Feb 12, 2015
Executives
Avishkar Nagaser - Head, IR Nick Holland - CEO Paul Schmidt - CFO Nico Muller - EVP, South Africa Region
Analysts
Adrian Hammond - Standard Bank Kane Slutzkin - UBS Derryn Maade - HSBC
Avishkar Nagaser
Good morning, ladies and gentlemen. And welcome to the presentation of Gold Fields fourth quarter and full year results for 2014.
I am Avishkar Nagaser, and I recently joined Gold Fields as Head of Investor Relations. With me on the podium today, we have Nick Holland, Chief Executive Officer, Paul Schmidt, Chief Financial Officer and Nico Muller, EVP of the South African Region.
Before we begin, two announcements, in the unlikely event of an emergency please exit to the door at the front or on the side and assemble at the front of the building. And secondly, if there is load shedding there will a slightly delay before the backup generators kick in.
Following the presentation there will be an opportunity to ask questions. And I'll now hand you over to Nick to present the results.
Nick Holland
Thank you very much Avishkar. And good morning to all of you, all of the best for 2015, we are well into the year.
Also a special welcome, today we have our Chair of the Board Cheryl Carolus with us and also the Chair of the Audit Committee, Gayle Wilson. Thank you very much ladies for joining us today and for your support.
Right, let's get straight into it. We've put the results out a bit earlier this morning so hopefully you've had a chance to scrutinize some of the highlights for the quarter and also importantly the end of the financial year that we've just completed.
And pleasing to say that we've managed to beat our production guidance for the year. We've come in above that.
And also we've come in below on costs, costs around about 7% down and overall production about a 1% factor above the guidance. So overall we are pleased with the outcome for the year.
And I think if we look where we were a couple of years ago and where we are now, given a significant decline in the gold price, we have managed to reposition the operations for us to be cash positive at current prices and also prices that could be even lower than where we are today. So, the highlights for the quarter then, 556,000 ounces of production, all in costs of $1,047 per ounce, of course, if we exclude South Deep, which still really more of a project than an operating mine then the international regions showed all in costs of $975 per ounce.
But certainly on those measures we are in the lowest quartile of all in costs as published by the major gold producers. And with cash flow of $54 million for the quarter I think again we are going to be in the top three or four in terms of cash generation.
Now if you can recall the change in strategy that I talked about two years ago from a focus away from just ounces of production for ounces sake to moving towards a cash flow focused company, I think you can see that we've achieved that certainly in 2014. For the year as a whole we've generated $235 million from our operations.
Now that is operating cash flow less all other payments CapEx, taxes, royalties. So it's really the core cash generated from the operations $235 million.
There's no asset sales or disposals that are making that up. And that is a major swing on where we were compared to last year.
So I think in terms of where to from here, South Deep clearly has been a challenge. We know that it's been a very, very tough year for South Deep particularly as I had to make a very difficult decision with the Board that we shut down most of the operations for four months.
We just deemed it appropriate for us to go back and rehabilitate some of the ground support in the haulages. And many of these haulages had been in that state for quite some years even before we bought the operation.
I guess it's a question of interpretation as to what we think is a safe environment. And certainly our view as a company and my view in particular is that we are going to be super conservative when it comes to safety.
So we deemed it appropriate that we should have international standards of support on South Deep. And so we went through the painful process of stopping the operation for four months to go and fix all of that.
And obviously that's meant that South Deep didn't do too well in 2014. And as I mentioned in November, that is going to have a knock-on effect in 2015.
We'll talk about that a little bit later. In terms of right-sizing the company we've managed to sell most of the non-core assets in the group.
Chucapaca went, Yanfolila went, Talas has gone, Asosa in Ethiopia has also gone. So the one that's still left on the block is APP, it's clearly non-core for us, being a largely palladium platinum deposit of polymetallic as it were.
There is some gold in there but it's only about 8% of the split of the value in the head. So it's not really something for us.
We still have a process to try and sell that but I can't tell you if that's going to happen any time soon. But that's really the last remaining vestige of the past that we need to fix, and we'll see how we go on that one.
In terms of the strategic imperatives, to remind you again, we have set ourselves a target of making at least a 15% cash margin after everything CapEx, taxes, royalties at a $1,300 gold price. We had to nail our colors to the mast and get an outcome that we thought was reasonable.
We'd managed to largely achieve that in 2013 despite the fact that the gold price is slightly below $1,300 for the year just gone, we managed to get about a 13% margin. And I guess had we had a $1,300 gold price throughout the year I'm sure that we would have achieved that you can actually back calculate that.
We've said that it's important for us to not focus on ounces. So this company is not about growth in ounces it's about growth in cash flow.
Clearly you need a core production level to achieve that. But we are not going to do production in favor of cash flow, so we are not just going to grow for growth sake.
That strategy is still intact and that's the way we'll run this company going forward. That said some of the sins in the industry that we have seen over the last year is the so called high-grading and taking short cuts on development and stripping for the future.
It's a one year wonder if you do that. We need to make sure we continue opening up the ore bodies for the future.
And so you'll see that we are spending significant amounts of money on Brownfield explorations. We continue to spend significant amounts on development and opening up ore bodies for the future, because we are here for the long term.
Greenfield's exploration has essentially been stopped. There's really only one project in the group that has already graduated from Greenfield's exploration into what we would call advanced drilling or scoping study level.
That's Salares Norte in Chile. That's an active project that we continue to drill.
We have a program underway at the moment. We want to drill about 42,000 meters this year.
The bulk of that will be in high-resolution diamond drilling. And that's really intended to develop an understanding of the ore body better and take it forward.
