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Gold Fields sustainable at gold price of $1 300

Gold Fields CEO Nick Holland discusses the company's third quarter results and future outlook. Camerawork: Nicholas Boyd. Editing: Shane Williams. Recorded: 20/11/2013.

20th November 2013

By: Leandi Kolver

Creamer Media Deputy Editor

  

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JOHANNESBURG (miningweekly.com) – For the three months ended September 30, JSE-listed Gold Fields managed to reduce its all-in sustaining costs by 23% quarter-on-quarter, to $1 089/oz, which put the company in a sustainable business position at a gold price of $1 300/oz, CEO Nick Holland said on Wednesday.

The company’s total cash costs declined 10% quarter-on-quarter, to $772/oz, while its notional cash expenditure was down 14% to $1 064/oz.

Speaking at a media briefing to discuss the company’s third-quarter results, Holland said the company’s all-in sustaining cost at present was lower than that of 2011, and not much higher than that of 2010, despite the significant cost inflation the mining industry had to deal with.

“We feel a lot more comfortable that we can actually withstand this assault on the gold price, as the group has now been repositioned to [be sustainable] at $1 300/oz, which is our long-term planning price,” he said, adding that Gold Fields was looking to generate a sustainable margin of close to 15% at this price, which meant that, should the gold price drop even further, the company would still not be losing money.

“We can still be in the game at a price of $1 100,” Holland said.

He added that the JSE- and NYSE-listed company had initiated its cost-cutting measures during the second half of last year, while also aiming to increase production.

The company’s gold production had increased 10% during the period under review to 496 000 equivalent attributable ounces, which brought the company’s production for the year-to-date to 1.42-million ounces, which was supportive of Gold Fields’ production guidance for the full-year of between 1.83-million ounces and 1.9-million ounces, excluding output from the Yilgarn South assets, in Western Australia.

The newly acquired Yilgarn South assets were expected to produce between 90 000 oz and 100 000 oz for the December quarter. As a consequence, group production for the full year had been revised up to between 1.92-million ounces and 2-million ounces.

“In future, we are going to produce more, and we are going to produce at a lower cost than was initially estimated,” Holland said.

He explained that, at the beginning of the cost-cutting drive, Gold Fields employed 17 000 people globally, including permanent employees and contractors, stating that the company planned to reduce that figure by about 1 800, or 10%, by the end of the year.

He added that, another 1 000 employees had been added through the acquisition of the Yilgarn South assets, where 150 jobs would be cut.

He further said that the company had, to date, cut its greenfield exploration projects from an initial 16 to about five, while also putting many projects up for sale.

Holland further said that Gold Fields’ South Deep operation was "building up", and that a 15% increase in gold production was expected for the full year.

“Next year we are hoping to replicate something close to that. All of the key indicators are up, so we just have to continue the ramp-up of South Deep and, in particular, if we can get it to break even during 2014 that will be a positive result for us,” he told Mining Weekly Online.

Whether this could be achieved would depend on the gold price; however, the company would focus on increasing production and optimising the cost base. 

Holland also stated that Gold Fields’ retaining South Deep after splitting its assets to form Sibanye Gold demonstrated the company’s commitment to South Africa, adding that Gold Fields was “delighted” with Sibanye’s current performance, as it was “exactly what we hoped would happen”.

Meanwhile, the South Deep operation would not be affected by State-owned power utility Eskom’s recent announcement that the country was facing significant electricity supply challenges, he assured shareholders.

“Most of our power usage in our mine is at the processing plant and shaft infrastructure, and we have excess capacity in both of those at the moment. Yesterday, for example, Eskom asked us to pull back by 25% for a couple of hours to assist, and we were able to do that,” Holland explained.

Meanwhile, Gold Fields reported net earnings from continuing operations for the three months ended September 30 of $9-million, a turnaround from the loss of $129-million recorded in the previous quarter, while revenue increased 7% quarter-on-quarter to $683-million.

Holland pointed out that the increase in earnings was achieved notwithstanding the fact that the gold price was $300/oz lower than that of the first half of the year.

Gold Fields CFO Paul Schmidt pointed out that the company had not cancelled or suspended the paying of dividends, adding that dividends would be paid according to the company’s policy, which determined that it would pay out 25% to 35% of its earnings.

“At the half-year, the forecast earnings for the year were negative, which is why nothing was paid,” he said.

“Therefore, in line with this policy, if we have earnings again next quarter, you can expect a dividend,” Holland stated.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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