Good afternoon or good morning, everybody, depending on where you are in the world today. We'd like to take you through the highlights of our first half year results for 2020. That is up to six months to June. In the presentation here, you can see I've shown you a slide of some wind turbines and a solar farm. This comes from our Agnew gold mine in Western Australia, where we've recently completed a microgrid. Which , on a good day , gives us almost 100% of energy from renewables. A great project for us, and it's going to enable us to reduce our carbon footprint to make an impact in terms of climate change. I think it provides a very good working model for us to consider elsewhere in the group.
Given the fact that ESG issues are now fully incorporated into business planning and integrated into decision making, we thought it would be good just to again share with you what has been widely regarded as one of the most successful prototypes of what a renewable project can be, combining gas, wind, battery, and solar, so that you can actually integrate them all and work out what is the best configuration in a particular time of the day. Thank you for that. Can we move on to the next slide, please, Gary? Going on to the highlights for the first half. We've been in a very unusual period, as we all know, because of the COVID issue; we've been able to weather the storm much better than what I thought we would. So far, we've largely contained the impact.
We did give updated guidance for the year in May that indicated our production would be between 3% and 4% down on our original guidance given in February. I must say so far, as you'll see in the results book we put out, it looks like we should still be good for that. Of course, there's always a caveat. That is provided we don't hit a second or a third wave , and things get fundamentally worse. We've been well shielded in Australia, where we've had no cases on our operations and production has continued almost unchecked. Albeit that we've had to dedensify flights, accommodation facilities, et cetera. That's worked reasonably well for us with a small incremental cost.
The big impacts have been in South Africa and in Peru, where we've had national lockdowns that resulted in the operations being closed for a period of time, and that's one of the reasons we had to reduce our guidance. Thankfully, we're back now to almost normality with South Deep being back at around 80% manning today. 80%, that is. With Cerro Corona being up at around about 70% manning. We're looking reasonably good at this stage to make sure that we can get back to normal operations within the next month or so. Ghana's had cases, but the recovery rate's been incredibly good, up to almost 90% recovery rate. That's been a good result for us. I think , importantly, as we've said all along, we want to deliver the gold price to the bottom line.
In this particular half year, the mines have made $400 million in cash, even after having to absorb some hedge losses on hedges taken out as a risk management exercise during the course of last year. Net cash flow after all costs , including interest, is $320 million for the half year. That means that our net debt has come down to around $400 million , to just under $900 million. Normalized earnings about 2.5x up to over $300 million. An interim dividend that is the same as the total dividends declared for the 2019 year. I think that gives you an indication of our intent to, one, comply with our policy. Number two, to show that higher earnings will result in higher dividends for shareholders. The Salares Norte project has commenced.
We got the approval to proceed in February, so we started that project around three months earlier, and we've secured an equity raise of $250 million, which will fund about 30% of the total capital needs. We believe this places us in a strong position whereby the balance can be funded, most likely from internal cash flows, but if not, from a combination of cash flows and from available debt facilities. Thank you. Next slide. We put this table in the book, so I won't dwell too much on the table. This gives you an idea of what we're doing on COVID. We are testing fully all of our people in Ghana, Peru, Chile, and South Africa through proper diagnostic PCR tests, which will give us reliable results. As you can see, we've tested 20,000 people.
As of today, we have active cases of 658, and of that, about 2/3 are in Peru. The bulk of the rest is in South Africa. Luckily, we're finding that as we have active cases occurring, we also have people coming back after they've recovered from the illness. We're starting to see now that returning employees are equal to or greater than new cases. That's a very important turning point in this pandemic. I have to say, we have to be mindful of the risks of a second or a third wave. We're watching this very carefully over the balance of the year. Next slide, please. Just giving you highlights of the production results over the half year. If we look at the total portfolio, just under 1.1 million ounces are produced. All-in costs of $ 1,065/oz. Let me just say, this is fully loaded costs.
