platform of delivery. We produce 600,000 ounces a year in Australia.

We've been there for 11 years, we know the country, we're comfortable with the area. This is really an extension of our assets in a known geological belt, the Yilgarn Craton, which has been mined and explored for many years.

We believe that we can apply the same practices that we've successfully deployed at Agnew and St Ives, to turn those operations into cash-generating mines, which they are today. We believe that we can apply those same practices to this acquisition.

We believe that we can bring to account the synergies in terms of the regional overheads in the area. We believe that we can bring to account the synergies that exist, in particular, between Lawlers and Agnew.

What does this do for Gold Fields? The first circle shows what we used to be before Sibanye was done. And then you can see the middle is a pie of the production split between the regions post Sibanye. And then on a pro forma basis, we've taken the first half of 2013 and assumed that we had these operations for that period. Australia makes up 42% of our total production. We would now be a 1-million-ounce producer in Australia. We would be the third largest gold producer in Australia after that. I think it helps to diversify the geographical and political risk in our base as well. And adding assets in a country that we know well makes a lot of sense.

Here's what we've done in Australia over the last 6 months or so. If you look at the total cost curve for the 16 producers, you can see that St Ives in quarter 1 2013 versus the whole of 2012, we dropped our cash costs down. We're now in the lowest quartile, virtually, of producers. Agnew was already there, it's now the third lowest-cost producer in Australia.

And we haven't sacrificed much production because we believe that these 2 mines can still produce 600,000 ounces in 2013.

On an NCE basis, the story is very similar. St Ives is now in about the middle of the cost curve, and Agnew, again, is still in the lower quartile. That's an indication of what we've done at those 2 mines. Now the style of mineralization you're seeing at Granny's, Lawlers and Darlot is an orogenic style of mineralization, where you never have large gold reserves ahead of you. Because you have to keep on adding as you go. You're typically following narrow veins, lodes that extend. You're not mining a massive ore body that has significant continuity over a great space of area.

You're looking here at following pay chutes and following the narrow resource[ph] in certain cases. So how we've been successful in applying our methods to the same kind of style of mineralization elsewhere? Well, at St Ives, when we bought St Ives, we had 2.3 million ounces of reserves. What have we actually managed to add to that over time? We've added 5.6 million ounces over that period of time.

We've mined 5.8 million ounces. The story at Agnew is very similar. People said to us, "Why are you buying Agnew? It's a dead mine." Well, guess what? 11 years later, we've mined 1.9 million ounces, and we have a reserve that's double of what we had when we started.

It gives you an indication. We see the same kind of opportunity in the 3 mines that we have just bought, and we've added significantly to both of these sites, and we're not done. There's a lot more that we'll get out of both of these operations.

If you add the acquisition we've just made, as I mentioned, it takes the new Gold Fields in Australia up to about 1 million ounces. We may have to find a little kangaroo to put somewhere on these slides in the future.

If we look at Lawlers and Agnew in terms of the consolidation, if you look at the slide on the right, you can see on the left-hand side there is the ore bodies we're mining at Agnew. And then next to that is the New Holland and Genesis ore bodies, which are literally 640 meters apart. And one of the first things that we'll consider doing is whether we do a link trial between the 2 ore bodies and join that up.

The other important thing is the combined area has a very significant ground position, about 80,000 hectares. A lot of it is under-explored, particularly on the Lawlers ground. So one of the things we'll be doing is having a look at what we think exists.

There's a very large system that tends to coalesce at depth, and we believe that these 2 ore bodies actually will join at depth, and the challenge for us is how do we try and bring that to account over time.

A lot of work to do to understand what we have ahead of us, but I'm sure that, over the next 6 months, we'll get a better handle on New Holland and Genesis underground ore bodies, and indications are they extend even further.

One of the things we're going to do straight away, we believe that we can rationalize our processing costs. We've got enough milling capacity at Agnew to deal with the Lawlers ore. That will bring down the processing costs for both sites. Also, the coarser ore that we have at Lawlers will get better recoveries being put through the Agnew plant. So we think there, we can get around about $18 million a year of savings. Overheads on the site can be rationalized. We see another $10 million to $15 million of savings there as well.

So those are the short-term benefits. Once we've done a link trial, we believe that we can rationalize underground equipment, we can rationalize the way that we mine, and we can look to optimize on ventilation and cooling capacity as well.

