FIFI PETERS: Early this morning Gold Fields was the first company to come out with an update. That update on the JSE’s new service of course was Gold Fields’ annual results.
Things are looking pretty good for the group. The miner managed to produce a whole lot more gold in this period. Its revenue was higher and it also increased its profit quite considerably. Moneyweb’s Ciaran Ryan caught up with Gold Fields CEO, Chris Griffith, for a look at the numbers.
CIARAN RYAN: Gold Fields’ results for the year to December 2021 are out today. One of the big surprises was South Deep in South Africa, where attributable production grew 29% to 282 000 ounces. South Deep was for a long time the prodigal sun within the portfolio, a costly and unruly producer that now seems to have come into its own. Joining US is Chris Griffith, CEO of Gold Fields. Chris, thanks for your time. Just focusing on South Deep for a moment, that’s a fantastic increase in production, but I see that the cost of sales was up 20%. What does that tell us about mine inflation in South Africa?
CHRIS GRIFFITH: Ciaran, thanks very much and hi; good evening to your listeners. Look, I think you’re absolutely right as we had a fantastic performance at South Deep. Some of the cost increase was actually directly associated with increase in production on a unit-cost basis in South African rands. I think that’s the right metric to look at.
We were actually down 1% year on year. That was the only asset in our portfolio that decreased unit costs year on year. But one of the other things, when you look at it in dollar terms, because of the 10% strengthening of the rand to the dollar, it makes it look like in US dollar terms on unit costs we were up 9%. But in reality we were down by 1%, and that’s reflective of the increasing production flowing through to the bottom line.
CIARAN RYAN: Okay. If we look at the group as a whole, Gold Fields’ total production for the year was up 5% to about 2.3 million ounces, and slightly less than half of that came out of Australia. No big surprises from the Australian mines, Chris, other than that they maintained production at pretty much the same levels as the previous year. Correct?
CHRIS GRIFFITH: Yes. A very strong performance from Australia again, maintaining over a million ounces from the four mines in Australia.
CIARAN RYAN: West Africa, the Damang mine had a respectable year with a 14% increase in sales to about a quarter of a million ounces, and overall West African output was slightly shy of 800 000 ounces. I see that the Tarkwa Mine in the west of Ghana seems to be a faithful producer, though there was a 16% drop in production from your joint venture with Asanko. What was the cause of that?
CHRIS GRIFFITH: You’re absolutely right to point that out. Tarkwa is just a faithful producer and it produces over 500 000 ounces a year, just that mine alone. So it’s a fantastic cash generator. Damang, you’re right, had an increase in production. So from the two assets that we manage in Ghana we had a great performance and those were up year on year plus 4%.
But the one asset that we don’t manage, and it’s a very, very small part of our portfolio, is Asanko, managed by Galiano. They had a year-on-year production drop, and it’s actually because we have had lower grades and have had lower resources to mine. So it’s actually a mine in a bit of trouble at the moment. You would’ve seen from the production guidance that we said that we are not giving guidance yet for Asanko. We only talked about Gold Fields’ assets and Galiano the operators of Asanko will be giving the market an update on their plans at the end of the first quarter. So that’s really where we were at a lower grade, with less reserve to mine, and that’s the reason that they had lower production.
CIARAN RYAN: You mentioned today that your annual production will ramp up to about 2.7 million ounces a year by 2024, before declining; thereafter some of your mines come to the end of their lives. Which mines are coming to the end of their lives, and what is the plan to replace this lost production?
CHRIS GRIFFITH: I’ll answer that in two parts, if don’t mind, Ciaran.
I think first of all let’s focus on the really positive story, which is Solares and its increase in just over a year. So 2022, this year, is our last year of construction. We are still on track to deliver that mine, as we said right from the outset, at the end of Q1 2023. So still nicely on track. Then this is one of the best goal-mining projects in the world at the moment, so keeping that project on track is fantastic. In the first year, even though it’s only nine months of the year, we’ll produce 200 000 ounces. The next year we’ll deliver 550 000 ounces. That’s why we see this dramatic ramp-up.
To answer the second part of your question, which is what comes down, we’ve got about three to four years left at Damang. This is our last big year, and then we start seeing production drop off. Then after four years we start seeing a bit of a drop off at Cerro Corona in Peru.