This is everything. Unfortunately, a lot of our peer companies do not report the true all-in costs figure. They leave stuff out. This is everything, including as well the expenditure on the Salares Norte project in Chile. This is fully loaded, and when you want to do proper models to work out how much cash we're going to make, you can use these costs with reliability. That's given you mine cash flow, $400 million, net cash flow, $320 million. If we look at the individual regions, West Africa produced 384,000 oz, made $139 million in cash in a half year. The Americas region produced 108,000 oz. Obviously , hard hit by the closure we had to put in place because of COVID. That made still $49 million for a half year.
South Deep, despite the fact that we had the mine closed for a full month in April, then only operated at about 50% capacity for six weeks and still haven't got back to full production, still managed to make a little bit of money in the half year. It would have made a lot more money had it not been for the closure. Clearly, production was significantly curtailed. Australia, of course, annualizing at just around 1 million ounces a year, making cash of $208 million for the half year. As you can see, despite the COVID issue, the results have been much better than we could have expected given the impact of the pandemic. Next slide , please, Gary. Let's look back over what we've achieved relative to our commitments. Over the last seven years, we've hit our numbers consistently on production and on costs.
I think it's fair to say, looked at as a group, we've got a track record of delivery over that period. South Deep, which has been a problematic asset in the past, has implemented a turnaround strategy, which included a labor restructuring in 2018. As a consequence, in 2019, we exceeded our guidance on production. We did much better. We had a really good quarter one, and we were building up momentum. Unfortunately, the pandemic has pulled us back, but the integrity of the things we're doing at South Deep have not changed. The relationship with organized labor is better, the morale on the mine is good, and the focus on short-term interval controls around mine planning, delivery, maintenance of equipment, and making sure that geotechnically we comply with all of the key issues, is in good shape.
I would say I'm much more optimistic on South Deep today than I have been in some years. We've reinvested in the future of the business. Gruyere has been built pretty much very close to plan in terms of cost and schedule, and that hit commercial levels of production in September last year. That's showing really nice numbers for us. The Damang reinvestment is ahead of schedule. We've mined more tons, more ounces. We're now getting into the good stuff in the ore body . I'll show you a little later. We're quite excited about the second half of the year and what we expect to see. Of course, the feasibility on Salares Norte was completed, and we've started the project. Next slide, please. Further achievements over this period we've extended the life of Cerro Corona by seven years to 2030.
That's given us a tremendous benefit there, particularly in the context of being one of our lowest cost assets, and we're not done yet. There's certainly more. We believe there's another potential pushback to the side of the ore body, to the west, and that could provide further potential. St Ives, the Invincible Complex continues to grow both laterally and at depth, and has now become the mainstay of the St Ives operation. I'll show you a little bit more on that later as well. Agnew is an asset that hasn't been well understood by the market, and in some respects, that's because of a lack of visibility on what exploration success might be. We're looking much better than we ever have, and we're now at the stage where we're not just looking for targets anymore.
We have targets, and we're getting better resolution on what they're going to deliver for us. We've addressed our reserve concerns . We've now got over 20 million ounces outside of South Africa with around a 10-year life, and that benchmarks pretty well against most companies around us, even if you leave South Deep out. We're in good shape to deliver between 2 million ounces- 2.5 million ounces a year for the next 10 years. All of our assets have organic growth opportunities. Over the years, this has been one of the best investments for us, to find more gold where we're mining our gold at present, because we have the sunk capital, we have the infrastructure in place, it's usually lower risk and higher return for us.
We've added back reserves to Tarkwa for the first time, and I think that's an indication of what's coming into the future as well. Next slide, please. Just talking about Tarkwa. We put a picture in here that shows the measured and indicated resources in green and mustard colors, as you can see there. Then you've got inferred, which is sort of yellow strips. The area I want you to focus on is the down-dip extensions , which are not in resources or reserves. That's in the light magenta color. You can see here, just by going down dip around 200 m around the entire open pit property, we've got around 11 million ounces potential. Looking at the drill holes we've got so far, looking at the thickness of the packages, and there are a number of packages here that are very similar to what we mine.
