Gold Fields Limited (NYSE:GFI)
Q4 2015 Earnings Conference Call
February 18, 2016 9:00 AM ET
Nicholas Holland - Chief Executive Officer
Paul Schmidt - Chief Financial Officer
Nico Muller - Executive Vice President of South Africa Region
Avishkar Nagaser - Investor Relations and Corporate Affairs
Taryn Harmse - Executive Vice President, General Counsel
Andrew Byrne - Barclays Capital Inc.
Richard Hatch - RBC Capital Markets
Brian Nunez - Gramercy
Patrick Mann - Deutsche Bank
Good afternoon ladies and gentlemen, and welcome to the Gold Fields' Full-Year Results Conference. All participants will be in listen-only. There will be an opportunity to ask questions at the end of today's presentation. [Operator Instructions] Please note that this conference is being recorded.
I would like to hand the conference over to Mr. Nick Holland. Please go ahead, sir.
Thank you very much. Good afternoon everybody or good morning depending on where you are in the world today. Thanks for joining us to discuss Gold Fields' results for quarter and year-ended December 31, 2015.
With me today are our CFO, Paul Schmidt; Nico Muller, the EVP for the SA Region; Avishkar Nagaser, Head of Investor Relations; and Taryn Harmse, Group of General Counsel.
2015 was another challenging year for the gold industry, with the U.S. dollar gold price peaking at around US$1,300 an ounce in January and then falling around US$250 an ounce through the course of the year to close the year at around US$1,050 per ounce. For Gold Fields, however, weakening commodity currencies provided some offset to the weaker U.S. dollar gold price.
Together with ongoing cost saving initiatives and efficiency improvements, the Group generated net cash flow of US$123 million for the year. This performance driven by our strong international portfolio has enabled Gold Fields to meet its commitments and dividends and improving the balance sheet. At South Deep, good progress has been made on getting the basics right, with early encouraging indicators emerging in the second half of 2015.
First looking at the fourth quarter, production was 566,000 ounces which was 2% up on the previous quarter, all-in costs and all-in sustaining costs US$929 an ounce all-in sustaining, US$942 ounce all-in costs. Despite a further reduction in the average gold price US$1,092 an ounce, the operations generated net cash flow of US$47 million during the quarter. Impairments of US$300 million were recognized in quarter four however none of our significant operating assets were impacted.
Normalized earnings for the quarter were US$15 million. In-line with our dividend policy, we have declared a final dividend of ZAR$0.21 per share, taking the full dividend to ZAR0.25 per share, which is 34% of our normalized earnings in line with our policy. During the quarter there was a further reduction in net debt to US$1.38 billion, which improved the net EBITDA ratio to 1.38, from 1.41 at the end of quarter three.
Now looking at the individual regions production from South Deep was 24% higher quarter-on-quarter at 2,119 kilograms or 68,000 ounces on the back of a 42% increase in the previous quarter that means a 64% increase in the second half versus the first half. All-in cost fell 19% quarter-on-quarter to US$1,156 per ounce. There was further progress on a number of important initiatives at the mine including the rollout of the high profile destress mining method. And we continue to target cash breakeven by the end of 2016 at the latest.
Gold production in Australia increased 6% quarter-on-quarter to 263,000 ounces, due to higher production at St Ives and Agnew/Lawlers. Consequently, all-in cost decreased 5% quarter-on-quarter to US$819 per ounce. Given the material increase in exploration spend and activity in the Australia operations. Last year we expect reserves in the region to remain largely unchanged after depletion and expect a double-digit increase in resources. However, we will give you resolution on those numbers hopefully by the end of March when we issue the mineral reserves and resources supplement.
Attributable gold production in Ghana decreased by 3% quarter-on-quarter to 174,000 ounces, as a result of lower production at both Tarkwa and Damang. However, all-in cost was 4% lower at US$925 per ounce. Production at Corona of both gold and copper decreased quarter-on-quarter due to lower head grades as expected. Attributable gold production dropped by 16% quarter-on-quarter to 66,000 ounces.
