Good afternoon, ladies and gentlemen, and welcome to the Goldfields Operating Update for March Q1, 2021. All participants are currently in listen only mode. There will be an opportunity to ask questions later during the conference. Please note that this call is being recorded. I would now like to turn the conference over to Chris Griffiths.
Please go ahead, sir.
Thanks. Hi. Good afternoon and good morning, depending, I guess, where you are in the world today. It's a great pleasure that I present my first operational Sure, update to the CEO of Gold Shield. However, it is deeply saddening that within my 1st month in office, We lost one of our colleagues at South Deep Mining in a mining incident.
Our heartfelt condolences once again go out to Vumile, Nguprini's family, friends and colleagues at South Deep Operation. Tragic events like this serve as a hard reminder The risks involved in our business and reinvigorate our resolve to achieve 0 harm in the workplace. Notwithstanding the impact of COVID-nineteen during the Q1, particularly at our Cerro Corona and South Deep operations, Group attributable gold equivalent production of 541,000 ounces was largely in line with Q1 last year. The Australian region produced 236,000 ounces and our mines in Ghana produced 221,000, Including our 45% stake in Asanko. Terra Corona, which was also impacted by unusually high rainfall during the March quarter, Produced 46,000 on gold equivalent, while the effect of a second wave of COVID-nineteen in South Africa Meant that South Deep's production was slightly lower year on year at 60,000 ounces.
Group all in sustaining costs were up By 11% year on year in the Q1 at £10.78 All in costs were $12.49 per ounce. That was 18% higher year on year. As we forecasted and as we guided, the capital expenditure at Solaris Norte have against Suran Pappas this year. The balance sheet remains in a strong position. Net debt was €1,224,000,000 at the end of the quarter compared to 1,069,000,000 3 months prior, with the increase primarily driven by the payment of the final dividend of $190,000,000 Net debt to EBITDA at the end of the quarter was 0.59 times, largely unchanged from the end of December 2020.
Our key growth project, Salares Norte, maintained its positive momentum and continued to track ahead of project schedule during the Q1. Encouragingly, the detailed engineering was complete in January and pre stripping of the Breccia principal pit started on the 6th January this year. The volumes of the pre stripping continue to track ahead of schedule with 8,000,000 tonnes moved at the end of March Compared to a planned 1,350,000 tonnes. All other key activities continue to advance largely in line with plan. As you would have seen from the announcement yesterday, the Board has given the green light for the construction of a 40 Megawatt Solar plant at South Deep in South Africa.
This follows the granting of a license by NURSA on the 25th February. The plant will comprise 116,000 solar panels and generate over 20% of the average electricity consumption of the mine, Saving around ZAR120 1,000,000 in electricity cost per year. Importantly, it will reduce our carbon footprint Buy around 100,000 tonnes of CO2 a year and contribute to Goldfield's long term commitment to carbon neutrality. Construction of the plant will begin during the Q2, so in this quarter, with commissioning planned for Q2, 2022. The estimated capital investment for the plant is ZAR660 1,000,000 which will be funded from internal cash flows generated by South Deep.
In addition to the South Deep solar project, development of the Hooni Pit of Demang was approved post the quarter end At a total capital cost of $43,000,000 of which $15,000,000 will be incurred during 2021. This will add incremental production to the project and provide flexibility on the mining front. Despite this additional CapEx, We maintain our guidance provided in February 2021. As a reminder, attributable gold equivalent production is expected be between $2,300,000 2,350,000 ounces. All in sustaining cost is expected to be between $10.20 an ounce and $10.60 an ounce, with all in costs expected to be $13.10 an ounce, £1,350 And then finally, just some of my initial observations from being in Goldfield for the past 5 weeks.
Firstly, the deliberate strategy of moving away from labor intensive conventional mining to focus on mechanized open pit and underground operations with the majority international exposure has served the company well. The reinvestment program over the past 4 years has placed Goldfields in a position where it can maintain and even grow its production profile over the next decade. Lares Norte is indeed a world class project and delivering the project on time and on budget is one of the key focus areas in the coming years. Goldfields work on ESG issues compares well in the mining space and we remain on track to provide more definitive So with that, I'll turn over the call to Q and A. And then both myself, Paul Schmitz, the CFO and also Avi Straas on the line from Investor Relations.
Thanks very much. Over to you.
Ladies and gentlemen, at this stage, The first question we have is from Shneur Mody from UBS.
Good afternoon, everyone. Chris, congrats on your appointment. A couple of questions from my side. What would you say is going to be your focus areas for the next 12 months? And then where would you like to see the portfolio in say 5 years' time?
I've got another two questions after that.
Okay. Thanks, Shannon. Look, the focus here is for the next 12 months. I mean, firstly, in the next couple of months is really to get a very deep understanding of the business. There's always opportunities in the business to look for productivity and other value enhancing opportunities and I'll continue to do that.
I Clearly,
the safety journey itself deep is not complete and there's quite a bit of work to do there. And then I think a deeper understanding of The assets and the individual strategy, so how much further can we push each of these assets? What are their life of mines likely to be? Because there's one thing about the resource and reserve in the way that we declare it. But I mean, obviously, as we because they're underground operations, as we keep drilling, we keep getting life.
So which of those operations will have ongoing life to the 10 year period beyond and which won't? And so understanding the strategies And looking about how we can optimize those strategies for each of the assets. I guess that's my priority for the 1st 12 months. But then at the same time, being a new CEO gives an opportunity to take a look at the portfolio, have a look at We're operating in the assets we're operating in and then also potentially look for other opportunities outside that. So it's really too early for me to say what I think will come out of that, but I guess that's going to be the work that's myself and the executive I think that's all I have to do.