This is an ore body with tremendous consistency and repeatability in terms of these structures that continue throughout the property. We're gonna be spending some money over the next three years or so drilling this out better and trying to figure out how we get this into a plan. I think Tarkwa has got a lot ahead of it, which makes us very excited. The flagship operation in the company has certainly got life beyond 10 years. Next slide, please. Looking at Damang, here's a cross-section of the pit. You can see over here that if you look at the bottom, you can see the pit shell. That's the Damang reinvestment plan line. That's where we're gonna be when we've mined everything out over the next four or five years. Then you can see at the top where we are right now.
Now, I think the important thing here is to look at the colors on the right that are giving the different grays. I think , as you can see, we're moving from this very variable Huni Sandstone, which has characterized a lot of the mining we've had, and we're getting into the higher grade material, particularly in the phyllites and also the other lithologies that have higher grade at the back of the hanging wall as well. You're gonna see us getting into the higher grade areas , really , in the next month or so. We're just about there. That's why our confidence in the second half is good. That's been grade control drilled as well, so it's got a high degree of resolution. Also of note is that just look below the current pit shell. You can see some more high-grade material.
There's probably another 2 million ounces there, and that's gonna be the subject of some studies into the future as we consider whether Damang will go beyond the current phase and have another pushback of sorts. Work to be done there, but certainly there's potential. Thank you. Next slide. If we look at Agnew. In the past, we've started the recapitalization of this mine, which has been in our portfolio for almost 20 years , by first of all, getting our own power solution, as I mentioned at the outset, the integrated microgrid. Secondly, getting our own accommodation village, which you can see on the left here, is in close proximity to the mine. In fact, you can walk to the mine in the morning and go back in the evening.
Previously, we had to bus all of our people in from leased and rented accommodation, which was quite pricey. That's been the first phase of our recapitalization. The second phase , now, next slide, is to look at how we bring to account the significant potential that we have across the different ore bodies. This is the grade of the Waroonga area, and we flagged here in red the highest priority areas and in gray the second priority areas. You can see all of the extensions here , clearly set out. Kath Lower and Waroonga North Lower, in particular. We're quite excited about the grade there. It's pretty good. St Ives is a further extension. We think there are further extensions to the south at Kim, which has been a great mine for us. FBH, down dip, and also across to the south.
If you add all this up, the potential to add over here over a three to five-year window is between 1 million ounces- 2 million ounces that we could add into resources. That is just the Waroonga operation at Agnew. If you look at New Holland on the next slide, Gary. You can see again that this is an ore body that has got a 3 km strike potential with multiple loads replicated. It started off with a Genesis 200 Series, 300 Series, 400 Series, then 500 Series, and we are down to even the 600 Series. We are starting to see now , as we have been able to get access underground and get drill cuttings in development drives, that we can start drilling out these areas. Remember, it is too prohibitive from a cost perspective to do this drilling from the surface. Much better to do it from underground; you have got to get the access.
As we've extended our mining, we're getting access, setting up these platforms , and drilling out. Again, we're seeing here the potential for between 1 million ounces- 2 million ounces here over a three- to five-year window. We're not done yet at Agnew. We're also looking at the greater Redeemer complex. This was an old open pit that was mined out many years ago , which we backfilled. We did some early drilling, but we didn't think it was going to be prospective. We've come back here now , we're seeing the makings of another substantial ore body that could be over 1 million ounces again of good grades, another open-pit underground opportunity in close proximity called Barren Lands. That's an interesting description because , based on our current drilling, it's anything but barren. It shows you the potential over here at Agnew.
We wanted to share that with you, and just to indicate that this doesn't mean now we're going to be spending tens and tens of millions of dollars every year. This is going to be dealt with and taken forward within the context of our existing exploration budget in Australia. All right. At St Ives, I've talked about the very prolific Invincible Camp. As you can see over here, we believe that there's another 1 million ounces-2 million ounces potentially that could be added over here. Certainly, over the next three years or so, there's real potential to add at depth as Invincible gets deeper. Across the Alpha Island Fault, which we mined through, Invincible South, Invincible South extensions, you can see it's extending out laterally to the south and also down dip. This has been an incredible ore body for us and continues to get bigger.