I've talked about the tenements and the 81,000 hectares, they're very significant. There is a target there that can add more to what we've already talked about.

And here's an indication of the high-grade mineralization as the New Holland and Genesis underground operations go deeper. And we're seeing significant extensions to these particular mines at depth, which is not in the numbers we've talked about earlier.

There we go. Open at depth. Those are all of the extensions, some of which has been drilled. As you can see, there are drill fans going out, indications of grade that's similar or better to what we've seen before, and indications of continuity of mineralized zones.

And here's an interesting slide that demonstrates what I tried to tell you. Let's look at Lawlers in terms of the reserve over the last 10 years and cumulative production. And what this tells you, very simply and effectively, is that Lawlers has continued to replace its reserve. That's the important thing.

It's mined more, cumulatively over time, but it's more or less maintained the reserve, and that tells you it is replacing as it mines for the future ahead.

Let's look at one of the other mines, Granny Smith.

Here, we've got reserves of about 1.9 million ounces, resources of about 1.3 million over and above that. This is in the middle of the 2 operations, as I've mentioned. And again, we're just mining the Wallaby underground mine. And here's an indication as to what the site looks like. You've got the underground mine there, the Wallaby underground mine in the corner. We've got the tails down on the site there, and we've got the plant in the top right-hand corner. The other thing that we haven't factored in -- so this is the 27 million tonnes of open pittable material of about 1.3 grams, 1.4 million ounces. There's another opportunity for us to bring that to account.

And we've got a very good track record of open-pit mining at St Ives. Surely, we can replicate and bring that to account in some way.

Now here's the indication of why we get so excited about Granny Smith. We look at the Wallaby underground operation, so what we're seeing here in terms of mineralization is this is an intrusive pipe, if you like, where all of the fluids have basically come up into a pipe and they've ended up being stacked in horizontal or near-horizontal lodes. These are about 150 to 200 meters apart, and the total footprint, that is included in the reserve and resource definition, is around about 600 meters deep and about 500 meters across.

As they're going deeper, you can see on the right there, the grades are getting better. And this is what our explorationists like to call a BAD deposit, Better at Depth. So as this gets deeper, we're seeing that the mineralization lodes are getting wider even, and the grades are getting better.

And that's a very positive message for us. But more importantly, we think this continues extending way beyond. You can see we've gone down to lode ore Zone 100 here. We believe this continues down to at least 120. And each of these lodes will have a significant element of mineralization.

So I can't tell you how many ounces there is here, but we've got a pretty good idea of what the potential is, and it's significant. So this is the other reason why we are excited about getting Granny Smith, as we think there's potential here to add significantly to the reserve base and production.

Here again, the same slide I showed you on Lawlers. If you look at the reserve over time and you look at the cumulative production, what does it tell you? We are replacing what we're mining, we're putting it back. And there's every reason to believe that we'll keep doing that, because we've done it before at St Ives and we've done it before at Agnew, a similar style of mineralization.

Some of you who visited St Ives will be familiar with the fact that we have a large salt lake, essentially a salt pan, that runs through the tenements that we own. And over the years that we've owned St Ives, we've mined about 2.4 million ounces on that salt lake. Essentially, what you have to do is you have to remove the soft overburden down to about 60, 70 meters. You're then exposed to harder material as you get into that, and you start developing a mine. Now what's interesting about Granny Smith, we almost have an analogue at Lake Carey, to what we have at the salt pan at St Ives, which is called Lake LeFroy. It's uncanny the similarities here, and again, with the same style of orogenic mineralization, we think there's an interesting opportunity here for us to explore.

Let's move on to the last of the 3, Darlot, which we understand very little about at this stage. And this was part of the package. So we've taken that. But largely, it's under-explored. There are number of targets you can see here, at different stages of evolution. The yellow targets are those that are at drilling stage, and there's quite a number of yellow targets where there has been drilling. And mineralization has been intersected. So I think what we got to do here is we've got to get a much better understanding of the potential of Darlot. That's going to require some exploration dollars to go in and for us to have a good look at it.