And then I guess that depends that's really going to give us an indication of what the next 5 years look like. So are we still going to be in the same jurisdictions we're going to be now? Are we going to be in other jurisdictions? Are there other assets that we want to add To our portfolio, is there any merit in joining forces with any other companies? All of those It will come out in the wash.
But the main focus that I guess Goldfield has had over the last number of years, We're not going to radically change that. So for example, the focus on quality assets, the focus on highly productive 1st class assets that are mechanized and safer, that we in jurisdictions that are fairly easy to operate in. No, that kind of focus and the deliberate focus on value as opposed to just volume. Nothing is going to change. That that was my mantra in Anglo Plat and that will make I think Nikku and the management team in Goldfields have done a good job of Really making sure the company focuses on delivering value and not volume.
And that will certainly be at the core of the things that I'm looking at.
Okay, thanks. That's quite helpful. Just a follow-up to that. You mentioned productivity might be one of the things you'll be looking at. Would you implement something similar to the Anglo American T101 type of strategy there?
And my second question that I was going to ask anyway was In the last year, we've seen a lot of unit cost inflation come through in the business. So if you look at the quarter on quarter and year on year numbers, can you give us an idea of how much of that is from like External factors, so like FX and fuel versus like inflationary factors, so equipment salaries and stuff like that. And how much do you think you can offset in the next few years from productivity?
Okay, Shannon. I'll I'll answer then, Paul, feel free to jump in after me. So I think Goldfields, while they haven't called the Focus P101 or something like that. They certainly had an increasing focus over the last couple of years of technology digitalization And developing the mine of the future. And certainly as the portfolio of course has moved to a much more productive portfolio, That's where the kind of focus has been.
So it's not as if I think I have to come into the group and start introducing themes like productivity Improvements around technology and digital. And so I'll seek to build on whatever has been in place and there's some fantastic Work is already underway right across our portfolio. But there's always opportunities for Improvements. And if you start to the fact that there's always opportunities and as you sort of put one set of initiatives in place, what that does is open up new Opportunities? That's certainly that focus around all things for productivity improvements is certainly one of the things that I've always carried with me.
Some of the things that is already in place, and I don't need to introduce that kind of thinking into the group. What I need to do is work with the group to see how we can really chase That kind of the implementation of that kind of technology, new technologies in certain areas and around technology and digitalization To really make productivity improvements. So I think there's some of that whether we ultimately sort of call it something like what Anglo has been doing around Q101, I guess time will tell. But the underlying essence of productivity improvements is already in place in Goldfields and I'll seek to build on that. I think one of the things that I'll just make upfront is the Goldfields unit cost in the Q1 was well guided That we're likely to see an increase in both all in sustaining costs and all in sustaining costs this year.
It's not just like it's a runaway inflation That's catching us. But there was actually deliberate number 1, there was always planned to be an increase in sustaining capital. A number of our mines are moving away from sort of largely focused on open cost to more underground operations. So we expect you to see a unit cost increase. And then some of the other things that we're having to do, including paste flow in some of our Australian operations.
So I think it was well flagged and it was well planned That there was going to be an increase in unit costs. But I think as we start seeing some of the volume coming through from that work, You're likely to see some of that unit cost being paid back. So it was more around the planned increase in a number of those areas than just runaway inflation. Paul, do you want to comment on that? And perhaps I mean, you've got a much better feel.
Yes. Shailesh, I think when we gave the guidance in February, we We're going deeper at Grady Smith, the need for more pay tool. Chris has spoken about that. At demand, remember now A lot of the capital is moved out of capital waste stripping and operational waste stripping. And I think the one thing you did allude to it is The exchange rate has hurt us on conversion.
When we guided and sort of the average for last year for South Africa was 17.50. The Q1, we ended up an exchange rate of below 15. So that does have quite a significant impact when you convert Into dollars and we've also seen the strengthening of the Aussie dollar alone quarter on quarter in South Africa, we've probably seen about ZAR40 1,000,000 to ZAR50 1,000,000 worth of just exchange rate increases converting at the stronger exchange rate. But Yes. Chris is right.
We guided a lot of it. And it's not rampant inflation at all. It's to a large degree the changing of the mining mix. And as we go deeper and at some highs as well, We're moving now away from the open pits to mainly underground. It is almost always more expensive mining.
I hope that answers your question.
No, that's very helpful. Thanks, Just the last question. In terms of your guidance, you haven't changed anything from February, but you're already talking about higher CapEx For Demang and at South Deep, you're also talking about production risks at South Deep and Cerro Corona because of COVID. And then in your guidance, you've got R15.50 and 0.75 Aussie dollars per U. S.
Dollar, Both of which have gone against you. So how do you get how do we reconcile the numbers so that we can get back to your guidance for the rest of the year?
You want me to talk to it?
Yes, go ahead. I'll do it.
We always give a wide range when we give it For the group, Sheldon. So we got a little bit low on where we see the number a little bit higher and we're tending to the top end of our guidance. As we alluded, there's some extra ounces potentially coming from corona. When we convert the copper into gold with copper running rampant, You're getting far more equivalent ounces. When we checked the guidance, we used the new exchange rate, but we're still comfortable.
Production, no issue. In terms of the all in sustaining cost, we're still sitting we're probably just in the middle of the guidance. But in all in cost, we're right at the top end of the range At the moment, it's just the way we guide. We do give ourselves a bit of headroom when we give guidance at the beginning of the year.
Okay, thanks. No, thanks. Thanks guys. Very helpful.