Turning to the full-year, attributable production for the Group was 2.16 million ounces I think that was 0.69% within the original guidance provided in February so essentially guidance was met. All-in sustaining costs and all-in costs of US$1,007 an ounce and US$1,026 an ounce respectively came in below 2014 and better than both the original and revised guidance for 2015.
Notwithstanding the US$100 an ounce decrease in the average gold price during the past year, the Group generated net cash flow of US$123 million that’s off to all of those have been paid, all CapEx, all taxes, all royalties and we have managed to achieve a further reduction of US$73 million in our total net debt.
Looking ahead to the year that we’re in now we expect attributable gold production of between 2.05 and 2.1 million ounces that’s between 2.5% to 5% reduction, with decreases in the international operations partly offset by growth in production at South Deep.
However, we expect unit costs to be largely unchanged from 2015 with all-in sustaining costs expected to be between US$1,000 and US$1,010 an ounce and all-in costs expected to be between US$1,035 and US$1,045 per ounce. Group capital expenditure for 2016 is expected to be around US$600 million an ounce and that’s about 10% lower than the previous year.
With that we’re going to open up for questions either myself, Nico or Paul, Taryn or Avishkar will do with the questions. Thank you.
Thank you. [Operator Instructions] The first question comes from Andrew Byrne of Barclays.
Hi, good afternoon. When we look at the grade at Granny Smith in 2016 the guidance [is projected to] decline by about 10%. And this year mines line expect that to increase as you go into 2017 however as you start to access the [indiscernible] levels. So should we expect a return to higher grades in 2017 and 2018?
And then the second question again is on Australia. Your cost guidance for the region looks quite conservative with costs flat to slightly up in Aussie dollar terms. And if that's the case, do you feel there is a little bit of fact in that guidance given the declining oil, consumables, and a weaker labor environment?
Yes, Andrew we don’t give sort of production guidance beyond the budget year that we are in. Obviously, internally we do look beyond the first year, but it’s indicative only, when you get the updated reserves and resources I think you can actually have a good look at that and that will help you to map out 2016 and beyond. So we don’t give updated guidance beyond the 16-year.
And then one of the reasons for that is, we get more resolution on the production as we get closer to the year that we are going into. Cost can change, prices can change, it can have an impact on that. But all I would leave with on Granny Smith is to reiterate what we said before is that, we expect grades to continue to increase as we get deeper into the ore body will certainly be maintained or increased.
We also are looking potentially at wider loads. So it’s difficult for us to comment on what the ultimate cost of extraction will be at deeper levels. But I think you have seen in the presentation today that we’ve showed you some of the drill intercepts that we are getting in some of the deeper parts of the mine, which is showing really positive growth.
So I guess we’re pretty sure that the grades will hold up, whether or not they are going to increase as we get deeper. I don’t have the resolution to give you that at this point in time. In terms of costs, we give you cost that we think are realistic and so we’ve given you what we think is a realistic cost base. Obviously, there may be improvements in time I don’t think we stop in terms of trying to optimize the operations. The operations continue to try and reduce costs. We will do obviously whatever we can to try and achieve lower costs into the forthcoming year.
The next question comes from Richard Hatch of RBC.
Thanks very much. : Good morning all and thanks very much for the call. Just a few questions. Firstly, would you just mind reminding me of the timing of the stripping that will take place at Neptune and A5 and at St Ives, just how long is that going to take? And then my second question is can you just remind me the timing of the development, the decline development to Cinderella, Agnew/Lawlers?
And then finally, I know you mentioned about the movements to the gas plants at Granny Smith. Just a clarification on can you give any kind of quantum on cost savings and what percentage of the OpEx of that mine is power? Thank you.
Yes. I think in terms of the strip we are doing at Neptune, we are into that now; we started that in quarter four. So we are into that stripping now. I think that we will be in a position to get first ore in the second half of the year sometime and also the same applies to Cinderella. We are in the decline development. We are in the early stages of that. So I think it’s going to be in the later stages of the year that we will start getting first ore. I think Cinderella will feature the 2017 plan.