And here's one interesting opportunity that we see. There was an area, a high-grade area mine called Centenary here, that you see the red line going across on the side. And if you look at that stratigraphy, we're seeing a replication of that at depth in the magnetic dolerite section. And that's the purple section you see there. And this is hosted between 2 faults, and all of the indications are that it looks like a replica of what we've seen further up. The structure is there, the same kind of mineralization that we thought we'd see. So we've got to get in there and drill that out and see if that is a replica or an analogue of what we saw in the original Centenary. And on the right there, you can just see a blown-up piece of the original Centenary, with all of the mined-out open-stoping sections that you've got there; indication of the value there that we haven't taken into account.

Broadly, what does Gold Fields look like with all of this? If you just take the 2012 results for Gold Fields, excluding Sibanye, you can see that we would have had about 2.6 million ounces of production. If you just look at those pro forma historical numbers, we would have 6 mines in Australia, with 2 mines in Ghana and, of course, just South Deep in South Africa. That gives you an idea of what the footprint looks like if you exclude Sibanye.

So in summary, we believe that we bought assets that are competitively priced and also conservatively financed. This presents an opportunity to bring to account all of the skills we've deployed elsewhere in Australia and to have a regional consolidation, with operational synergies that we can grab pretty quickly between Lawlers and Agnew.

And we've got a management team that has got a track record of delivery. So we're going to get a little bit busier starting from today. The upside on the exploration will take some time, but it looks significant in terms of its potential.

I'd like to conclude. That slide you've seen already, which now, again, reflects the acquisition we've made in Australia. Where is Gold Fields going to now? Where were we? We were a large producer, chasing our production target. Now we're not chasing production targets, we're chasing cash flow. And the acquisition we've just made is exactly in line with that strategy. We believe that we can run these assets for cash.

We're moving to a mid-tier producer. Our structure and our organizational design within Gold Fields is evolving to that. We've only been in the situation for 6 months. It takes time to graduate towards it. We've made important steps down the road. We've got a much more balanced geographical portfolio. And we've moved to a structure now with greater delegation of authority to the regions, and with the corporate structure focusing more on strategy, capital allocation, policy-setting.

So the way forward from here. We've got to do more to reduce our cost base. We've got to get Gold Fields to be profitable at a $1,300 gold price. More steps will be taken over the balance of the year, so that by next year, this company can be generating cash at this sort of price. That's our intent, is to make sure that we can survive at $1,300. We need to integrate the acquisitions we made in Australia. That's going to take some months for us to do. We need to transform Tarkwa. We need to work out the business proposition and the value proposition for Damang. And there's a strong one, I'm sure of it. South Deep, we have to restructure to get the cost base to be in sync with where we are on the production base. We need to reevaluate our buildup, and we need to make sure that we really do understand how we're going to get there.

More work is being done there, but I must just reemphasize, the trajectories on South Deep are looking very positive. We've got to keep going. We've got to look at our growth portfolio and decide what goes, what stays. And if we don't believe we can make a success of our projects, we will not hesitate to stop spending money on them and to dispose of them.

Where is the gold price going to be? I think we have to expect it's going to be volatile for the moment. As you know, I never give a prediction for the gold price, but I think over the rest of this year and possibly into next year, we are going to see a volatile situation. There could be ups and downs. The longer-term fundamentals for the gold price, however, I believe, are sound. Demand out of China and India continues to be strong. Recycling, that makes up about 40% of supply, has dropped to around about 50%. And it's always going to be sensitive to gold prices. That's a pull back.

Production, I think, is going to be rationalized. Very few new projects are going ahead. Central banks are still buying, they're not selling. All of those fundamentals, I think, still are good for gold price in the future. But I think for now, we're going to have to hunker down and get our way through the storm. And I'm sure that in a year or so time, things will be a lot better.

Thank you very much. We'll now hand over to questions.

Question-and-Answer Session

Jan Willie Jacobsz

Okay. If you could just indicate whether you want to ask a question and then they'll get the microphones to you. Let's start right there with Allan. Just say your name and your company.

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

It's Allan Cooke, JPMorgan. Nick, just on South Deep, this is another delay, and I appreciate you're still doing more work there. But could you give us an indication as to what changes you're envisaging there. Is it just to fill -- or a longer time to 700,000 ounces, or does that 700,000 ounces perhaps change in the future? And then help us with an understanding, are you just having teething problems there? How far behind plan are you currently? And what are the issues that make you concerned that you will not get to free cash flow breakeven and achieve the original mine buildup plan view?