Also, I think there's 1 or 2 areas that's just a final comment on that. There's 1 or 2 areas where we're doing a little bit better than we planned He's making up for some of the areas where we're doing a bit worse than planned. And the other thing is, Sienna, I think the important thing is that there are some areas that we've told you, okay, it's based On these assumptions. Of course, if some of those assumptions change materially, then that will have an impact on the guidance. So for example, at South Deep, we did have A fairly material impact in the Q1 for COVID.
We have said that we haven't Planned any further disruptions going forward. We still think that South Deep is going to have a much better year on year improvement, And that will be the case. But the fact is if there's a massive third wave in South Africa, then it's going to affect Both operations in Peru, of course, as we go through a 3rd wave. But if we have a massive third wave here in South Africa, yes, it's going to affect South Deep's operation. So it's based on those sort of common assumptions plus we're doing a little bit better in some areas and making up a bit in other areas in addition to what Paul said.
Have you seen any COVID impact in Chile by any chance just in terms of the construction effort there for Solaris?
The answer is yes. But we have I mean, we got off to a really good start. So We had a little bit of cushion. So we're eating a little bit into some of that cushion, but the team have been able to really come up with Some innovative ways to be able to manage this. So for example, they very quickly built additional accommodation that cost us some money, But it meant that we could manage the COVID situation a bit better.
We've brought in some additional staff to be able to manage that. So you've done a couple of things. It's cost us a bit of money. But I think the team have really had a fantastic outcome. And then of course in Chile, but then of course the vaccination program in Chile is really fantastic.
So whilst we have to see So the 3rd wave infection rates, where we've seen much lower death rates in Chile as a result of the COVID vaccination program. So yes, some impact. It's eating a little bit into some of the factory head, but at the moment, we still ahead of schedule.
Shillan, can I just add one other thing? We're getting Kind of a double positive in Peru. Remember, when we The all in cost on an equivalent basis. We use the byproduct credit. So we're getting more ounces in terms of equivalent, We're also getting that asset credit that's coming through on the copper sales.
And that means that in terms of what we guided to Cerro Corona, we are way, way down on the all in and all in Stunning quote. And that runs through to the group numbers as well. So that's where you've seen some of the offset coming offsetting the higher costs at South Beach, etcetera.
Perfect. Thanks very much guys.
Thank you. The next question we have is from Jared Hoover from RMB Morgan Stanley.
Afternoon guys. Thanks for the call. Can you guys hear me clearly?
I can hear you fine, Jarrod. Perfect. So I have a
few questions and I think Shilin covered some of them to a certain degree. But maybe let me just ask my first one on our strategy and then I'll follow-up with the other 2 or 3. And I think as I mentioned, I you've answered this to a degree, Chris. But are you able to share any of your preliminary thoughts on where you see Potentially underappreciated pockets of value in Goldfields that you might want to bring to the fore in the future and that might help with the valuation discount that We see at Goldfields relative to your international peers. And maybe aligned to that, whether you see any areas where that might require Additional executive time going forward.
Yes, I'll let you guys answer that and I'll follow-up with 1 or 2 more.
Okay. Yes, I mean, I'll go and then both Adi and Dirk and Paul feel free to add. Look, I mean, the one thing about being 5 months 5 weeks into your organization is it I think it's A pretty good position to start from these. Still know very little. But there's 2 particular areas I think that the mark that we are not yet getting value for in our valuation of the company, in our share price.
The one is clearly around Solaris Norte, and I think it's just an expectation. That will flow through when the cash starts flowing. Yes. It is in some of the valuation models. It really only starts delivering the kind of value to the share price Once the project is delivered.
There's always concern that projects will be late, that they'll overrun in costs And if they won't deliver what management has said enough. And I think we just the only way we can deal with that is to deliver the project on time And within budget. And I think we've demonstrated we're nicely on track to do that. I think you already see some of that benefit coming through when we deliver the project. That's the first one in my view.
And the second one in my view is I still don't think that we get the value for The life that is actually in the Australian assets. So I mean, clearly, you've got to work with the resource and the reserves that we give you. But the reality is that we've had the same resource and reserves in the Australian assets for the last 8 years or something. And We've probably got more resource and reserve now than when we bought them. And we have mined for 8 years.
So I think those are the particular areas That I don't think is and perhaps the third one is South Deep. Clearly, there's been a lot of disappointment around South Deep and I still, my Need to really understand South And the potential that we have, if we can do what we say we're going to do, then I think there's still quite a bit of value In our share price that is not yet described to Softif. I don't know, Adi and Paul, do you guys want to add anything to that? Or contradict me, if you feel like it.
Nothing from me.
No, I think those
are the 3 I would
have highlighted too, so no. Thanks guys. Okay. Yes. Thanks, Gerard.
Okay. Thanks, Chris. So I know it's still early days, so you wouldn't say there's any areas of the business that Potentially, you might need beefing up then or potentially introduction of additional personnel or so?
No. I think generally from what I've seen, Clearly, I haven't been able to visit the operation. So I've done sort of virtual site visits. And that's not such an easy thing to do to get a deep I've done already a set of virtual site visits around myself, Paul, Avi and the executives have done a round of Quarterly production reviews. So I'm starting to get a feel for what people are saying and generally asking who's got a good team in Goldfields At pretty much all of the regions.
Time will tell whether there's 1 or 2 small changes we want to make, but now I don't think that there's A massive problem in any of the jurisdictions that we operate in. Now as opposed rather, let me say that again, I think we've actually got good teams in place. And I think generally, operations are being rolled out.
Perfect. Thanks, Chris. Then just to follow-up, I had 1 or 2 questions just on the operations. You really did mention that the honey protect demand has been improved. So really 2 sort of sub questions in this regard.
