Financial Mail reports that, in its results for the year ended December 2018 released last week, Gold Fields said production across the global gold mining group slipped 3%, while revenues were 7% lower.
Losses for the year slid to $348.2m, compared with $19m the year before.
Much of it has to do with South Deep. Though it has one of the world’s largest gold deposits, the mine hasn’t reached production targets for a long time and has proved to be a black hole for Gold Fields cash, guzzling about R100m a month.
The mine was massively restructured in 2018 — a painful and costly process — and Gold Fields expects to see the benefits, soon.
This involved retrenching 1,100 employees and as many as 500 contractors.
It also resulted in the closure of some lower-grade areas.
"It is the first time we’ve done something like this at South Deep and we believe it’s set us up to have a new start at the asset," said longtime Gold Fields CEO Nick Holland at the results presentation.
For the SA operation, it’s do or die now.
All Gold Fields wants from South Deep in 2019 is that it breaks even.
But what if it doesn’t, analysts asked Holland at the presentation.
"We’ve asked ourselves that question, our board has asked us that question," he said. The major restructuring — which has never been done before — has left Gold Fields feeling like it has to give it a go. "But that’s not to say we can continue just putting money into this month after month," he said.
"I have no appetite to do that. I’m also a shareholder in this company. And if we’re going to have a repeat of that, there won’t be a future. There has to be a step change, and soon."
Gold Fields says it will implement a number of initiatives at South Deep including improved drilling and blasting, rigorous performance management, improved fleet utilisation and better stakeholder management.
But investors remain sceptical.
Yatish Chowthee, equity research analyst at Macquarie, notes that many of the plans Gold Fields presented have been recurring themes over the years.
"These things have been there for a while. What makes it different now?" he asks.
Martin Preece, Gold Fields executive vice-president for SA, says: "It is an old story— the difference this time is the nature of restructuring. We’ve taken, I think, fairly bold steps to completely relook at the business. I think we’ve taken complexity out, taking a lot of the low-grade areas out."
He says the layoffs formed part of a selection process to leave the operation with "fewer, better people".
Holland said the company always knew what it had to do but is now focused on tightening up the execution of this.
As if the pain taken at South Deep wasn’t bad enough, Gold Fields, like all other energy users in SA, has Eskom to worry about.
The ailing utility is in financial and operational crisis and on Monday last week implemented stage 4 load-shedding to move 4,000MW from the national power grid to prevent collapse — the highest level of power cuts yet.
Holland said South Deep could work around as load-shedding long as it didn’t go to stage 4. He said Gold Fields has been working on a renewable power solution, which could provide 25% of its sizeable 60MW needs.
Plans stalled during the South Deep restructuring, but it’s now time to "dust that off", he said. "My feeling is, though, this problem with Eskom is a big problem that’s not going to be solved quickly … Business is going to have to create its own solutions."
In the background there has been a flurry of mergers among large gold miners, which has prompted speculation about who might be next.
Gold Fields last month quickly denied a report that it would merge with AngloGold Ashanti, and Holland reiterated he won’t be drawn on speculation but noted: "We don’t feel compelled to do anything except to focus on our projects."
In the context of few new discoveries and capital drying up, mergers make sense, but in the case of Gold Fields it saw the writing on the wall and took steps to prevent this.
"In 2016 we took a decision to run the company cash negative for two years to give us better projects," said Holland. "Our focus is delivering our strategy. Never say never, but it’s not our focus right now."
Gold Fields says it is now on track to produce over 2-million ounces of gold a year for the next decade, starting in 2019.
Capital expenditure will drop in the first half of 2019 and as production ramps up, the company is expected to become cash flow positive in the second half of the year with an assumed gold price of $1,200 per ounce.
"We believe this is likely supported by completion of the South Deep mine restructuring, removing more than $800m from the company’s cost base, and new gold volumes of about 59,000oz from the [Australian] Gruyere project," say Bloomberg Intelligence analysts. "Total attributable gold equivalent production this year may exceed 2017 and 2018 levels."
Read the original of this report by Lisa Steyn at BusinessLive
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