Nicholas John Holland

Yes, I think it's a combination of issues, Allan, in that just to de-stress the ore body to get all of the project areas ready, it just takes longer. The logistics, I don't think they're as good as we'd like to see. Our equipment availabilities are below what they should be. We have a dedicated focus on improving equipment. We're looking at the layouts on the ground, and as I've mentioned, we need to bring forward the addition of new ore passes. That's meant we've had the accumulations underground. And the accumulations underground now are probably getting to levels that are concerning. And as always, what you find is a lot of this has come out of the long-haul steps and the grade in there is typically higher. So we're sitting with what we believe to be reasonably good grades on the ground. So we've got to get those out. I think the plan to get to 2016 is probably too aggressive given the level of buildup. I look at the trajectory where we are today and where we need to be, and we're just not quite there. How far are we under plan? I think in terms of reef tonnes broken, we're very close to plan. And now we're around about 92% of plan. In terms of de-stressing, we've increased significantly. You've seen, again, we've had another 40% increase. So we're at about 90% of plan. That's looking good. If we get our grade issues sorted out, which is, we believe, a function of accumulations, getting them out on the ground, I'll be able to give you a better feel as to what I think the long-term profile will be. I don't think we are far away, but I think it's late enough in our buildup stage to flag that we're probably not going to meet our target. But I don't think the model is fundamentally flawed, and I think it's just a question of more time required. Now, in terms of what does the future profile look like, we are running a whole lot of scenarios. And I'm sure that by the end of this year, we'll be able to give you a better feel as to where we are and that's -- I wouldn't want to comment on what specific production profiles will be, whether 700,000 ounces is still achievable. We're reviewing all of that.

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

Okay. Good then. Sorry, just one more, if I may. On Far Southeast, the strategy is evolving and changing quite a lot, and it occurs -- what sticks out, the Far Southeast project, because you're still going to invest a significant amount of capital there to exercise your option, explore, et cetera. Could you give us an indication of how much more you need to spend at Far Southeast within your current planning? And why that is, when you're slashing or cutting or selling other projects in your project pipeline piece? What makes the Philippines special within the project pipeline [indiscernible]?

Nicholas John Holland

Yes. We haven't got any definitive news yet on Far Southeast. But importantly, we have to get through the FTAA process. Now that's -- I should probably stand -- we have to get through the FTAA process first. We think that's going to take us to about the middle of next year. And we're looking at different options to access the ore body. Now can we get a high-grade starter operation, and what would that look like? We're running all the numbers on that. But in the meantime, what we are doing is we are cutting the burn rates on the project. Now the project burn rate is going to be maybe $0.5 million to $750,000 a month, and that's going to be way down. We're not going to be incurring big money until we make a decision. And if we find down the road that our strategy and Far Southeast doesn't gel, we'll consider other options. There's no definitive views on what we should do with any of the projects today. We are still all under review. I think it is a great ore body. I think it will be built sometime in the future, if not by us, by somebody else. But we're trying to figure out what is the value proposition, and at the same time, let's get the FTAA in place so that we've got permission to have a majority ownership in the project as a foreigner, and we'll take it from there.

Jan Willie Jacobsz

Thank you, Allan. Let's go to Derryn in the back there, and then we'll come to you, Johann.

Derryn Maade - HSBC, Research Division

It's Derryn Maade from HSBC. Just a quick one on the Yilgarn acquisition, Nick. In terms of the regional synergies that you highlighted, would you be looking out a little bit further as well, potentially Sunrise Dam, would you see that as attractive, bringing that into your portfolio, and given that it's only around 5 kilometers from Granny Smith?

Nicholas John Holland

I think our main task at the moment is to integrate these. I think this is going to keep Richard Weston and his team busy for quite some time. We got to make sure that we apply our mines to what we've done here, that we come up with a cogent new plan for these operations, how we integrate them with the rest of the assets in Australia. And I don't want the team really to be distracted from that for now. Down the road, anything is possible, but not for the short term.

Derryn Maade - HSBC, Research Division

And then just one last one on South Deep and the review of the BEE deal that was made this year, maybe highlight some of the outcomes of that review, please?

Nicholas John Holland

What I'd like to do, maybe, is -- I have our Chair here today, Cheryl Carolus, and maybe I can ask her to deal with that particular question.