The first is whether this is an element of mine planning in the current coal price environment? Or is this intended to give Demang a greater life of mine runway that allows you time to optimize Any cutback that might come through in the next year or 2 at this particular asset?
I'll comment, but happy that you follow Paul. So my view is number 1 is no, we don't we are not using high gold prices now To justify projects, because actually what that does is you start incentivizing higher cost assets and all you do is you chase yourself up the cost curve. So the one thing that I was very pleased to see was in case of gold sold is this long term gold prices are used To motivate projects and if they can't fly at the long term prices and they don't fly. So We're not chasing a project now that might be profitable for a year or 2, and thereafter they're not if the gold price changes. So longer term gold prices are used and that makes sure that we are disciplined around how we spend capital and how we chase value.
So that will be my first observation. And I was very pleased to see that discipline in place when I got to Golty. And the second thing is that But of course, we're always looking at the assets as to what projects add value. So the big Demand cutback, which is in execution now, was I think well executed. And as that is being executed, this mini cutback at Hoonee It has been on the radar for quite a long time, but it was in the greater scheme of things not the project that we wanted to chase in the demand cutback, but there was also some work to do to make sure that it met the hurdle rates, the various internal hurdle rates that are in place.
That work was done and eventually the team could come and convince management that it was a Project worthwhile investing in, and so that's why it's been approved. Paul, I don't know if you want to add anything to that.
Yes. I think the other thing is we get economies of scale. So Unia and its own makes a fair amount of money. But once we start Flipping the cost between Uni and the Main pit and you look at Uni and the Main pit together, you actually get a lot of value accretion in terms of NPV, Etcetera. So that's what it made it attractive to us when we approved it earlier this week.
Okay, great. Thank you for that. And then just my last well, my second last question is now on South Deep And maybe more of a clarification than a question, but like I know the productivity metrics have generally been trending in the right direction For a good few quarters now, but would it also be reasonable for me to assume that if that is the case, then we should be seeing A greater proportion of underground material coming from the north of Ranch area versus the old mine. And in that case, the grade should be ticking up Because at the moment, it looks like the grade has been coming back over the last 6 months or so. So just some color there, please, if you don't mind.
So I think so the answer is yes. And I'm very happy here to get help from my colleagues. But The answer is yes. I mean, even in this quarter, we saw greater underground production. We actually saw less surface production.
But what we did There was one particular higher grade area that we couldn't mine in this quarter, which is why some of the grades fell. But Under normal conditions, that's exactly what you should see. You should see us with many of these underlying metrics. So if you have a look at the stress meters were up, the development was up, underground mining was up. So all of those things are the right metrics to look at Because they show that the right inputs are in place.
And ultimately, that will flow through to increased underground production. So my view is that Many of those underlying metrics are trending in the right direction. You saw the underground tons mined were up or Great areas that would have sort of balanced out the underground there. Yes, so I think the underlying metrics are certainly Pointing from what I can see in the right direction. Paul, Avi, you guys want to add anything to that?
Yes. I mean, Shneur, you need to be looking at underground grade. I mean, yes, last quarter it was 6.3, this quarter it was 5.6. And as Chris alluded, there was one stope that we weren't able To take out that we've always said the underground is somewhere around 6 grams a tonne. So I don't think there's anything to be water at the idle.
So depending on which steps you're taking at any given time. But don't think we've seen a general decrease in the underground rate. We had a very good rate at the end of in the December quarter.
Okay, great. Thanks. And then just my last question on Cerro Corona. I think the commentary in the release alluded to The removal of the waste taking about 3 years now. And if I remember correctly, I think at the back end of last year, you guys guided to about 2 years.
So should I be thinking of your guidance as on the conservative end? Or should we be thinking that you probably are Expecting a ramp up in COVID cases in the country and that might impact the plan around reshiping at Cerro Corona.
No, we Last year that we were about 9,000,000 tonnes behind and we would do 3,000,000 tonnes a year for the next 3 years. So that was the guidance we gave In February. So nothing's changed. That's what we intend to still do.
Okay, great. Thanks guys. That's all for me. Thank
you. The next question we have is from Tanja Yekouskanik from Scotiabank.
Yes. Good afternoon, gentlemen. And Chris, congratulations on your new role. I have a couple of questions. I'm going to start with the easier one, which are just on the technical side.
Just a little bit of clarity on just on demand on this new pit. I just want to understand how this fits in the new mine plan. Is this incremental ore or is this ore that's being moved Forward. Is it already in the mine plan? Was it already in the mine plan?
Paul, what I understand is that already in the mine plan bring that material forward?
Think that's correct. It was to utilize the synergies on the cost as I alluded to earlier. I think it was originally planned for 2023, If I'm correct, yes, we bought it for work.
Okay. So this is going to then be processed. If it was in 2023, you're going to Setting it 1 year earlier?
Yes. I think what it does, yes, but I think what it does is it ensures Continuity over the next few years, so that you don't have sort of up and downs in the productivity as you're stripping. So that particular area, whilst it was in the mine plan, still needed to show financial viability. That's been done. We've now brought that forward.
What it means is what we have ensured is greater consistency of mining at the main for the next few years. So we're unlikely to see Additional volume over the next few years, but you are likely to see less volatility in the production over those last few years of the life of mine.
Okay. Thanks for that. And then just on the Sierra Corona, I just wanted to understand, You've reduced your guidance by 20,000 ounces. I'm not quite sure what the impact for that reduction was. You mentioned COVID.
I saw that there was also some metallurgy, your recovery was down. So what actually happened to reduce that guidance?