I can't tell you where the outcome is going to be. It's far too early in the process.
But the early signs are encouraging. But other than that there really is no Greenfield's exploration in the group.
Just where we are in the cycle we believe there's much more value to be driven by acquisitions of in-production ounces if we can find them, similar to what we did with the deal in Australia in 2013 or alternatively just reinvesting in our own ore bodies for extensional and additional growth around us. The balance sheet, we said to you a year ago that we were uncomfortable with the balance sheet.
Paul and I set I think what was a very tough objective internally to reduce our debt by $200 million. We've in fact surpassed that and managed to reduce our debt by $282 million during the year.
We continue to pay dividends. And of course South Deep the only remaining asset left in the portfolio in South Africa is a key imperative for growth into the future.
So here's our internal score card of the issues that we thought were important, in fact I think we shared this with you as well. And other than South Deep which I think is very much work in progress still and safety, regrettably we had three fatalities during 2014, all at South Deep.
We want to run totality free operations if we can that's the objective. That was a blot on our copybook.
But notwithstanding that it was good to see that we reduced our total injury frequency rate by 18% in 2014 against 2013. So apart from the fatalities that was a good performance.
Here's an indication as to where we've come from. If you go back to December 2012 quarter four where we were you can see that we were producing at over $1,600 per ounce.
Over that period in time we have not only grown the production base we've actually dropped our costs by 35% from 1,621 to 1,047. And I must tell you that's been a very, very difficult process for us to have gone through over a period of about 18 months.
We've had to really look at everything that we've spent. We've had to unfortunately reduce headcount across the world.
We've had to cut out marginal production. But I think it's all been necessary and its set Gold Fields up to be sustainable at gold prices today and lower into the future.
And I think here's another indication as to what we've done. Back in the middle of 2013 the gold price dropped significantly over there.
We were very concerned about the situation. We were losing cash.
We were spending around about $200 million to $300 million a year on project feasibilities and Greenfield exploration. We had to focus on what we thought was core.
We got ourselves back into the black in quarter three of 2013. And despite the gold price continuing to decline over that period of time we've managed to get the company into a cash positive situation for now six quarters in a row.
And I think that shows you the strategy is starting to deliver notwithstanding the challenging gold price environment that we are living with. I talked about the balance sheet and the fact that we've dropped our debt by $282 million.
We are now down to an EBITDA debt ratio of 1.3. Our covenants kick in at 2.5, so we've got tonnes of headroom.
But our view is that we should get back to a 1 to 1 debt to EBITDA ratio. That's going to take us some time to achieve.
And depending on gold prices, we'd like to try and achieve that by the end of next year. Importantly, the tenure of the debt profile has been moved out as well.
And we don't have any maturities until the end of 2017. So from a liquidity perspective the balance sheet is good.
The debt position is fine. And the debt service costs are well manageable at current levels.
We've said we are a dividend payer. It's been our track record for many years.
And you can see again in these results we've declared a dividend. That gives a dividend for the year of R0.40 which is double of what it was last year.
And also we are within the range of payouts that we said we would be. We said we want to pay between 25% and 35% of normalized earnings as dividends and we've committed again to that promise.
And you'll be getting a dividend towards the end of February, early March. Let's talk about South Deep.
It's an issue I think that has occupied our minds and I'm sure that it's a source of many questions to you. I think first of all we were doing reasonably well in early 2014, and the signs were looking promising.
We had to make a tough decision to rehabilitate many kilometers of haulages underground which thankfully we managed to finish in October on track. But of course the knock-on effect is we didn't distress for many months, we didn't open stopes that is a culmination of what the distress does.
And so the open stopes that we were hoping to mine in this year unfortunately we can't mine. And we are not going to see the benefit of those stops in full maybe late in 2015 or even into 2016.
And so that's the main reason why the production for 2015 is lower than what we said it would be previously. That said, I think 2014 can be seen as a low point for South Deep, and 2015's forecast is anticipating about a 15% improvement to 228,000 ounces.
The other thing we are doing, together with Nico Muller who is with us today, the new Executive Vice President and Head of the South African Region, we are focusing on the short term and getting the basics right in the short term. If we can do that better I think that will give us better confidence for the long term.
So we are not going to be fixated about long term targets today. We are going to be more fixated about achieving short term delivery, which is something that's been difficult for this operation to do in the past.
So the focus really is going to be on the basics. Looking at quarter four however, we did manage to see a marginal improvement in production as we completed the ground support program.
We got our production back up a bit. It's very good to see however that the distress went up quite a lot.
In fact it was even better than in quarter one when we didn't have the stoppages. And so that bodes well for the future.
That distress will be very important in terms of opening up the big open stopes we'll want to mine in the future. And just to put it into context just remember an open stope generally with the same crew and the same time can give you up to 10,000 tonnes per blast, whereas when you're mining benches and drifts typically you'll get between 500 and 800 tonnes a blast.
So it's a game changer for us. The greater the proportion of mining we can get from open stopes the greater the volume that we can get.
Right now we are only doing about 25% of total mining from open stopes and as we get South Deep up to full production in time that's later to be around about 70%. So one of the key focus areas is for us to try and open up those stopes later in the year so that we can actually get the benefit towards the end of 2015 and into 2016.
Obviously South Deep has been losing money because we have a lot of the cost already in the system to support full production, but we don't have full production. That's good and bad.
It's bad in the sense that we are not leveraging off the investment we've made. It's good in the sense that we don't think we are going to need to put in much more incremental investment in terms of people and equipment.
And certainly the bulk of the mine has been built. So any improvement from here is going to flow largely to the bottom line.