Cheryl Ann Carolus

Thank you. The board has finally concluded its investigation. It's been quite a learning curve for us, and I think we've just become quite mindful that, in so many ways that it relates to the environments in which we work, just requires much ongoing training, familiarization of our staff. And we are comfortable that we've done a year-long investigation. We spent quite a bit of money on it, and we think that was the right thing to do. We're not going to rush it, and we are happy to draw a line under that chapter. We have spoken with management, because we think that we need to revisit some of our own internal communications, particularly in procedures. And management has taken that on board. We will take a number of steps, but I don't want to steal the thunder of Nick's wonderful initiative that is outlined here, and I'll be happy to take questions outside. But perhaps one of the things that I should say is that management and Nick, in particular, has taken on board fully the fact that this has been quite a difficult period for the company, that the company has been exposed to, and he has offered to, in fact, sacrifice his bonus for the financial year ending 2013. We didn't think it -- that was not on our radar, but we think it was a very decent thing to do to, to in fact, acknowledge the fact that it has been a difficult time and that there's much work that would need to start, pretty much that has in fact started in the company. So we're very pleased to say that we can a draw line under that. We think it's still a fantastic transaction that was concluded. We're mindful of the fact that 60% of the value of the transaction affects certain broad-based education trusts for the benefit of our communities adjacent to our operations and our labor-sending areas. And we're just much wiser. I have a few more gray hairs, but I think we're much wiser and much more comfortable about the way going forward around.

Jan Willie Jacobsz

Can we come to Johann standing in the front here, please?

Johann Steyn - Citigroup Inc, Research Division

Johann Steyn from Citi. Just quickly on the acquisitions. On Page 47, for instance, you show on Slide 47, you show those reserve charts, et cetera, for Granny Smith for instance, how you cumulatively produced more, but the reserves basically stayed flat. My question is how much was that helped by the gold price? Because clearly, over the past 10 years or so, we've had a very good gold price. So that's the first question. The second one is then, with the gold price now going to $1,300 an ounce, have these reserves taken inside Barrick been impaired? Or do they still need to be impaired at a lower gold price? Will there be impairments or not? And then just thirdly, in terms of accessing some of those deeper reserves, what kind of capital commitments are we looking at?

Nicholas John Holland

Yes, first of all, they have undertaken their own impairment on these assets before we acquired them. So they've already done that. In terms of how much capital it's going to cost to extend the ore body down further, we don't even own these assets yet. We've done some preliminary work in our models that we used to value the assets. We've taken a very conservative approach in terms of what we have valued, and that we haven't valued a huge amount of blue sky for example. We've operated by-and-large within the envelope, so we've truncated it in a very conservative fashion. But the job now over the next 3 to 6 months will be to look at all of those things. But I don't necessarily want us to start spending a whole lot of money today. What I want us to do is figure out how we can actually run these assets for cash, first and foremost, and how we can actually look at what they have today to run for cash. And we have to remember, these are operations that are run by Barrick in the past. They've got very good operating philosophies. It's the largest gold company in the world. We have done site visits of the assets. And I was speaking to my counterpart at Barrick last night, very late in the evening just before we signed, and I said to him how pleased we were of the state of the assets and the way that Barrick has operated them. And he, in turn, thought our current practice in Australia would really come into good effect here. So we're excited, but we're keeping our feet on the ground. And first and foremost, we have to try and run these assets for cash flow, which is in line with the philosophy in the group. And given the fact we've just shelled out $270 million, we've got to make sure that we get a return on our capital. That's the name of the game, not like the past, where people spend money and they never get it back. We can't be in a situation like that. And I think this is a unique opportunity for us because, if you go and look at how the market was valuing these assets, if you look at consensus valuations of these assets over the last couple of years, now then the values the were being attributed by the analysts, yourselves, to these assets at only slightly higher gold prices in Aussie dollar terms, they were attributing a higher value. Now that's well in the public demand, you can see that. So the fact that we have an Aussie dollar that seems to be a little bit weaker, that's obviously helping us. I think we can generate some good value out of these assets. To be honest, it's going to take time.

Jan Willie Jacobsz

Can you please pass on to Adrian behind you, and then we'll come to you in the front here.