So a combination of COVID. So COVID had a very Material impact on Cerro Corona in the 1st 3 months. We also had unusually high rainfall In the Q1. And then in the areas that we were mining, we had areas that had lower grade and Hi, metallurgy issues in the plant. So the combination of all of those meant that We were stripping, perhaps not as fast as we would have liked to have stripped, compared to the extra 3,000,000 tonnes.
That we were stripping on the other side of the mine as opposed to being able to get into the ore. That is still going to impact us for Pretty much for the rest of the year as some of that impact means that we haven't opened up As much ore as we needed to. And if we want to continue for the long term, making sure we're sustainable
in the mine, we're going
to have to continue doing the waste. So we won't be able to chase quickly and go get the ore. And also, we don't want to run the mine for sort of a 3 or 6 month window. So a combination of COVID, a combination of high rainfall in the areas that we're mining and the catch up of the waste As mentioned, we sort of look through this year. We think that we're going to mine about 20,000 gold ounces less, But we're going to be overall square because we're still going to get the copper in the areas that we're mining And the copper price is going to help out there.
So what we are going to see is a slightly lower production than we'd expected in Serra Corona this year.
Okay. Thanks for that. It was the waste portion of it that you have to move to another area that I didn't appreciate. So maybe then from an overall guidance for the year, is there anything quarterly That we should be looking at, like you alluded, the higher capital in Q1. As we look at Q2, Q3, Q4, do you have are you expecting a stronger second half?
Is there any variability in your mines and your Capital that we should be aware of.
Paul, do you want to comment on that? I mean, without doubt, we're going to have a catch Trucking capital. So we've guided to the capital numbers. And if you see if you sort of spread that over the next three quarters, you're going to see That without that being a ramp up materially in capital spend?
Yes. I mean the big thing, Tanja, you can work on, I mean we guided 500,000,000 Capital alone for Solares. We only spent about $50,000,000 this quarter at Solares. So there's going to be a big ramp up It's Amari spend as we get into the real nitty gritty of everything. So yes, I mean, we still take guidance and you can work all in costs.
We were only $1,249,000,000 and we're guiding $1,310,000,000 to $1,350,000,000 So there will be a lot of growth capital coming through in second, third quarters Of the year. And remember, we've always said, quarter 1, we never spend the capital we think we do and it generally gets carried over to quarter 2, 3 and 4, and this is in terms of the step, but you will see a pickup in the next week.
Yes. I was alluding more to the production profile and sustaining capital.
I'm sorry. So perhaps the other comment, I mean, you see to get to our production numbers, we will have to have better second, third and 4th quarter numbers. That's actually traditionally what you see anyway. I mean, our slowest quarter is always the Q1. So you'll see a pickup as we generally gain momentum Through the year, we have better second, third and fourth quarters in production.
And but going with that, we are going to see a catch up in the Another catch up. I mean according to the plan, we sort of spend less in the Q1. And then as Paul says, as we get more Places to work on, on the project, the spring ramps up accordingly. So I think all around, it's as we planned. We are going to increase our production in 2nd, 3rd and 4th quarters.
And the only big thing that we can see on the horizon That could impact that is if we have big coronavirus waves in Peru and in South Africa. But other than that, it will be production ramp up second, third, fourth quarter and CapEx ramp up second, third and fourth quarter.
Okay. Just a couple of final ones. I just wanted to look at there is inflationary pressures going through cost structures. A lot of companies are seeing Increases in copper, steel prices, concrete, freight, etcetera, etcetera. I'd like to understand in your cost structure, What inflation pressures are you seeing and especially on your labor side and your wage negotiations in South Africa?
Paul, I'll talk about labor in both Australia and South Africa. You can comment behind me on other Mining inflation related pressure. So we are seeing 2 particular areas that are picked have got, I think extra pressure on around labor. 1 is we're going into wage negotiations South Africa, it's South Deep. So that's from halfway through the year, we need to have settled.
We don't think that there's Any undue pressure or any undue expectations. But in South Africa, wages generally settle at 1% or 2% above inflation. And with the 40% of our costs in South Africa being wages, you can see that that will have an impact On the mining inflation being above inflation. But that's all been part factored into our all in cost. And that's not anything unusual.
And again, we will be seeking to try and get a longer term settlement the way we did the last time to be able to give us stability at the operation for the next few years. So Whilst that is happening, that's not unusual and it's been factored into our costs. I think the one particular area that is Sort of ahead of our expectations around pressure and costs is in Australia and particularly with just The sort of booming commodities all around, iron ore, lithium, gold, coal, It's putting massive pressure on labor and being able to make sure we can have labor stability. We've had to increase some Allowances to keep our staff in Australia because we're seeing massive growth in the beginning of the year. And The Australian team under Steward's leadership have been able to cut that back.
We're seeing much lower labor turnover That is going to have some upward pressure on costs in Australia. You want to add anything to that, Paul?
Yes. Tanja, I mean, obviously, we're seeing a pickup in the silver and copper price. We're starting to see it, but it hasn't had a major impact. Obviously, a lot of it is going to be used in the construction at Solaris Norte. Remember, we've got a lot of fixed contracts in place and we've also got the hedge in place That is really being very positive at the moment to us.
So that's offsetting a lot of the increases we are seeing. But at the moment, as Chris said, our guidance It incorporates these increases, but we'll have to watch it. It depends on how copper and how hard iron ore goes for the balance of this year.
Okay. Great. And then finally, Chris, I wanted to ask for you your view on South Deep. I'm just interested, because that mine, as you've mentioned, has had a challenging path and productivity is well below world standards For this type of an asset, could you maybe share your thoughts on how you're optimistic in terms of unlocking value at this asset? Can you share your thoughts on what you need to do to unlock the value?
