South Africa – The South Deep mine, which accounts for 59% of the Gold Fields’ mineral resources and 73% of its mineral reserves, has been identified as the company’s top priority for 2015 and beyond, Gold Field’s stated in its Annual Integrated Report 2014, released earlier this week.
The South Deep mine in South Africa, which faced its fair share of challenges in 2014, represents a key opportunity for Gold Fields to create long-term value for shareholders.
During 2014, South Deep’s build-up was interrupted by an unplanned four-month long ground support remediation intervention, necessitated by safety considerations, as well as three fatal accidents.
During this time, production decreased by 34% to 200 500 oz compared with 302 100 oz in 2013 and all-in cost (AIC) dropped by 2% to US$1 732/oz, compared with $1,763/oz in 2013.
Guidance for the year was 360 000oz at an AIC of US$1,350/oz.
Destress mining fell 46% during the year from 53 694m2 to 29 071m2. However, despite the lower production levels, South Deep made significant progress with the restructuring of its cost base, with operating costs reduced by 14% to R2.66 billion, or $246 million.
Despite the losses during the unplanned four-month hiatus in production, management used the time to fast-track a number of critical interventions aimed at setting South Deep up for long-term success:
- A programme was implemented to address the surplus of people and old, high-cost equipment on the mine, to improve the safety culture and productivity, and deemed critical to de-risk the mine’s build-up to full production
- The process of rationalising the equipment entailed the removal of surplus and redundant equipment as well as the limited introduction of more appropriate, specialised new equipment in certain areas
- A voluntary separation process was implemented which was accepted by 529 people (representing 14% of employees)
- In addition, management and the trade unions reached agreement on changes to the shift roster to facilitate the optimal re-deployment of employees to further improve productivity
- The South Africa regional office was closed and regional management, under a new Executive VP, Nico Muller, was firmly embedded at South Deep. Mr Muller, who has extensive mechanised mining experience in the South African gold and platinum industry, has strengthened the South Deep management team by recruiting a number of experienced mechanised mining executives from the platinum sector.
South Deep is almost fully capitalised
Since 2007, Gold Fields has built most of the infrastructure needed to support the build-up to full production. Of the initial project capital expenditure of approximately R9 billion approved in 2009, 85% has been spent. Approximately R1.2 billion in 2009 money terms (R1.7 billion in 2015 terms) remains to be spent over the next 10 years.
2015 and beyond
Meanwhile, Gold Fields notes that the current impediments to the build-up of South Deep do not relate to the integrity of the ore body or the installed infrastructure but rather to the mining and production processes.
The focus during 2015 and 2016 will be the adoption of a ‘getting the basics right’ programme aimed at addressing the key obstacles that have prevented South Deep from realising its full potential.
The key components of this programme are:
- A prioritised focus on delivering short-term objectives instead of long-term build-up targets
- The adoption of specific key deliverables for 2015, the most important of which is to urgently address the critical shortage of mechanised mining and supervisory skills
- Achieve cash breakeven during the latter half of 2016
Other strategic priorities for 2015
During the current financial year Gold Fields will continue to build on the strategies that it has implemented and rolled-out over the past two years.
The strategic priorities for 2015 include:
- Cash flow and margin – making money at current prices
- Dividend payments of between 25% – 35% of normalised earnings
- Balance sheet – reducing the net debt to EBITDA ratio to 1.0 times by end-2016
- Growth – brownfields exploration and opportunistic, value accretive acquisitions
These priorities support management’s long-term vision for Gold Fields, namely global leadership in sustainable gold mining.