In terms of Granny Smith, if we look at total utilities, it’s probably around about 14% of total costs. We are hoping that we will have the gas pipeline hooked up by the middle of the year in commission the power station and I think the cost reduction is a moving target because and obviously oil prices are coming down, but probably somewhere between 10% and 15% at this stage. It was a bit more before, but I think with input cost changing 10% to 15% is probably a bankable figure that you could look at on about 14% of the cost.
Great. Thanks, Nick. And one last one, on Cerro Corona I know you've mentioned that you won't be taking the - or expanding the tailing storage facility. Are you able to share what gold price you need to see to take that forward?
No, we don’t have that resolution here at this stage, obviously it will be higher than where we are I know it’s probably US$100 to US$200 ounce higher…
And obviously we are thinking. That’s against the currently engineered plant that’s why I am hesitant to give you prices. I think there is also potential to engineer the cost down. We are going to have another go at those at the end of this year and still we can make it work. So I wouldn’t be too definitive on prices at this stage.
Okay. Thank you.
Slightly higher prices than where we are possibly the worst case scenario is probably US$200 to US$300 and we’re trying to get it down from there.
Okay. Thanks for your help. Cheers.
[Operator Instructions] The next question comes from Brian Nunez of Gramercy.
Thanks for the call. A couple of questions, if I may. What's the basis that you are using for the copper price budget on Cerro Corona of $4,914 per ton?
$2 a pound.
$2 a pound.
Yes, no, I'm just trying to understand why are you using that given that it hasn't been at that level for about three months.
Yes, I think we are using US$2 a pound, it’s pretty close. US$2 a pound is very close to U.S. partners.
Yes, you need to understand our planning cycle starts a lot earlier than we are now, but its US$2 pounds.
Yes, I think that is pound, fourth point is relevant as we have to give our guys for the three or four months of advance warning to do the plans and just do the plans over the night and then give us the answer tomorrow morning. So we use prices that we determine closer to the time, which are the best reflection of spot prices at the time and future prices, but actually it’s not that far away from spot prices today in my understanding.
Yes, fair enough. I'm just looking out at the future and it's kind of low, but - okay. The demand, just a question on demand, the CapEx is expected to increase from I think $16.9 million in 2015 to $30 million in 2016. Can you just talk a little bit why?
Yes, that we’re going to do some strip there to access some of the orders it’s not yet accessible otherwise we’re not going to be able to on our mine plant, but we’re looking at that in some detail as you know it’s very much what I would call holding plant I think we say that in the book it’s very much a holding plant because we’re looking potentially at an expansion case or parrying back.
So this is very much an interim plan which we are probably going to update to you by the middle of the year. If we go ahead with a big push back to access the high grades under the original put that we mined. So these numbers I think interim as we say and we may update them in three or four months.
Great. And then maybe just a follow-up to that comment, would that be you are looking to bring a partner in to help with that or would that be just internally financed?
Yes, we do it ourselves I think if we did this we do it ourselves.
Okay. And then last question, the extension of the 2017 [ICF], I think just - can you just give an update on date at that was done?
No we haven’t done. We are starting with meetings going at the moment with the bankers and hopefully we’ll have some results by towards the end of the year, but we still have quite a bit of time to done it by the end of the year.
Okay, thank you.
The next question comes from Patrick Mann of Deutsche Bank.
Hi, good afternoon guys. A very quick one follow-up on St Ives. With Athena closing, can you just help with the kind of ratio between underground tonnages and open pit for next year and then maybe just help us with the grade there as well? And then how do you see that going forward, I mean, obviously much more open pit now, what's the kind of long-term average?
Yes, well I think what you can do is in terms of the grades I mean look at the grades we got in quarter four we did split out the underground and the price, used that as a proxy Patrick but in terms of Athena coming out. Athena was quite a low proposition of the underground anyway in quarter four.