Adrian Hammond - BNP Paribas, Research Division

It's Adrian Hammond, BNP Cadiz. And I have two questions, I think the first one for you and the second one for Paul. Just, I think, is an extension of what Johann asked you. I appreciate the detail you've given us to explain the longevity of these assets in Australia, considering the reserves stated. But currently, your reserve life for these assets are relatively short term and clearly, you're in for the long term. Could you just then clearly indicate what level of capital you need to spend to bring new reserves into account, or just give us an all-in cost? And maybe I'll move on to the second question after you answer that one.

Nicholas John Holland

Now look, the best proxy I can give you for that is how much have we spent at St Ives and Agnew in adding to the reserve base every year. And over the last 10 years, we've put back around about 7 million or 8 million ounces at an average cost of about $50 per ounce. So if we use that as a proxy, that's probably the best indicator I can give you for us to add to the reserve base. The other important thing is our work to date indicates, as I've have demonstrated in the presentation, not so much at Lawlers but [indiscernible] grades get better at depth. So that's the other benefit that we're seeing here. Although it will cost more to mine at depth than it does shallow ore bodies, the indications are that the grades are improving at depth as well. So use $50 as a proxy and use St Ives, I think, and Agnew is the best analogue to figure out what sort of cost structures we'll end up at. Clearly, we have to bear in mind, at $1,300 an ounce, that's going to be our planning assumption for next year. I need to get a plan from Australia that can do more than just wash it's face at $1,300, and I need a plan that can generate value for the group. So that's the way we're going to be looking at this.

Adrian Hammond - BNP Paribas, Research Division

And Paul, could you tell us what level of debt you've taken on, or if any, in this acquisition and any environmental liabilities?

Paul A. Schmidt

[indiscernible] We've got to pay the bulk of it out of this -- of this out of cash resources in Australia at the moment. As you read, the option here is that this could be settled half in shares issued today or a full cash deal. And if we do cash deal, we could look at ways of financing part of the cash purchase, if we make them[ph] . In terms of environmental obligations, it's about $86 million that we're taking on board.

Jan Willie Jacobsz

Thanks. Thank you. Any further questions? Sorry, we've got -- sorry...

Richard Hart - Macquarie Research

Richard Hart from Macquarie. Nick, you indicated that Barrick have already impaired these assets, but on Slide 29, you're still using $1,500 an ounce. I assume that you'd have to take a look at those at $1,300 an ounce as well, so at 2.6 million ounces it would obviously be a bit less than that.

Nicholas John Holland

We're not sure yet. We obviously have to go and rerun this through our own methodology at $1,300, and we'll see what the outcome of that is.

Richard Hart - Macquarie Research

But if Barrick could impair them to $1,500 an ounce, or have they impaired it [indiscernible]?

Nicholas John Holland

What Barrick did is they impaired the carrying value of these assets to basically the $300 million that we've offered them. So if you look in their June accounts, you'll see there was about $114[ph] million impairment of the Yilgarn assets down to the carrying value that we offered in the purchase price. But there may be -- you're right, there may be a need for us to look again at the reserves at the end of the year, as we look at everything else. And if that's the case, and I will look at it, that doesn't change in any way our view of the assets, because what we've done is we have estimated what we think we can mine over the life of these assets at a $1,300 gold price, taking into account the cost structure that exists. And that's worked out for us what we think the assets were worth. So even if there is an impairment, that's already factored in to how we value the assets. It's not that we're valuing the assets at $1,500 and all of a sudden, now we redo the reserves and then we -- half the purchase price gets impaired. No, not at all. We've taken a conservative valuation through at $1,300 to come up with what we believe is a mineable profile. And it's within the envelope of the reserves and resources already declared. That ignores the fact that I believe that these mines will continue for many years to come. Our team believes that more strongly that even I believe that. We haven't even taken that into account. That's been a conservative view that we've taken into account what you just mentioned.

Jan Willie Jacobsz

Thank you very much. In the back there?

Unknown Analyst

Was that why -- sorry, John Crensdoff [ph], without wanting to appear cynical, why would a company like Barrick sell these assets?