Of course we are still planning to see what we can do about that. We have got studies under way at Damang to see if there’s any potential for a further cutback, or going underground, and we have regional potential around us in Peru at Cerra Corona.
As it stands now, what we have in the bank is we do see some production drop-off offset by a massive increase in production uplift at Solares Norte in Chile.
CIARAN RYAN: Solares Norte – I see that your feasibility study indicated that it would be producing about 450 000 ounces a year for seven years, and the mine itself is expected to have a life just shy of 12 years. You’ve allocated about $330 million of your roughly $1 billion capital spending for the coming year to this project in Chile. So from 2024, you said, you expect about 200 000 ounces to then ramp up to 500 000 ounces. Can it go further than that?
CHRIS GRIFFITH: No. So just a one year earlier. In 2023 already we have 200 000 ounces, in 2024 it’s at 550 000. We have a few years of very high numbers, somewhere between 550 000 and 600 000 ounces, but then it starts dropping off at slightly lower grades. So we have an average of 450 000 ounces over that seven-year period, but it’s a combination of slightly lower and slightly higher numbers; on average for seven years 450 000 ounces.
CIARAN RYAN: Great. What can we expect from South Deep going forward? The improvements were quite remarkable. Can we expect further improvements this coming year?
CHRIS GRIFFITH: Yes, we should see that. Look, we are of course very cautious because it has been a rough road that we have travelled. But over the last three years, we’ve seen steady increases from South Deep, and then this year we’ve had a very, very good year.
This year the 290 000 ounces is roughly nine tonnes of gold, and so we have given guidance to the market that we will do nine tonnes, plus from 20% to 30% over the next four years. That’s roughly about a 6% annual increase, which is a very, very steady increase. We’ll ramp up the production from 290 000 to somewhere between 350 000 and 380 000 [ounces] in the next four years.
CIARAN RYAN: Final question, Chris. You’re ramping up production to about 2.7 million ounces and then you expect a decline with the coming online of the project in Chile, Solares Norte. Can you maintain that 2.7 million [ounces], or do you expect that to drop over time?
CHRIS GRIFFITH: We think that there is a possibility to maintain it, and that’s sort of what our plan is. We are saying as long as it’s value-accretive we are not letting the volume chase us by throwing value-destructive cash or capital at an asset, or just buying it for the sake of keeping the ounces. But, having created this extra value, we do think that we have the potential to maintain that value or even grow it; we’ve got time on our hands to do that. We’ve got another three, four years to be able to both assess our internal options but then in all likelihood also [have] some external options – either very early-stage projects, we know how to build projects, and then secondly there may be in-production assets.
The great thing about that is we don’t have to rush out and try to buy something by Friday. What we do have is a bit of benefit of time, and certainly if [our] goal comes off a bit we could be very well placed to be able to scoop up either some early-production assets or assets in production.
But we also have some options internally. I think the combination of all of those gives us a nice look-through at different options that could help us maintain that level of value that we’ve created for the company.
CIARAN RYAN: I did say last question, but here it is. To what extent is technology helping with productivity improvements in your mining? There really is a hell of a battle to try and keep these costs contained on a consistent basis, given that the gold price hasn’t really done much over the last year or two.
CHRIS GRIFFITH: It’s a great question. I think that is integral to the first leg of our strategy, which is driving value out of our existing operations through people and technology. A really cool example of that, we think, is one that might not feel like technology, but it is the solar plant at South Deep.
We are going to invest over R700 million on a 50-megawatt solar plant at South Deep. One of the things about that is it saves us over R100 million a year on electricity costs, so we’ll pay that project off in less than five years. So there’s an example of how technology is going to help us save costs and how technology’s going to help us decarbonise our footprint.
There are lots of other examples; for example, electric fleets underground in Australia, electric fleets going into our open-cast mines, but then using different technology we could probably have a call on its own around innovation technology. I think quite a cool one is South Deep, and it’s not normally how we would think about technology, but here we have an example. In addition to saving us R100 million a year in costs, it’s also going to save a hundred kilo-tonnes of carbon going into the atmosphere every year. I think it’s a great example of using technology to make a difference, and also to reduce costs.
CIARAN RYAN: Fantastic. Let’s leave it at that. That was Chris Griffith, CEO of Gold Fields.