All right, moving on to slide 15, Gary. Cash generation. I think this gives you an idea of our capital for the half year. What we're looking at for the year overall is close to our original guidance, around about $615 million - $625 million for the entire year. That's very close to what we said it would be. We, again giving you an indication as to how we've de-geared the company. $700 million over the last 18 months in fairness. That's got the equity raise in there as well. If you want to take that out, then we've dropped $450 million, even though we've had to fund the Damang project pushback and also the final stages of Gruyere, which was commissioned last year. We have raised two new bonds. Essentially, we pre-financed the redemption of the 2020 bond, which is $600 million.
That has to be paid off just before the end of the year. We've restructured the bank debt. Paul Schmidt and his team have done a fantastic job here, and our credit is now well sought after. Next slide, please. I've talked about the balance sheet. Nice to have almost $1 billion of cash on the balance sheet. It gives us real liquidity. Particularly given the COVID risks, we weren't too sure what was going to happen, whether our production would be more impacted, in fact, than what it has been. That's actually worked out very well. In really good shape. As I say, if prices hold up at these sorts of levels, we would expect to materially reduce our debt, again between now and the end of the year.
That's quite important for us because Salares Norte is a big capital year in 2021. We're going to be spending probably just shy of around $500 million on Salares next year. If we can go into next year at a very strong position, we believe that cash flow from the operations could fund most of that. Even at very conservative prices, our net debt -to -EBITDA ratio would not get back to the levels it's been in. A really good position for us to be in. Next slide, Salares. The one thing I've seen in my time at Gold Fields is that we've never been able to start a project with the level of engineering detail design, what we call FEED, at this kind of level.
Before we start spending the really big money towards the end of the year, we will have fully engineered this project. Why is that so important? It's important because you get real resolution on the exact detail of the designs, and it makes sure that if there's any flex in your cost that needs to be considered, you've got it in place before you start spending the money. The other thing is, trying to do detailed engineering when you're building the mine is very difficult. Often , projects try to do it coterminously. Getting it done up front, which we've been able to do, has put us in a very strong position. The critical path item for Salares Norte is camp accommodation capacity.
We have commissioned our Phase 1 just this last week . At the moment, we're mobilizing up to about 400 people on site. We hope to have Phase 2 finished in the next three months. That's important because we've already got the mining contractor mobilizing. They'll have to do their early pioneering work. That's setting up the site and also all of the different packages on the process plant construction, which starts at the same time as the pre-strip. Remember, we've got about 50 million tons of pre-strip to do. We've got to build the process plant at the same time. The key phase is going to be from quarter four, late quarter four, right through until commissioning in the first quarter of 2023. We're getting ready for all of the stuff. Sectoral permits are not going to be a handbrake for us.
We've got the umbrella permit, remember, we're in good shape to make sure all of those are in place. The team has been able to interact virtually with the authorities on getting these key permits in place. The mining contract is awarded. Diversion channels are being constructed. This is obviously to ensure that we shield the site from flood events. We don't want to have a whole bunch of water coming into the site, and it's been structured on a 1-in- 1,000 flood plan, so it's very conservative for us. I think we're in good shape for that. We're starting, obviously, the preparation for the site. 61% of the total capital has been awarded and priced. What's left to worry about is largely inflation. Around two-thirds of this project is in local currency.
We've taken out a hedge on that, so that's given us an additional cushion, which is beyond the $88 million of contingency that is in our $860 million. I think we're in pretty good shape here to withstand potential cost overruns, but it is early days, of course. Exploration continues on Horizonte. I've shared with you previously some very exciting results, and I think we'll see more of that in the future. That program will be resuscitated again in the spring, which is next month. We'll continue our drilling on the Horizonte project, which is, by the way, it's about four times the size in terms of land package as the combined Agua Amarga, Brecha Principal project that represents the current Salares Norte mine. That could be an exciting addition to this project into the future. All right.