There will be some incremental costs of course with higher production, but the leverage here is enormous. And so we understand that, and the team is working very hard to ensure that we can get back to where we need to.
As I've mentioned really over the course of 2014 the three key issues at South Deep are people, fleet and the infrastructure and we have plans in place working on all of them. I think we've right-sized the workforce.
I don't think there's much more needs to be done there in terms of numbers. We've dropped it by 15% in 2014 through a voluntary separation process.
That's done. The key issue now is for us to get the right skills mix.
It's not so much about the people numbers it's the right skills mix. That's a two-pronged approach.
We are going to be looking to recruit as many good people as we can in the area. Certainly we've got a fit for purpose senior management team on the mine led by Nico.
I think that's a good first step. And for those of you who will be coming to the visit tomorrow at South Deep we'll share more of that with you.
But in the longer term we've realized that we are going to have to train. We've got the facilities on site to train, but we don't think our training program is yet fit for purpose, so that's going to be a key focus in 2015.
Working with other mining companies where we can, working with tertiary institutions where possible. We don't want to reinvent the wheel, but we've realized we have to be a trainer of mechanized experts in the industry.
And that's where Gold Fields and South Deep is going to position itself. Last year we decided that the mine was probably too congested, too many people, too much equipment and that's not going to lend itself to good mining practices or good logistics.
So the step to reduce the fleet along with the people was the right step. At this stage however we haven't seen the commensurate improvement in efficiencies and productivities.
That's going to be the next step. And that will take place over this year and next year.
Workshops have been upgraded. And I'm pleased to say that the 93 level workshop that we've been working on for the last two or three years is done.
I believe for those of you coming tomorrow there will be an opportunity to see the new workshop. I've walked through it.
It's like two rugby fields underground that's how big it is. It's probably too big for what we need, but I think it's going to give us sufficient space for us to do a much better job on managing our maintenance.
Ore passes, we've made good progress in getting more ore passes into the system so we can actually reduce the traming time. And that will help us to get ore through the system and into the shaft much quicker.
So we've made some good progress on that as well. I've talked about the safety intervention and the knock-on effect of that.
And I've also talked about the need for us to up-skill where we need to and then train where we have to for the long term strategy. But I think you'll find there are pockets of excellence at South Deep.
There are areas we've done some really good work, so we have to nurture the up and coming talent for tomorrow. So the way forward, I've talked about the skills, we have to stop the cash burn.
So this year with the major cost reductions that we've achieved in 2014 that's going to help us. We've essentially in 2014 dropped the total spend by R1 billion from R5 billion a year to R4 billion a year.
We don't see much difference from that in 2015. So again any extra production that we get, and we are forecasting 15% improvement at a slightly higher spot price, it's going to be very, very leveraged to that.
I don't think we are going to make breakeven this year. It's going to take not at least another year.
And I would project that sometime in 2016, possibly the latter half of 2016 we could be in a position to breakeven. Why do we believe that?
Well in particular as you get into more open stopes, as you open up those areas you get the extra volume that you can get. And even without major improvements or any improvements in productivity we certainly should see a better 2016.
But anyway Nico has got a lot of work to do there. And we'll talk more about that on the visit tomorrow with maybe any questions you have ahead of us.
There's a misconception that we have to spend a lot of capital at South Deep. Actually we've spent the bulk of the capital.
If you go back to the program that we announced in 2009 we announced an R8.5 billion capital program. We've spent all but R1.2 billion of that in 2009 terms, so around about 85%.
What's left if you escalate that R1.2 billion to today's money is about R1.7 billion. That's going to be spent over the next 10 years.
And the bulk of that is on an ice plant and some settlers underground and some development which is not critical to the buildup. So in essence we've spent most of the major capital already, most of it now is in sustaining capital.
So we talked about people, equipment and safety. We also need to make sure that we get our support done properly the first time and we don't have to come back and do rehabilitation in the future, so let's do it right the first time.
That's going to take time to instill. Getting a proper first pass support system where you do all primary and secondary support in one hit is going to take some time to embed into the operation.
And it's another reason why we are probably going to go slower this year than we would have liked. But I think the view that we've taken is lets rather be right as opposed to quick, because if you try and be too quick it may not be sustainable and then we have to pull back.
So the view we've got now is let's get it right and then expand with confidence as opposed to chasing long term targets that just may not be achievable. Let's talk about the international operations briefly.
I think it's fair to say that we've had a stellar performance if I may say so even myself from my international region, so credit to all of them. They have all outperformed compared to what we thought they would do both in terms of production and in terms of costs.
And you can see here that we are well within the gold price. The all in costs for the international ops in quarter four was about $975 per ounce.
And for the year was literally just over $1,000 per ounce, so a great portfolio. Remember it makes up 2 million ounces of the 2.2 million ounces.
And I remember not so long ago the international portfolio was only about 1.2 million ounces when I got into this job, so we've managed to almost double the production from the international operations through organic growth and through acquisition. And at the same time we've been able to grow production but reduce the cost profile.
And that's in the face of many headwinds. Power continues to increase, wages continue to increase.
So despite that we've managed to absorb those particular issues and still show lower costs. And as you can see in the book Gold Fields is projecting lower costs for 2015 compared to 2014 notwithstanding those headwinds.
St Ives has had a better quarter in quarter four. As we expected we've managed to mine the Neptune stage one ore body.
We didn't get it all through the plant by the end of the quarter but we mined it all, so we've carried quite a large gold in process at the end of the year. We'll put that through in quarter one, so you'll see some of the benefits of that in quarter one.
But you can see as well we've got the costs down substantially and the grade up as well. I think that's the way we have to go into the future.