Nicholas John Holland

Good question. Same question that went through my mind when we were negotiating, what are we missing here? And I had a long discussion with Jamie Sokalsky, their CEO, who I've known for quite some years. And he explained to me the predicament that Barrick is in at the moment. They've got about 36 operating mines around the world. Their production profile is about 7 million ounces a year. Just imagine, to stand still every year, you've got to find 7 million ounces every year to stand still. They've become too big in a world where smaller is beautiful. The other thing is, they're trying to manage Australia from Toronto. How many time zones away is that? The other thing he wants to do -- and this is on the public record so I'm not saying anything out of school here -- he wants to get Barrick to be more of an Americas-style company, let them focus on the Americas, North and South, for a number of reasons. One, it's the same sort of time zone; and two, it's an area they understand. And I think it's no secret that Barrick is also looking to get out of Africa. That's another area they've struggled to understand and operate. Australia is no different. It's an area that they feel is not worth the attention for them in the scheme of where they are, in the scheme of things. So they're looking to bring on new projects in the Americas, they're looking for focus, and I think their shareholders are demanding focus from them. Last but not least, they've got a lot of debt. They've got around about, what is it, $13 billion.

Paul A. Schmidt

Yes. They have a 2x net debt-to-EBITDA [indiscernible].

Nicholas John Holland

They've got about $13 billion of debt, so they have to sell assets to bring that down. Look, I'm pretty sure that, had that not been the case, maybe they would have taken their time on this. I think, strategically, they still want to reposition. But I think given the fact that the gold price has dropped, the need for them to repair their balance sheet, they are looking aggressively to sell assets. And when you are selling, you're a seller. You get the best price at the time. Does that help?

Jan Willie Jacobsz

Good. Thank you very much. Folks, we've got time for one more question and then we've got to wrap it up.

Christopher Nicholson - Morgan Stanley, Research Division

This is Chris Nicholson at RMB Morgan Stanley. Just two questions. First one is, in terms of the CapEx cuts of $120 million, can you give us an indication of which operations they will be coming out of, and specifically, is any of it -- does that relate to South Deep? And then second question is just the working capital adjustment in the purchase price[ph] . Can you just expand that, too?

Nicholas John Holland

Okay. I'll ask Paul to deal with the last question. The capital cuts are really out of the growth projects, mainly. We've curtailed a lot of the spend on the growth projects. If I could talk maybe on the year number, the $230 million is the year, of which $123 million is about 1/2 of it for the first half year. Capital projects have cut by around about $70 million, as we've really pulled back there, given the fact that some of them are for sale and others may well be for sale into the future. At Damang, we've pushed out a new tails dam for now, given the fact that one, the operation is cash negative; and two, I don't want to spend that money until I've seen a new longer-term profile for Damang that shows that we can make money at $1,300. And we might spend all of that money now and find we don't have a business proposition for Damang. That's pushed out quite a lot of money. Some of their strip, we've also pushed out because we're now focusing in the short term on the high-grade areas we've already exposed. So we're not just going to keep on blindly stripping at Damang until we know where we're going. And then I think it's generally good efficiency improvement to try and do the same physical work for less money. Contractors have been pulled back across the board, and it's amazing when things are tough and you go to your contractors and say, "We need a 20% saving." And they give it to you. And yet 2 years ago, they told us, they're only making a 15% margin. So it's amazing how things can change. So it's sharing the pain with our suppliers, as much as we share the benefits in the good times. So that those are the main areas that we've cut. So it's $230 million saving for the year against the guidance we initially have given you. I'm sure that we can do more than that. And we've got time for one more?

Jan Willie Jacobsz

Yes. You want to ask...

Paul A. Schmidt

On the working capital, the bulk of it relates to employee leaving, customers[ph] , et cetera, that we will take over. And obviously, they're giving us an adjustment for that. We will assume the liability and they'll give us a credit for it.

Jan Willie Jacobsz

Okay. Final question? Nothing? There's one over there. Can we get a microphone over there, please?

Kane Slutzkin - UBS Investment Bank, Research Division

Kane Slutzkin here from UBS. Just on Damang, I mean, you've outlined quite a comprehensive turnaround strategy. Just out of interest, does it -- was closure ever an option?

Nicholas John Holland


Jan Willie Jacobsz

Folks, thank you very much for your time and attention. We do appreciate you coming. We will now in, say, 5 to 10 minutes, convene downstairs with journalists who want to ask specific questions. If you have any questions or further questions of -- for our Chair, could you please contact and Anne Dunn and we'll help set it up for you, okay? Super. Thank you very much.

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