South Deep returns Gold Fields’s faith in buckets

Acquired in 2007, South Deep was a costly and unruly child. The faith shown it by Gold Fields was returned in buckets last year.
At one stage South Deep was racking up losses of R100m a month. Image: Supplied

One of the big surprises in Gold Fields’s annual results for the year to December 2021 was the improvement at South Deep, where attributable production grew 29% to 293 000 ounces.

Long regarded as the prodigal child within the portfolio, South Deep was a costly and unruly producer that now seems to have redeemed the faith and treasure showered on it by Gold Fields, which acquired the mine in 2007.

CEO Chris Griffith expects better things from the mine in the year ahead, with production expected to top 312 000 oz in 2022.

Read: Could this be gold’s year to shine?

This was Griffith’s maiden year presenting results as CEO, having taken over from Nick Holland nearly a year ago. It was Holland who initiated a restructure at South Deep more than three years ago, and the fruits of those efforts are now visible.

Griffith says production at South Deep is likely to grow by a further 20-30% to 345 000-375 000 oz in the next three to four years.

That will come as a relief to investors concerned at the billions invested in the mine to make it work, and which at one time was racking up losses of R100 million a month.

Cost of sales before amortisation and depreciation at South Deep increased by 20% from R3.751 million ($229 million) in 2020 to R4.510 million ($305 million) in 2021, mainly due to increased volumes mined and processed as well as inflationary increases.

Mine inflation was running at 10.4% in South Africa and a far more manageable 5.8% in Ghana.

Production for the year

Gold Fields’s total production for the year was up 5% to about 2.3 million oz, and slightly less than half of that came out of Australia.

There were no big surprises from the Australian mines, which maintained production at pretty much the same levels as the previous year.

In West Africa, the Damang mine had a respectable stanza with a 14% increase in sales, finishing the year at about a quarter of a million ounces. Overall, West African output was slightly shy of 800 000 oz.

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The Tarkwa mine in the west of Ghana continues to be a faithful producer, though there will be some concern at the 16% drop in production from the Asanko mine, which is managed by Galiano. This is a relatively small part of the portfolio, and Galiano is expected to update the market on the outlook for Asanko by the end of March.

Annual production is expected to start declining at some mines, such as Damang in Ghana, as they come to the end of their lives.

Replacing declining production

Griffith says the Salares Norte project in Chile, which will add about 450 000 oz a year for seven years and has an expected life of nearly 12 years, forms a key part of the programme to replace the declining production.

Some 200 000 oz of gold will come on stream from Salares Norte in 2023, rising to 550 000 oz in 2024.

Gold Fields has allocated $330 million of its roughly $1 billion capital spending for the coming year to this project.

Continuing improvements at South Deep, and the possibility of extending the life of mine at Damang, should further compensate for loss of production elsewhere in the group.

Griffith says the group is spending R760 million on a 50 megawatt solar plant at South Deep, which will save it R100 million a year in electricity costs and be paid off in five years. It will also reduce carbon output by 100 kilotons a year.

Production outlook

Gold production is expected to rise by upwards of 2.72 Moz by 2024, which is 20% higher than it was in 2021.

That’s going to require South Deep to hit its target production level of 345 000-370 000 oz over the next three to four years, with Salares Norte making good on its production target of 200 000 oz next year, rising to 550 000 oz the year after.

There could also be some pleasant surprises from Damang, which is expected to produce 230 000 oz in 2022, falling to 150 000 oz in 2023, with production thereafter based on stockpile treatment.

Project studies are underway at Damang to determine whether life extension projects are financially viable. The challenge, says Griffith, is to maintain peak production at 2.7 Moz a year.

Read: Gold Fields would consider joint ventures to bolster output

For the year just passed, all-in sustaining cost (AISC) rose 8.8% to $1 063, while the average gold price received for the group was $1 793/oz.

A total of $100 million was shaved off net debt (now $969 million), bringing the net debt to adjusted Ebitda (earnings before interest, tax, depreciation and amortisation) ratio to 0.4 from 0.56 the prior year.

That helped reduced net interest paid by 22% to $83 million.

Revenue increased by 8% from $3 892 million in 2020 to $4 195 million in 2021 due to the increased volume of gold sold and higher price received.

Read: Gold Fields aims to cut carbon emissions by 30% by 2030



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