And talking about the future, we've started to build Invincible. That's a lake-based deposit, so we've had to actually build causeways to get out to the deposit.
And there is between 10 and 60 meters of sediment we have to remove to hit bedrock. So we are virtually going to be at bedrock in the next month or so, because we are moving all that material.
We've got four diggers into the lake at the moment. And so Invincible will be, I think, one of the best open pits we've ever seen at St Ives.
4.7 million tonnes expected to be mined over about four years, generating 544,000 ounces. So that's really a high grade open pit.
We've been mining open pits in the last 10 years between 1.5 to 2 grams a tonne. So this is really going to add significantly to cost reduction over the life of the pits and also improved cash flow.
With some of the mines coming to an end production for 2015 is going to be very similar to 2014. But importantly we are going to do better in terms of cost particularly as Invincible comes through.
So here's the lake that we talked about. It's really a salt pan as opposed to a lake.
That's Invincible there at the top. And then this is what we call the speedway trend across the lake, which is 22 kilometers of strike that's been delineated.
And we've done some aeromag work using equipment that can actually go on the ground as opposed to using the traditional sources of aeromag work. And we've been able to actually develop a greater understanding about the geological structures and opportunities.
So one of the things we are going to be doing this year is we've given a substantial exploration budget to St Ives to really explore this 22 kilometer trend in more detail. And the objective for the team is go and find us another Invincible or see if you can find even a couple more Invincible's.
St Ives over the years has proved to be a very, very prospective piece of ground. It's around about 60 kilometers long around about 20 kilometers wide.
So there's a lot of area for us to cover. So I think we can certainly find some more ore bodies in time.
It's drill intensive. We are going to be drilling substantially more drill meters this year in Australia and at St Ives.
But we are hopeful that we'll be able to continue to add to the ore body as we've done over the 13 years that we've owned it. Agnew and Lawlers has had a great year.
We've essentially achieved everything we wanted to do, 270,000 ounces. They outperformed guidance, all in costs $990 an ounce.
I think the integration of Lawlers and Agnew has gone extremely well. We've managed to leverage off the synergies that we knew existed.
We are now running one plant instead of two plants. We've reduced the overheads on site.
And I think we are set up for another good year ahead of us. And again just to show you a little bit of geological information this is the old Agnew mine which is the Waroonga complex.
That's the old mine that open pit there, looks like a bath on top, and you've got your portal which is you're entrance at the base of the pit. That's the Kim South ore body.
That's probably only got two to three years to go. And we are now aggressively developing into the FBH ore body which is adjacent to that.
And as you can see so far we've got a reserve of about 348,000 ounces at 9 grams. So that's going to be the long term replacement for Kim.
And then here's some other opportunities all around that we are drilling. Parallel shear zones to Kim are showing that it's hosting mineralization that is very similar.
So we've got a drill program that's already started on these areas. We are going to focus heavily on Kath and Waroonga North in 2015 and then on all of these targets around.
And as you can see by the drilling we are doing it's almost like filling in the missing pieces of the jigsaw puzzle. It looks like the mineralized footprint is going to be much bigger than what we initially thought.
So these orogenic ore bodies they continue to grow, you've just to be patient and spend the time. Darlot is an operation that came with a package when we bought the Yilgarn South assets.
It was losing money under Barrick. We've managed to get it to make money over 2014 and also allowed $8 million to be spent on exploration when previously they had no money for exploration.
So I think a good turnaround. A big focus on reducing dilution, improving mining recoveries underground and again cutting out the low grade and focusing on the higher grade, so they have made money over the year.
We continue to invest in exploration. I wasn't sure in March or April if we'd even have a 2015 for Darlot.
But as you can see we've given guidance for the new year of 83,000 ounces at $1,130 per ounce. We are quite excited about the second half, because we are getting into a piece of ground called Lords Low South, Lords Lower South I beg your pardon, which is a virgin ore body with much thicker reef packages.
And that looks like it's going to be better for us. So the second half of 2015 we should see a reasonable performance in underpinning that 80,000 odd ounces for 2015.
We are still looking for the game changer. The big focus is on the Centenary Depth Analogue which is essentially a replica of the original Centenary deposit which produced over 1 million ounces.
Are we going to get there? It's early days, the signs are encouraging but we'll keep you posted on that one, I certainly hope so.
Granny Smith has been nothing short than spectacular over the year, 315,000 ounces at all in costs of about $800 per ounce. I think it's beyond anyone's expectations what we've achieved there.
But a lot of people have asked us what are we doing differently to what Barrick did. Well first of all I think it's much greater attention.
And when you've got fewer mines like we do you can give more attention. When you've got 30 odd mines around the globe it's harder to give attention.
So we are a smaller company with a greater focus. We saw some short term gains that we could change things pretty quickly.
We've reduced dilution by 15%. We've improved recoveries in the plant from 87% to 93% just by making a few changes here and there, just by automating things.
And that's made a big difference to us. And then just really a big focus on how we improve the operation, investing some money in fixing the plant.
So we are confident that Granny Smith is going to be a good mine for us for many years to come. And as you can see our guidance for 2015 shows another good performance that we expect in 2015.
So here's the Wallaby ore body which is the only source of mining at Granny Smith at the moment. Again there's the base of the old pit.
And you can see the ore body is slanted as we go down. And it's really a series of loads, gently dipping loads at about 150 meter intervals that we are mining.
So the bulk of our effort not is on Zone 100. We are starting to develop into Zone 100 during 2015.
That obviously means we've got to set up a whole lot of infrastructure, ventilation infrastructure as well so there's more capital to be spent this year. But as we get deeper we are seeing there's potential for step-out and that the strike length at these loads is getting wider.
