South Deep and the SEC’s inquiry into bribery: Nick Holland CEO, Gold Fields

‘We want to get the basics right before we aggressively try and expand.’

HANNA BARRY: Gold Fields issuing results this morning for the quarter and year ending December, on a full year basis the gold miner generated normalised earnings of US$85m, up 32% from the previous year, gold production up too, roughly 9% to around 2.2m ounces and revenue for the year down roughly 11% to $1249/ounce, no doubt off the back of that lower gold price. On the line now is Nick Holland, Gold Fields’ CEO. Nick, thanks for your time today, quite a mixed picture from these results, Gold Fields’ international portfolio performing well and overall cash flow is good from operating activities, a strong R2.7bn. That despite, as I mentioned, the drop in the gold price, about 10% over the year but the South Deep Mine here near Johannesburg remaining a bit of a problem child.

NICK HOLLAND: Ja, South Deep has got some challenges, not least of which caused by the fact that we had to shut the operation for rehabilitation of our haulages underground for four months last year. That had a massive knock-on effect in terms of opening up the ore body and all of the areas we thought we’d be mining this year, well, we won’t be because we still have to go back and open those up. So that has been a difficult decision for us but safety is always the number one priority. So we’re really now regrouping and saying what do we want to do from here, we want to get the basics right before we aggressively try and expand and that means that we have to do better, the whole mining cycle, the operator skills upgrade needs to take place, the maintenance of our equipment is not adequate, we need to improve that and we’ve brought in a whole new leadership team who are in the process of helping us to get that right and it’s going to take some time. So I think rather than trying to push aggressively for targets we may not be able to achieve, let’s rather fix what we have and then expand off a better base. So that’s really a decision that we’ve made with the new team and I think for the long run it’s going to be a better result.

HANNA BARRY: When does Gold Fields expect to see South Deep looking a bit better?

NICK HOLLAND: I think we’ll be better this year because we’re forecasting a 15% improvement in production, I think last year was a low point, so we should do better this year and I believe that we’ll get to breakeven, all things being equal, by 2016 if the current gold price in rand terms prevails. I don’t think we need to do a lot in terms of productivity to get to breakeven. In fact, I think just by changing the mining mix and getting more of the bigger open stopes, which give the real big volume into production, we’ll already make a step change in that. So yes, it’s another pull back, it’s another disappointment but I think for the right reasons we’re taking time to reflect, fix the base and then we’ll move forward from there.

HANNA BARRY: Nick, the US Securities and Exchange Commission currently investigating Gold Fields for potential bribery of politicians over the mining licence that was granted to it for South Deep in 2010. Now as part of a Black Economic Empowerment deal a 9% stake in South Deep was given to 73 beneficiaries who have nothing to do with the company, which includes ANC Chairperson, Baleka Mbete and others. That for the sake of our listeners, Nick, was there any bribery in this empowerment deal?

NICK HOLLAND: I’m not at liberty to discuss this particular inquiry, in fact it’s not an investigation, it’s an inquiry. I’m not at liberty to discuss any of the specifics around it, given the fact that there is an SEC inquiry. But all I would say to you is both the board and the management believe strongly in the merits of the transaction and that the spirit and letter of the MPRDA was adhered to, so that’s all we can say at this stage. Obviously it’s a legal process with the inquiry and unfortunately I can’t really say anymore, I’m sorry.

HANNA BARRY: How is this investigation impacting on operating activities? Is it hanging over you or is it really just business as usual?

NICK HOLLAND: It’s business as usual, it’s not impacting our business at all. We have refinanced a lot of debt with a major syndicate of banks, $700m was refinanced, they were comfortable to rollover on the same terms as we had before, 15 international banks. I don’t see any issue, people are buying our shares without any concerns at this stage. So it’s there, we don’t control the process obviously, we don’t control the timing or the outcome but it’s not an investigation per se, it’s an informal inquiry at this stage. So I can’t tell you the timeframe for this thing to either move into something else or to be concluded at this point.