Is it productivity? Is it getting to that No, a larger portion of the ore body to implement the mechanized mining. What is it that you need to see to unlock this value?
So, Tanja, look, I say this all with a big health warning because I've only been in the office for 5 weeks. I have already had, I don't know, 3 presentations from the mine. First of all, was just to understand the history and how the mining method Evolved from the very first time they got into the ore body. And sort of as I've gone through that, one thing that I just generally get a feel is that we've got a much better handle on how to mine the ore body. I certainly A warning I give is that I don't think we and I don't want to say yet, there will never be amendments to the ore body Or to the mining method?
Sorry, I've just had a dog sit on top of my computer. Sorry about that.
What was the cute dog?
When a 65 kilograms new a Pyrenees mountain dog sits on your computer, Then you've got to stop and fix that first. Sorry about that. So, Tanja, I think first observation that I have is the evolution of the mining method looks to me to be constructed. And I think the team has got a much better handle on For the mining direction, how to take the mining direction to get a better feel to have better management of seismicity, The way that they mine the destress, the cuts that they're taking in the destress, all of those actually look From a mining engineer's point of
view, it looks like a
lot of evolution from blood, sweat and tears has gone into that mining method. And it looks to me that they've got a Andrew, on that. The mine is starting to look like a mine to me. It's got structure. It's got you can see where people are mining.
I sort of went back to some of the old plans and that was just we were all over the place. And then I think we're moving away From some of the older mining areas into having much more of our mining in the new roads. So and I think some of that underlying metrics are now starting to show some positive direction. So if I look at the So just the team are much more focused on just having the sequence and not chasing today's production. Because when you do that, you just get yourself into a muddle everywhere.
So what they're doing is they're having the sequences mined properly. And that's why you're seeing the increase in Square meters, you've seen the increase in development. You've also seen the productivity. So I mean, I went back just a year ago, we were getting 35 meters per rig. Some of those are up now at 80 meters a rig.
So they still got to go. But generally, I haven't formed an opinion yet. I'm listening and looking. I've only been underground once. And of course, this is a very difficult time to go there and kick the tires with the guys and get Feel for all the right things happening.
But overall, I'm more positive than I expected to be. And also some of the direction of travel of the underlying my philosophy around mining is if you do the right things long enough, you absolutely must be successful. And it seems to me that they're doing the right things and they're sticking to their guns. So I think that evolved into a better mining. It doesn't help doing like the wrong things long enough.
But I've seen a long answer that I'm generally more positive than I I think it's too early to make a final commitment as to what I think of the asset. But overall, I think the guys are doing a great job. And I think Martin and the leadership team got in place. They've stabilized the leadership team. I think we've got good quality people.
Even the way they rate the hires and every time they rate the hires, the new recruits, They're comparing them on quality to what has left. And I think in about, I think 17 or 18 of the recruits that were telling me yesterday, they can absolutely positively say that all that I think 16 of the 18 recruits All improvement in quality on what they had before. So there's lots of different sort of touch points, Tanja, that give me a feel for actually, there is some positive momentum. But again, there's a health warning there. It's a It's early for me to have a firm opinion yet.
Okay. Well, thank you so much, Chris, for your insight. I really look forward Seeing how South Deep develops, it's been a long time and will be great to see this mine work. Thanks.
Thanks very
much. Thank you. The next question we have is from Nina Durdenova from Goldman Sachs.
Good afternoon, gentlemen. Thank you very much for presentation and congratulations to Chris on the new role. Most of my questions have been answered already, but I have Several remaining, and we'll ask 1 by 1. So the first one, Chris, you outlined 3 areas which don't get value in the company's share price. So you Spoke already about the past unlock value on Salares Norte on Salve Div.
And what are your plans to crystallize value to the market on the remaining one, the Australian reserves
Yes. So this is something that we're thinking about. Avi, myself and Paul have been thinking about How we try to give a sense of the potential of those assets so that when you're putting in your model, You're not putting in 3 or 4 years in your model and thereafter because it looks like the resource and reserve run We've got to find a way to try and help people see what the long term value for those assets are. So I think it's a little bit too soon and it's a question on our minds and we're trying to come up with how we think we can sell that story better to the market. Avi, do you want to add anything to that?
Avi, we had It's largely that never happened. So I think at the appropriate time, we'll do that again and try and demonstrate what we're doing In the region to further unlock reserves and as we'll convert resource to reserve and grow both of those as well. But it'll only happen in time. But yes, there's a plan that we need to work on and then articulate to the market.
I think it's also fair to say that Nick's been trying to do that for a long time when he was showing the fact that We've grown the resource base over the last 8 years or so, 8 to 10 years. And the fact is we still got the Famous source base not sustaining all the mining. So I think we just got to find I know Nick has been trying and we've got to see how else can try to get that value people to see the longer term value of what is in the ground there. So I think the answer is we're working on it.
Great, great. Thank you. That is clear. And the second question is on the solar plant in Saudi Deep. Can you discuss if you can undertake another project of that Kindness say to increase sub generated power further from the 20% that you guide by current project.
The second part of this question, in what other operations similar projects can be undertaken and when we could hear on the decision makers?
Sorry, Nina, I missed your first part of the question. Could you repeat that for me, please?
Yes, sure. So the first part was on the solar plant in South Beach. Can you discuss if you can undertake another project of the same kind in South Africa to increase self generated power further, so you guided for 20% self sufficiency in the current project. Can we make more projects of this kind in the space? Thank you.