In fact we are seeing the same thing on Zone 90, so we are doing some more step-outs drilling over there as well. And that's a good sign.
Also the grades of depth generally have improved as we've got deeper. Now we haven't seen the bottom of this ore body yet and we continue to do exploration.
This sort of disappears under the salt lake, Lake Carey as it dips over there like that but the indications are its going to extend. So we are keeping an eye on what we think Wallaby might look like for the next five or 10 years and what that might mean for us.
Tarkwa in Ghana truly one of the world-class mining operations of surface mining, we are moving around about 90 million tonnes a year at a strip ratio of 5.5 at 1.2 grams yield, one of the most productive open pit mines in Africa and one that will be around for a long, long time I'm sure. So the key issue in 2014 is remember we shut the heap leach at the end of 2013, we were still rising and irrigating the heaps for I would say half to three quarters of 2014.
That's basically now done. So we've finished with the heaps.
The other important thing was to expand the CIL plant. You'll remember we talked about going from 12.3 million tonnes a year to 13.5 million.
That's been done. And in fact we are virtually now treating at 13.3 million tonnes a year and we could go to 13.5 million.
So that's meant that we are only putting all of the stuff through the CIL plant. It means that we get 96% to 97% recoveries on everything that we mine and process, so that's a big benefit.
So again in 2015 we expect Tarkwa to do about 580,000 ounces. That's going to be an improvement on the 558,000 for 2014.
And we expect the all in cost to be about $1,040 an ounce, so I'm sure we'll have another good year from Tarkwa. Damang, I thought we were going to have to close Damang in 2013.
We were losing $4 million a month. I went up and spent a lot of time with the team and I must say that they've turned it around.
And even though it's been four or five quarters that we've now returned to a cash-positive position, a lot of people didn't think it's sustainable. Well, they've now done it for five quarters and the year ahead I think looks good.
The focus at Damang is not just on improving the basics of our current mining, which I think we've now done well with reduced dilution, but it's looking for us to get Damang to a higher level of production down the road. And we think critical mass is probably a little bit higher than where we are, and so a big focus in 2015 and beyond will be to look beyond just the current sources, but look at the lease at large and extensions in particular to the main pit.
Now if you look at this diagram over here, you can see the original pit that's mined out was about there; that's Huni to the north; that's the Saddle, which is like an intermediate zone between the original pit and Huni; then we've got Juno to the south over here. The exciting news for us is that we believe there's a new trend over here of about a kilometer that links up Juno with Damang and Nyame with one continuous strike.
And that's quite exciting, because that would be almost a replica of the original Damang pit. And it's all outcropping at surface.
So that's really the focus for 2015 is how can we prove that up. But it's not the only one.
We're also looking at Amoanda to the south. We think there's good potential we'll get into that soon, and also Tomento.
So all along this strike over here, it looks like there's mineralized packages. Now because it's hydrothermal, they are largely discrete, it's not one continuous disseminated ore body like you find at Tarkwa.
But because it's hydrothermal it's also going to be higher-grade than what you'll find at Tarkwa. But you've got to look for it and you've got to find it.
So I think there's lots more potential at Damang that we haven't yet realized. Cerro Corona, another great year for them.
They did 326,000 equivalent ounces. There is an error in your book here in that the costs per equivalent ounce have been transposed with the gold-only costs.
So if you wouldn't mind just adjusting your numbers. The numbers at the bottom should be put into the top, the second line, and the numbers in the second line should at the bottom.
We've corrected it here on the screen. You just need to correct it, please, in your book.
But again, we think that Corona will continue. The big focus for 2015 is trying to see if we can take the resources that don't convert to reserve, because of a lack of tails capacity.
We're going to try and find additional tails capacity for that. If we can, there's the potential for another five to six years of life to be added onto the ten years that we have, so that is a top priority for us.
We're working on that at the moment. There's a pre-feas underway and we hope to have some -- what I hope will be good answers.
We're going to get answer for sure in 2015, but I'm hoping they're going to be positive answers, so that we can actually extend the life of this particular wonderful ore body. Ten years are still a good life, but we want more than that, and it's been a significant cash generator for us going forward -- or certainly in the history and going forward.
So in conclusion, we've given guidance per mine in the book in terms of production and costs, but overall we expect to be at 2.2 million ounces for 2015. That's similar to 2014.
A pickup at South Deep, obviously, but there is a decline at Corona, and I have to say that decline is something that we have anticipated. Copper grades are expected to come down.
And also with the copper price coming down to about [$2.55], we've actually worked out the equivalent ounces at $2.60 a pound and [$1,200 gold]. And as a consequence of that, we lose about 20,000 to 25,000 ounces out of Corona.
Obviously, this is all alchemy, and you can actually go back to the physicals and see what the copper production is and the gold production. But for those who want to convert to equivalent ounces using this alchemy, you're able to do so with the numbers that we've given you.
All-in costs are expected to be lower than 2014, notwithstanding all the headwinds of wage and power inflation across the world. Just to look at those two items, if you analyze our costs throughout the Group, power and labor costs make up almost two-thirds, about 60%, nearly 60% of our total costs.
And we continue to see potential escalation in those costs, wherever we operate in world. Now it might be a little bit more benign in some jurisdictions like Australia, given the big pullback in the mining economy there generally, but in other areas it's going to be more challenging.
So notwithstanding that, we think that we can still contain our costs to within what they were in 2014. And here are the assumptions on exchange rates, 11.50 for the rand and 80 cents for the Australian dollar.
South Deep is obviously the top priority. The other top priority is to keep the international operations doing as well as they've done.