Just to show you a few pictures on the next slide. You can see at the top here, you've got the diversion channels. You can see there that's the area where we need some concrete base. Those are concrete slabs you're seeing there. On the right, you can see some of the trenching, the earthworks there. Bottom left, you can see the Phase 1 camp accommodation that's in place. Alongside that is the foundation for the second phase , which, as I mentioned earlier, we should have ready to go and be used towards the end of the year. All right. Regional overviews. Australia, I'm not going to spend too much time on these because I talked at the front end. Done really well. Nice to see Gruyere coming through. I think the rest of the operations have done well. St Ives is changing.
Interesting to note that of the 115,000 oz mined, and you can see this in our book, you'll see 85,000 oz of that is from underground. It's becoming predominantly an underground operation , with Neptune the only open pit ore source at the moment. Hamlet's coming through. Hamlet North, nothing to do with the old Hamlet, but it's an offset, but a much higher grade that's coming through, and that's why you'll see the underground grades have gone up at St Ives. We're on track for another good year in Australia. If we move over to the next slide to the Americas, as I've mentioned, this operation was severely impacted by the COVID issues, so the numbers don't make a whole bunch of sense. Our production has come off significantly from where we were in the second quarter.
That means that the first half looks a lot lower than the first half of last year. We're getting back up. I don't think anything we've seen on the COVID issue is going to affect the long-term integrity of the operation. West Africa on the next slide, Gary. We've seen a slight reduction in production compared to the previous year because we finished the higher-grade Amoanda satellite deposit mining last year, and we have had some real grade challenges in the Huni Sandstone I spoke about earlier at Damang. It's been almost a double whammy effect. Fortunately, as you may have seen, if you look at the quarter two results, our mining volumes have picked up substantially, both waste and ore, and also the grade has started to improve. You'll see the mine grade was higher than the process grade.
That's because a lot of the higher-grade stuff from the top of phyllites came through towards the end of the quarter, and we couldn't get that through the plant. I think you'll start to see that coming through into the second half. Very good cash flow as well. Nice to see that we got $38 million in funding redeemed by Asanko. That certainly goes back to paying down some of our investment there. Going to South Africa, regrettably , one fatality. I should have also mentioned that we did have three people who lost their lives to COVID. I should have mentioned that up front, but let me just say that , unfortunately, three people succumbed to COVID, and in addition, we had the one fatality at South Deep. Very unfortunate and tragic.
We're going to redouble our safety efforts here, and the team is working very hard on that. I think it's fair to say that South Deep has done incredibly well given what it's had to work through. Remember, one month complete shutdown, around about five to six weeks at only 30% of capacity, and the rest probably at about 70% of capacity. Actually, I'm amazed at what they've achieved. I think this shows you that some of the interventions that have been put in place are starting to really work for us. A 30% improvement in productivity on destress and development, and we're seeing stope compliance improve. Why is that important? Because these are the big mining cavities where we get the high-grade , high-volume . If we can improve our compliance on this, it's going to make a massive difference to us.
We need to get our development going in Agnew again. That's been delayed because of COVID. I'm hopeful the team can still start that work in the next quarter. Right. In terms of the outlook and guidance, we're still looking at 2.2 million ounces-2.25 million ounces. That's what we gave you in May, around about 3% off the original guidance. All-in sustaining costs are up $40 an ounce in the range. All-in costs are up $35 an ounce, and that's principally because of the COVID costs. We think COVID's cost us something around about $10 an ounce so far. Probably going to cost a little bit more by the time we're done. Royalties, because of higher prices, are about $20. I think if you adjust for those two, that really is most of it. All right.