We were in the last vestiges. So I stand on the correction, but I think it’s probably around about 20% to 25% of the total underground volumes. So I think if you just took the numbers for quarter four strip out about 25% of the underground volume. I think similar grades there is not much difference in the grades between Athena and Hamlet and obviously when Neptune comes in which will be in the second half of the year will obviously see a bigger pick up.
So St Ives is really going to be two open pits in 2016 and one underground and you’ve seen the grades that we got before at Neptune. We’re probably going to have similar or slightly lower grades from what we got from Neptune in the past, and we’ve given you the resource and reserve grades at invents before so you can use those [indiscernible]. If you need any help Avishkar can give you a call afterwards and just guide you to the right information that we’ve previously given.
Great. Thanks. [Audio Dip].
Thank you. And at this stage, we have no questions. [Operator Instructions] We have a follow-up question from Patrick Mann.
And just on the exploration spend in Australia, can you just confirm is that in the CapEx kind of guidance for the region?
Yes, it’s in the CapEx.
It’s in the all-in-costs and CapEx figures, yes.
Okay. And then - I mean, when the three-year program comes to an end, which I think is next year and it being I think AUD90 million last year and AUD87 million this year, what's the plan then? I mean, is it kind of a rolling to your program or do you think then you've firmed up enough resources to kind of buy yourself a little bit of a break from drilling?
I think if you remember, we’re dealing with these Orogenic Greenstone Belts in the Australian region. You’ve got this massive mineralized structure called Yilgarn Craton, which runs many hundreds of kilometers from the Northwest to Southeast and we are in the middle of all of that. There is a lot of stuff to be drilled on these leases. We’ve got many thousands of hectares of property with host rocks and analogs of what we have mined before, which have not been properly drilled and properly tested.
So they drill intensive, they take time. A lot of it’s undercover so you don’t necessarily get all the information from Aramark surveys. I think we are going to be quite busy on these operations for the foreseeable future. So if you wanted to factor something in to your future models, Patrick. Besides that is to assume that this is what we’re going to have to spend pretty much every year.
And it works out to many if you look between 900,000 and 1 million ounces a year, whatever it might be. I know you are talking somewhere between US$80 and US$90 reserve ounce, which is very similar to the historical discovery costs that we’ve had, so that’s pretty much what I think you should factor in.
I don’t think we’re going to be able to ease off unless we have a massive big discovery that’s one big St Ives ore body. But unfortunately you don’t find those very often in Orogenic Greenstone Belts. That tends to be clusters of ore bodies that tend to be discrete, they tend to pinch and swell. So that’s been the history that I’ve seen over 15 years that we’ve owned the mines in Australia. So it’s probably not going to change going forward.
Now that our Paleochannels at St Ives, which are little bit different, they tend to be more extensive and we do have an inventory of Paleochannels which is a soft sedimentary type of ore similar to Neptune. I mean Neptune is Paleochannel ore body on the leg. And there is existence of number of other Paleochannel type structures, but there is a lot of work to do for us to drill it out and find that what we think we got there so foreseeable future will come on as we’ve given you.
Thanks a lot. That's exactly what I was looking for. And then I think Richard asked this or kind of a similar question, but on Cerro Corona and the kind of tailings to extend the life of the mine, can you - I'm not sure if you guys have disclosed this or happy to, can you give us a sense of what the CapEx related to that life of mine extension or to the tailings would be?
I don’t think we at anywhere in a position to give those kind of numbers, it’s suffice to say that we need higher prices to recover it, so I don’t really want to go into numbers I’ll tell you why because numbers can change. Yes, when we look at it again we may have optimized that we may have engineered a different solution. So I wouldn’t want you to have a number do you think its cost instead.
Thank you. No problem, thanks.
Thank you very much gentlemen. There are no further questions.
Well, I think with that thank you very much for everybody’s interest and we look forward to chatting to you soon. Thank you very much. Bye-bye.
On behalf of Gold Fields that concludes this afternoon’s conference. Thank you for joining us. You may now disconnect your lines.
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