And maintaining a very high level of standard is never easy either. I think we've been through the worst at South Deep; we should be able to do better from here.
We want to make sure we continue to generate cash and reward shareholders with dividends. And between Paul and I, we're going to try and see if we can get the debt reduced even further and focus on exploration.
Implicit in these numbers is around about $85 million of brownfields exploration in Australia and around about $5 million in Ghana, so you can see we are putting money back in to sustaining future. Thank you very much.
Avishkar Nagaser
Okay, we'll now take questions, first from the audience and then we'll go to the webcast. Let's start with Adrian.
Q - Adrian Hammond
Morning, gentlemen. Adrian Hammond, Standard Bank.
A couple of questions, please. First I've got for Nico Muller.
Since joining the Company, could you just give us an idea of your overall impression of South Deep? What [indiscernible] there in your mind are critical and where you think you could make the biggest impact?
Secondly, for Nick just on Cerro Corona. There you've got some guiding lower production.
Is there anything you can do to mitigate that? Is there any sort of reserve, upside potential that exists?
And thirdly, just on Darlot, one of your mines that obviously doesn't meet your 15% margin. You're guiding production for 80,000 ounces for the year, your cost's come down dramatically, but in your third quarter, on an annualized basis, the costs were very high at the same level.
So I'm struggling to understand how you bring -- achieve a 15% margin. If you can just explain that.
Thanks.
Nick Holland
Can I suggest I'll give Nico more time. I'll deal with the other two questions first and then we'll ask Nico to deal with your question.
So on Corona, one of the things we have expected for some time is that the grades would come down. And if you go and look at the reserve grades in last year's declaration, you'll see that the reserve grades are lower than what we've been mining at.
And we've been getting a positive reconciliation out of Cerro Corona for some time. Now, I don't think necessarily that's going to disappear straight away, but we are starting to graduate back to the reserve grade over time.
So what can we do about it? One of the things we're trying to consider is whether we can up the throughput.
And we have changed out, as the ore bodies got harder and the materials got harder -- we had some [Abon] crushers we used to have, which are basically just these crushers with little rods coming out that turn around and break up the ore. Now that works well for fairly softish material.
It doesn't work so well for the harder material. So we've implemented jaw crushers at Cerro Corona, which essentially do what you'd expect them to do.
It's like a jaw that's closing on the ore body, breaking it up. We can take the old crushers and try and convert them into secondary crushes by modifying them, then we could potentially crush to a smaller fraction and that may enable us to increase the throughput through the plant.
It's early days, there's no promises, but we're looking at that as a potential study. Because our bottleneck is not in the backend, it's in the frontend of the plant.
So I can't tell you what sort of numbers, but we're looking at that opportunity. The other thing is, if we can convert some of the resource back into reserve or finding some additional tails capacity either on-site or off-site, we can add more life.
And that together with possibly a higher mining and processing rate, we could leverage the ore body up further and offset some of the impact of the lower grades that are coming in. And we've known about this for a while, so we've had studies conducted, we've got outside parties helping us.
So that'd one of the ways, Adrian, that we could optimize Cerro Corona from here. We're quite confident we'll come up with a solution.
So, on Darlot, you're quite right. I mean, if you look at the current performance in quarter four and you look at the guidance, you say, well, this doesn't gel.
I think one of the problems we've got now is, we're in a bit of a hiatus in that we're trying to open up the virgin ground in Lords South Lower -- I've got it right now, Lords South Lower. We're trying to open up the virgin ground there.
And it's thicker reef packages, 4 to 5 meters, whereas in the last quarter and probably even into this quarter and quarter two, we've been relying on remnants across the old mined-out areas that are quite far apart, they're quite discrete. And clearly it's going to be hand-to-mouth mining, as it were, for most probably the first six months of this year.
But once we get into Lords South Lower, then we'll be in much better shape. The grades look like they're better, the reef packages are thicker, and I think that gives us a lot of confidence.
And we're well developed into that area now, but we just can't get there until about April. So that's the reason why the numbers look a little bit odd.
I'll hand back to Nico to talk about South Deep.
Nico Muller
First of all, it's a privilege to sit here and be part of the Gold Fields team. I joined in October and I've had a very interesting journey so far.
I didn't come into the process blindly prior to my joining. I mean, I had pretty open discussions with Nick.
I've had some idea of the history of South Deep and I know it's been a challenge to meet our guidance and [feed] into our ramp-up profile. So it's not like I was totally surprised by what I arrived into.
I expected everything to be bad at South Deep, given the fact that we've not been able to ramp up. And I have been surprised by a number of positives.
I mean, firstly the ore body and I'm not going to go into that, but I worked at Target in the Free State from 1995 to 1999 or 2000 and so it's similar to multi-layered ore body. South Deep is so much bigger, so there's massive potential even though it's at depth, and the grade as well.
I thought that at least we've got a great starting position in the asset that's just absolutely world class for the 8 million ounces in reserve and that's always a good starting position. And then, based on the capital program that Nick and the team approved in 2009 for R8.4 billion, I think generally the bulk of the infrastructure has been installed.
I think there are issues in terms of how the infrastructure is being maintained, which -- I don't want to go into a lot of detail, but there are some challenges I think that -- I don't think the engineering function as a whole is being given necessarily the attention and the priority in the organization at operational level. And I think that's one issue that I've discussed with Nick, that we've agreed that we'll pay attention; to raise the prominence of the engineering function to make sure that the very solid infrastructure that has been installed is maintained in a way that will support the growth, the continuation of the business and growth.