HANNA BARRY: And you’re comfortable with the fact that this particular deal was brokered by Gayton McKenzie and Kenny Kunene, of course fairly controversial figures themselves, Gayton a convicted bank robber, that doesn’t bother you?

NICK HOLLAND: As I say, I can’t really talk about any of the detail behind the transaction or some of the allegations that have been made, given the fact that it is subject to an inquiry.

HANNA BARRY: You mentioned the MPRDA, the Mineral and Petroleum Resources Development Act, that on the cards, some amendments to that on the cards, the proposed bill sent back to Parliament by President Jacob Zuma but some concern from the mining sector that there are clauses in the bill around beneficiation in particular and government ownership that could disencourage investment in mining, oil and gas in South Africa. What are your thoughts on the bill?

NICK HOLLAND: Well, look, I think the bill has gone back for constitutional review, amongst other things. I think there was a good process with the Chamber on agreeing all of the amendments and engagement took place. I think the minister just wants to make sure it does pass constitutional muster, let’s wait and see how it transpires but there was a lot of engagement on this particular amendment bill. So I can’t tell you how it’s going to finally evolve but if it stays in its current form then it’s probably going to be okay.

HANNA BARRY: Well, that’s an interesting point of view, we’ve had some quite differing points of view from others in this sector. Let’s stay on these issues close to home, the Mining Indaba of course on the go this week in Cape Town, is this a relevant event for Gold Fields? What value does Gold Fields derive out of it?

NICK HOLLAND: We did not attend this year because first of all they changed the date and it clashed with our board and results week, which was set up two years ago, so we didn’t attend. We also didn’t attend last year. I think the conference has become more of a trade show than a serious investor conference, there are a lot of peripheral service organisations, bankers, lawyers, etc that attend it, there are probably too many people, it’s about 7000 people. So we didn’t attend it the previous year either. So I’m not sure, we’d have to evaluate. We have a lot of invitations to conferences generally, we have to be selective, our key criteria is we do want to engage with our investor base. So investor conferences are the ones we’re more interested in, as opposed to these kind of trade type conferences.

HANNA BARRY: Some speculation that there could be labour unrest in the gold mining sector this year, commentators wondering whether labour union, AMCU, will cause the same disruptions to the gold sector as it did in the platinum sector last year. How is Gold Fields planning to mitigate this risk?

NICK HOLLAND: Well, certainly the industry has negotiated as a collective previously, which I think has helped to diffuse some of these issues. Clearly we have to make sure that our security arrangements on our operations are in place, we have to be prepared for the worst case eventuality. Clearly we don’t want that to happen. I think generally we’ve had a good spirit of negotiations with the unions we’ve been engaged with. We don’t have AMCU on South Deep at this point in time but that might change in the future. But we hope there will be leadership shown on all sides, that’s what’s required to make sure we don’t have any outbreak of violence or protracted disputes. We need leadership from the industry, we need leadership from the trade unions and the government. I think that is what is required to get the right outcome from all parties.

HANNA BARRY: Absolutely. Finally, prospects for the year, what major corporate activity can we expect out of Gold Fields or where is the promise for Gold Fields this year?

NICK HOLLAND: Well, I think certainly we want to improve on South Deep, clearly it’s been a disappointing 2014 and we need to do better on South Deep. I think we can because it’s really off a low point. We need to keep the great performance from the rest of the portfolio going because at the end of the day South Deep is an important project but 85% to 90% of our production and all of our cash flow comes from our international operations, so it’s critical we keep them going. We’d love to add another mine to the portfolio if we could that gives the same sort of returns as we got by buying in Australia in 2013. That isn’t necessarily going to be easy but we’re looking around and if we can get something it will be great and if not, it doesn’t matter, we’ll just keep going with what we have.

HANNA BARRY: Nick Holland is the CEO of Gold Fields.

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