So the first question is, I think we first got to go, Bill, this is going to be the biggest solar plant as far as my knowledge goes, certainly anywhere in the mining industry in South Africa. There's 120,000 solar panels that we're going to put in. This is a massive plant. So it's certainly bigger than anything. I'll come to your second part of your question and tell you where else we build plants, but it's certainly much, much bigger than anything we've done before.
But once we've built the plant and once we're starting to save all of this money and we've proved that it's I mean, it's quite a simple concept. So we don't have a doubt that we'll get the savings. But I think we must first go and build that, develop The project and get the savings. And then I think we can look at going back, First of all, the management team will have to come back to the executive to show that that's still the best place for the company to spend capital. But I think once you develop that, there's no stopping us.
Clearly, there'll be regulatory approvals that we'll have to go through again. But I think once you've demonstrated the principle, there's no reason to believe why we couldn't do more. But at this point in time, There's no reason to believe why we couldn't do more. But at this point in time, we'd also have to couple that with Probably some storage capacity, some battery, because then we'll be going over our base load power. And that means anything that we generate at a particular point in time could be excess.
And so we'd have to be able to store it and make it much more expensive. There's some thoughts about that. But at the moment, I mean, we're just incredibly pleased that we've been able to get through the regulatory hurdles, been able to get the approvals and now Get board approval to go and build this. This is going to be a big game changer for Goldfields, a big game changer Being a big game changer for South Deep. When we save 100,000 tonnes per year of CO2, That's going to be a positive story on so many fronts.
But then at the same time, not Goldfield's In our first foray into renewables, so as you probably know, we've already built At Granny Smith and at Agnew in Australia, we have booked a combination of renewable plants there. So for example, at Granny Smith, we have converted 24 megs of diesel to gas power, Much, much lower carbon intensity. We've got an 8,000,000 solar plant there and also some battery. So there we're saving that's about 10% of our electricity is coming from solar. But I think the really positive story comes from Agnew in Australia because the combination of 18 Megawatts of gas, 4 Megawatts of Solar and 18 Megawatts of Wind.
The combination meant that 67% of electricity of that mine is now coming from renewables. So it's a fantastic Sorry, so we've already got 2. We've got 1 mine in Australia that's under construction, will be complete by the end of the year at Gruye. And that's for 12 Megawatts Solar Plant and then also an additional 4.4 megs of gas generation. So you can see that this is a journey that the company is on, a very successful journey, some fantastic Runs on the board, so fantastic mines that have already been converted or not converted, but at a substantial portion of their power generated by renewables.
Now is going to come south deep. And the next question is for us that we've got studies underway is what happens at St. Ives in Australia and then also at Salaras Norte in Chile. So all across the group, ultimately, every operation will have renewables to some extent. And the extent to that we can push those renewables as a total percentage of the mine's power, that will be determined, of course, About both the success of the project and the funding of future projects.
Thank you very much for detailed replies. I'm good, Alonzo, the official joining for the company. And the last question is very detailed from my side. Can you speak a bit more about Granny Smith's performance in the 1st Q? Production was down about 15% from the previous quarter.
What's the path from here? Can you discuss what happens in the first Q and how production can
you recover in next quarters?
Okay. And Paul, do you want to have a crack at that first and then I'll follow if there's anything else there? Okay. I'm not sure if Paul is still on or if he's on mute.
Sorry, I think they had Some mining issues in the Q1 that they anticipate to make it up by the rest of the year. That's why the production is down.
Yes, yes, yes.
Yes, yes. Any guidance is confirmed. Okay, that's helpful. Thanks a lot. That's it from my side.
No passwords to other analysts. Thank you.
Thank you. The next question we have is from Ed Stallard from Business Maverick.
Yes. Hi, Chris. Can you hear me?
I can hear you, Ed.
Great, great. Yes, congratulations also on your new position. I'm glad that you're settling in. Look, I just have a question badly related to Sarsdipe. Sarsdipe is your only As I can hear now, but the mining charter, of course, the judicial review of the mining charter
took place this week.
And I'm just wondering, how much of an issue is getting these getting this stuff resolved from an investor perspective? Again, I know so South Africa is a small part of your global production base now. But are there still investor concerns around South Deep and these kind of charter issues?
I'll comment and then I'll let Abhishekhar just you can feel free to add something to that, Avi. Look, until this issue is resolved in South Africa, it's still going to have some overhang over South Africa for sure. It's always going to look like regulatory certainty is a concern. But I think as we have said for many, many years, many different companies Actually, many of us have got 30 years' worth of rights and many of the companies have still got 20 or 25 years of those rights to go. So this is not the fact that Goldfields has a 35% empowerment, that's been acknowledged by the regulator.
So this is not an immediate concern issue. Well, not for the next 20 years or so. It's not a concern for Goldfields. I think it's more the overhang for South Africa Mining in general that is a concern. There is, of course, where there's still a lot of concern around this particular once empowered or is empowered matter It's not so much about the current life because the minister has already acknowledged that the once empowered, always empowered Applies for your current duration of your license.
I think it's if there's change of control or the asset gets sold to someone else. I think it's under those conditions that having to re empower operations or re empower the company is a major concern to everyone. Mean, a couple of other niggling issues, but I think generally, Ed, that's the thing. So I think overall, still a negative overhang for us. For as long as this thing is not resolved, It has a negative impact on the mining industry in South Africa.
Generally, actually the mine the Minerals Council and the mining companies in general have made good progress with the minister over and the Department of Minerals and Energy Over the last couple of years, 3, 4 years or so. So we have made much progress. And the thing is actually this It sort of feels much more negative than the general regulatory environment in South Africa actually is. So I guess those would be my comments. The quicker this gets resolved, the better.