One of the areas that I feel particularly proud of and I think will help South Deep, is what South Deep and [indiscernible] the corporate team has also done, from a sustainability point of view, if I look at the safety performance since 2008, that has improved dramatically. And I've learned that when you injure people, you have many safety stoppages and there's a lot of disruption in the operation.
So I'm very encouraged by what South Deep has achieved, notwithstanding the inability to ramp the operation up. That's great.
And then also on the social and labor front, 2014 in particular, there's been a big kick-up in terms of the execution of projects, which I think bodes well for community relations supporting the stakeholder sentiment towards South Deep. And on the environmental front as well, if I look at the water management projects that have been successfully concluded or initiated 2014.
All of these things are very important. Although they're not related to the ounce production, they do provide an enabling environment, which will create less noise for the operational team to operate in and focus on cheap, safe ounces.
So I think those have all been great. Unfortunately, I think as far as the management's concerned, there was a big issue.
And I'm not sure how to say this softly. But it -- I think the team was largely dysfunctional for many reasons.
I mean there is -- I think the team has operated under a lot of pressure, given the variance between the actual output and the corporate expectation and what the market has been communicated. So there was a lot of noise and a lot of pressure.
And I think that made it very difficult to simplify life and to develop core strategies to focus on the enablers that will drive up production. A lot of the discussion was on the variance between the actual output, then the expected output, the massive disappointment associated with this and the frustration and fury because of that.
And so my view was that there was a lot of -- the energy was devoted to that part of the discussion as opposed to exactly how to address skills development as an issue. And so, that's why in partnership with Nick and the rest of the team, we agreed that we have to simplify life at South Deep, trying to run into this rump-up profile.
We are [indiscernible] just continuing investing in bigger and bigger dreams without developing the ability to get the basics right. I thought the introduction of the Australian team in 2014 -- I mean I understand all the motivation behind that, it just -- it was really unfortunate, at the same time, that we've been through a labor rationalization program at South Deep.
So the perception was from the DMR, the unions that we're bringing in foreigners at a time that we're reducing employees, South African employment opportunities. And that was just massive political resistance to the whole initiative, so with the base intentions of the world and then I think [indiscernible] and the team they introduced good thinking in terms of [indiscernible] but the benefit of it never flow through in terms of results.
Then I think it created a lot of tension between the Australian team and even in fact management to directly interact with DMR and the union I just think that that gave cause to a less than ideal outcome which wasn't anticipated in the beginning. And having said that, I think that there are many other things that they introduced, that we will derive benefit from at some point in future.
And I think -- we had some great people, but in wrong positions, at South Deep. And I just think that the way that we led operation -- if I look at the work practices, I mean, some of them are great, but most of them are absolutely shocking.
They are actually horrific. And I'm not saying this because it's my view and we share them.
If I look at the way water management is nonexistent. Now we've got water running all over the [indiscernible] walls.
The working conditions underground often is not conducive to support an efficient mining operation and there is absolutely no chance ramping up and getting to full production when that's the way of working. So one of things that we have done, is we you have very early on brought in a team that come from an operating experience where there's a proven track record.
We can't bring people -- we couldn't have people in critical roles that's going through their first rodeo. It was very important to bring in experienced people in the right position.
And then also within our team, we had great people, but they were potentially in the wrong position. So that was a starting point.
And I firmly believe that if you don't have the right team, you can have the best strategies in the world, you can have the best tactics, but you'll battle on the execution side. So I think that we are in a much stronger position today and we've got the balance between some experienced people from South Deep with a lot of knowledge and then also the infusion of new people with a sound track record in making money of operations.
And I think that will assist us -- the issues at South Deep are well known. We've spoken about skills development and availability of fleet and so forth.
So it's not that it's not known, it's the ability to develop the execution to resolve those issues. And I think it's going to take us a bit longer.
I mean, I'm not sure -- Nicholas has spoken about our strategy for 2015. We are going to have to simplify life, we are going to have to fix the base.
We're going to focus less on capital investment and growth and make sure that we get the basic functionality of a mine up and running. At the moment we're going through a lot of storming, forming, norming, new team management and everything.
There is a lot of trauma at the moment in the business, but we knew that was going to happen. It's part of our journey.
And I think that we'll be in a very strong position as we go through the year to develop a much better understanding of what the potential is going forward. So I think there are some strains here, some weaknesses.
I think that we, certainly internally, are very honest about where we are at. And maybe some of the things I want to say doesn't sound so positive, but it's because they're not.
But there is nothing that I look at that suggest that this is un-repairable. I think the upside for me personally is when I look at the things that are bad and broken, many of the members in the team that we currently have, have actually gone through periods and processes in other businesses where we've actually dealt with them and fixed them; it's just not an overnight process.
We're going to have to be patient as a team and drive at them aggressively.
Kane Slutzkin
Good morning gents. Kane Slutzkin, UBS.
Paul, can you just remind me -- I don't know if you have it offhand -- the value of asset sales you did last year; just trying to tie that in with the net debt reduction.
Paul Schmidt
It was $81 million that came from the sale of Chukapaka. That was the only cash --
Kane Slutzkin
Was the only cash --
Paul Schmidt
The Yanfolila one was shares in Hummingbird. And for Talas I think we got I think $5 million in [indiscernible] --
Kane Slutzkin
So that's [indiscernible].
Paul Schmidt
So $86 million was the cash, right.
Kane Slutzkin
Right, that makes sense. And then just on power.
Obviously I've seen reports in Ghana, you had some issues there. How have you been impacted there; what percentage of OpEx is power in those mines?
Is it a pretty big risk for selling Damang, because obviously you've really been through quite a long recovery. What's the risk there?
Nick Holland
So load-shedding is a feature of life, both in South Africa and in Ghana. And we've actually put some information in the book, the deals for that.
So in Ghana there are problems with the generation side of things in that the hydro is giving less because the dam levels are lower. They haven't had enough rain; in a country where it does rain a lot, they haven't had much rain lately.
And they've also had some units in the thermal side down. So that's the generation side.
And there's been some problems on the transmission side with just maintenance that is behind. So one of the things that we've been lucky to have is back up generation sets.
So the country has asked us to shed 25% and we've agreed to do so, for an indefinite period. In fact the whole industry has been asked to do that.
We've been fortunate though in that we can turn on the emergency gensets at Damang and we can fill that gap with the gensets. Obviously it's a slightly higher cost than what we pay on the grid, but the important thing is we can keep the production machine going without any impact.
So that's the situation in Ghana. The other thing is we're looking to move off the grid entirely in Ghana, hopefully by the middle of 2016.
We're getting an over-the-fence deal whereby we'll be completely off the grid from an IPP that's come into Ghana and already built a couple of plants, clean coal plants. So that's Ghana.
So it's a problem, but the impact on the business is not significant. Slightly higher cost, some of which [indiscernible] $20 an ounce is the extra cost, if you want to get a figure.
For South Africa, if I can talk for Nico on -- in fact, maybe I shouldn't. Maybe you should; you talk about South Africa on the power.
Nico Muller
Well I suppose our underperformance is our great friend in this regard, so we have been -- after reducing our consumption by 20%, but we're in a very fortunate position that our plant is not operating 24 hours a day. So what we've agreed with Eskom is to shut our plant down and some of our compressors for a longer duration than what they've asked us to do and in that way to support them, which enables us to run all the critical components of the mine, 100% of the time, to support whatever production we are able to do.
So we've had no impact, and we don't foresee an impact in the short to medium term on our operation.
Avishkar Nagaser
We're coming to 11 o'clock so we might have to wrap up soon. Can we just check on the webcast before we come back, quickly?
There's another thing?. Okay.
One last question then Derryn.
Derryn Maade
Thanks guys. Derryn Maade from HSBC.
I just wanted to ask, in terms of the guidance for 2015, and in particular your areas that have been very good to you in terms of free cash flow generation, Australia, Cerro Corona we're seeing the production guidance coming down in those regions, being mitigated by Tarkwa coming up and a very small, incremental increase at South Deep. So it's really an expectation for free cash flow generation in 2015 with that in mind, is there the risk that you're swapping out your better-margin ounces for your lower-margin ounces in 2015.
Paul Schmidt
No, I don't think that's the strategy. The strategy is for us to get the best out of every mine.
And so one of the things that goes behind our planning process is a rigorous review of different iterations, not just over one year but over five years. We like to try and look at the next five years and say what do we think is the best outcome for us in terms of achieving our Group goal; sustainably getting 15% free cash flow margin at a [$1.300] price?
So we look at a whole bunch of iterations that fit within that and then also look at the NPV calculations, so what's the best NPV, what's the best free cash flow, what's the best fit in the middle. So every asset is looked at in terms of that.
And the other thing you have to remember is that certain assets require new capital from time to time. Now, for example, Tarkwa has just bought $50 million to $60 million worth of fleet that has been delivered -- most of that's been delivered already earlier this year.
So that capital is very chunky; it comes through. Granny Smith is opening up Zone 100 so it's got to put in a whole lot of infrastructure; haulages, ventilation, razors et cetera, to set it up for mining.
That's already been done for Zone 90 before, but because we're coming into Zone 100 this year, there's more capital that has to come in. But that said, it looks like it's going to be a bigger load, potentially with higher grades, than what we've even seen before, and that's before we've even understood the step-up possibilities.
So what we do, Derryn, is every asset we look at in terms of how can we get the best out of it, not just this year but over the long term. And that's how each profile is determined.
And we want each asset, on its own merits, to achieve the Group goals. Now sometimes it means production is going to go down a bit, sometimes it's going to go up.
Cerro Corona I think we've discussed, it's coming down because we've expected growth to come down. We've known that's been coming, but we are looking to see if we can add life and if we can add throughput.
I don't know if I'm answering your question, but it's not about saying, here's a top-down goal and how do we get there? It's optimizing every single asset.
And then the guidance you see here is just the net result of all of that.
Derryn Maade
No, thanks. And then, sorry, just one last one for Nico.
Do you think that South Deep target is a bit soft; can you beat it?
Nico Muller
Are you talking about -- for the guidance --
Derryn Maade
Yes, the 228.
Nico Muller
It's very dangerous for me to give an answer, because actually, to be quite honest, I don't know. What we have done is we have based the guidance on exactly the same efficiencies as we have achieved in 2014.
So we've assumed absolutely no improvement, which I think we will achieve. However I've also got a brand-spanking new, very robust manager at the mine who is stopping wasting and the [indiscernible].
And I support exactly what he's doing because he has to, because the conditions are not great. And if we promote that way of working, you will never ever achieve an efficient approach to mining operations.
So at the moment there's a bit of tension between -- the balance between tracing a number and getting the work methodology sorted out. So I'm pretty confident that the guidance is very achievable.
And my secret thinking is we should be able to do a lot better than that. But I don't want to bring anyone on the impatient way you start modeling that and taking that into account in your expectations of us, because I don't want to impose that pressure on our operation, when they are going through a period where we need to fix the way we work.
Avishkar Nagaser
Okay. Thank you very much.
Please join us for refreshments outside; those analysts who are staying for the sell-side briefing. It is in the -- as you exit on the left hand side at the Board room there.
Thank you very much.