But it's not an immediate threat to Goldfields at all. Abhisko, do you want to add to that?
No, that's fine.
Yes. No, that's great. That answered my question, Chris. Thank you very much.
Thanks, Ed.
Thank you. The next question we have is from Adrian Hammond from SPG Securities.
Hey, Chris. A couple of questions
for me. Firstly, on South Deep, I appreciate you just Only looking at this asset now, but it's just one of the something you had prepared to throw cash at to get it right. And It is 60% of group reserves that's a risk to the business.
Adrian, I don't I hadn't got a sense that we need to throw cash at it. I think over the years, the company has invested in South Deep and particularly invested through The number of iterations of mining methods. So it doesn't feel to me like it requires any material cash. I mean, it does need ongoing sustaining capital, but It doesn't feel like we just took a big pot of money and threw it itself. I think that's going to change things overnight.
So I don't get a sense that it needs Material cash flow, Nelik. That's my first impression. And is the reserve life a threat to Goldfields? I wouldn't say so because our focus is not on just dividing the production by the total reserves And then coming up with a 20 year life of mine. For the group, I think what we do is we look at each of the assets and we look at the regions.
And if we, for example, let's say we sold Southeast, that's not going to change anything in Ghana. It's not going to change anything in South America is not going to change anything in Australia. So no, I don't think that that's a threat to the company at all. Optically, it might look a bit different, but it's not a threat to the company,
Thanks. And then perhaps a cheeky question, if I may, around M and A. And Just like to hear you if you're prepared to comment on what was said about from Sibanye Gold regarding potential Consolidation with you and AngloGold. Are you prepared to comment on that? And is that something the Board would ever Consider and have you been approached at all?
Yes. So Adrian, I mean, we've seen the comments in the media, but As has long been the discipline of the company, so we don't comment on speculation because it could mean anything. So we don't. I think we look at our current investment case. But if we don't comment on speculation, we say, well, actually, what is there for our own shareholders?
And actually, we think that we've got a really fantastic investment case. It's compelling for our shareholders And also for any investor that's looking for exposure to high quality and cash generative gold businesses, there's a number of really good things That are in Goldfields. I mean it is simple. It is pure play gold. It's got, I think fantastic geographical diversification in actually really good jurisdictions.
It's got high quality, low cost operations. If you think about the strategy of the company over a number of years, of moving away from labor intensive Conventional mining to focus on more mechanized open pit, mechanized underground operations that are safer and more productive, That has skewed the company very well over the last number of years. And then we've got great projects that are in the pipeline. We've got a world class project that's in the pipeline of Glarus Norte. It's consuming quite a bit of cash for this year and next year.
But after that, it's going to start pumping out cash. So I think that combination so I think the question is, If any tie ups are thought about, our shareholders will say, does this is that value accretive and is that strategy accretive? So I'm not going to comment on those speculations, but
I think we've got a
great story for our own shareholders. And if we think, I mean, one of the very earlier questions If there's some negative issues about that, can we do something about it so our shareholders get the full value of Goldfields? And as you've heard from us, Yes. Those are the things that we're looking at. And then from our own strategy perspective, we're looking at what next is out there For us internally, of course, it's always going to be the best value for shareholders is if you're driving value out of the existing business.
And we'll be looking at what opportunities are available. But we will be looking as to whether they are strategy and value accretive to us Yes, as we look at our own opportunities. So yes, I'm going to leave it like that, Adrian.
Thanks, Chris.
Thank you. The last question we have is from Raja Rae from BMO Capital Markets.
Thank you, operator. Good afternoon, Preece and team. Just one quick question from me. With respect to Peru and the noise around the elections currently, We'll see who wins on June 6, but just wanted
to get your thoughts on
what you're hearing from the ground in terms of if the risk is related to future investment.
Abhishek, do you want to comment on this one? I mean, I've got some thoughts and happy to do that. But why don't you go ahead?
Yes, sure. I mean,
from our team on the ground, there's still a lot of uncertainty with who wins this election. But I think one important thing that they're saying is For him to change or if the leftist Mr. Castillo wins, I think that he's if he wants to change the constitution or change No worries. I think it takes a lot of effort and a lot of time, but I don't think it's something that we're immediately concerned about. I think the regulation Change the regulation will require a lot of efforts from his side.
So it's not something we're particularly concerned about now. And although he needs to go to Congress before he makes any of those big changes. So yes, nothing sort of imminent, but it's not even watching closely, of course.
And just one comment, Avi, to add to that. I mean, our Seam on the ground say that he doesn't have that support in the Congress. So whilst he may be saying these things publicly to get elected, it'll be much, much more difficult for him To be able to do this practically because he doesn't have that support in the Congress. Our team are watching it as Avi says, but not overly concerned at the moment. Okay, okay.
Thanks, Chris.
And then also at Cerrocoron, are there any licenses or permits that are up for renewal immediately or
are they good for
I don't know the answer to that question. Avi or Paul, have you guys got any more insights into that?
I'm not aware of any material permits that are requiring unit at the moment.
No, I think it's just the permits that are sort of required for The raises of the dam, the raises of the CFM. So those are more like admin related than major approvals.
Okay. Thank you very much. That's it for me.
Okay. Is that it, guys?
That is our final question.
Okay. Well, thanks very much to all of you for your time and for your questions And look forward to engaging with you in future opportunities like this. Thanks very much. Thanks, guys.
And just if there are any follow-up questions, please get
in touch with myself and Thomas, and we will get back to you as soon as possible. Thank you.
Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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