From here, let's continue to manage this COVID issue and see where we go to. Damang, we've got to obviously make sure that we have a really good second half, and all of the indications are we will. Get Salares Norte ready to start that pre-strip and the construction of the process plant in Q4, and continue the work on South Deep, restarting the new mine development. Let's use the cash that we can make while the gold price is high, because we don't know what the gold price is going to be next year or the year after. As you've seen, we paid out a nice dividend. The interim dividend is the same as what we paid out for the whole of last year, so maybe that's an indication as to what's to come. Lastly, we'll end on another ESG-type slide.
The last slide there you can see that the Cerro Corona tailings dam that is gonna contain around 100 million tonnes over the Life of Mine. That's been constructed over a period from 2008 to the present. There have been multiple lifts. Obviously, there's a new tailings dam standard that the industry has adopted, supported by the ICMM, of which we are members , and we're intimately involved. I'm pretty sure that Cerro Corona is gonna be reviewed again in terms of these new standards, and hopefully it'll come up trumps as it has before in all of the independent external reviews we've conducted over the years, along with the same process on a three-year cycle on all of our other tailings dams. This is a critical issue for the industry. We've got to get it right. We can't have another tragedy as we've seen in Brazil.
On that note, we'll hand it over for questions, which either myself or Paul will take. Thank you, Gary. Okay. Are there any questions on the conference call?
Thank you. If you would like to ask a question, please press star, then one. If you would like to ask a question, please press star, then one. The first question that we have is from Shilan Modi from UBS. Please go ahead, Shilan.
Good afternoon, team. Congrats on a good set of numbers given the circumstances that we've been dealing with for the last few months. A couple of questions from my side. Nick, I just saw in the media this afternoon that you're gonna be stepping down in September 2021. Maybe this is a bit of an unfair question; forgive me if it is. What would you have done differently looking back at the last 13 years as CEO? We've been having debates for about 10 years. Maybe tell me what you would have done differently. I kind of touched on this earlier, you're changing your gold price assumption for your reserves from $1,200 an ounce to $1,300 an ounce. Maybe a follow-up on that was, what is your expected all-in sustaining cost margin at the new reserve price?
Would it be the same margin as it was before? Is it higher? Given your dividend policy of, I think it's 25%-35% of normalized earnings, and where gold prices are now, could we expect something higher in the near term, so maybe at the top end of that band or even higher than that? Thanks.
To deal with all the back-end questions, then I'll come back to your earlier question. Paul, do you want to have a crack?
Yeah. If I can answer on the dividend policy. Obviously, it's 25%-35%, and we went at the bottom end of the range for the interim one. As Nick stated, it was equivalent to the full one from last year. Let's see how the rest of the year plays out. We don't know what's going to happen with COVID. We could still have further issues, but assuming the rest of the year goes according to plan, we should have another good dividend at the end of the year. What was the other question? Sorry, it was on the dividend. What was the other one?
The reserves.
Oh.
Margin on the reserves.
The margin is still 15% at $1,300 an ounce. As we discussed with you earlier this morning, we've raised it to $1,300 an ounce to take into account inflation, et cetera. We'd had $1,200 an ounce for many years, that's why we're using $1,300 an ounce. The minimum would still be the 15% margin. We did state that in the glossies early on in the year , where we said 15% at $1,300 an ounce is our free cash flow margin target. I hope that answers your question.
Yeah. So now it is at a higher price?
Correct. We did state that already in the glossies at the end of last year, that was the target. Yeah.
Just to add, we have to remember, on a look-through basis, there's probably 35%-40% of our costs that are labor. When I say look through, including the contractors we use. Those labor rates are going up every year, and we can't always contain that through productivity and efficiency improvements. The gold price never comes for free. Generally, when there's an increase in the gold price, the cost base doesn't stand still. I think coming back to your earlier question, I would say where we are today has surpassed my expectations of where the company would be. If you went back and you bought a Gold Fields share just before we unbundled Sibanye back in 2012, and you held those two shares, I think you would get a compound annual rate over the period of over 15%, I think.
That's real shareholder value for us. I think the one frustration I've had and the management team has had is that South Deep has been a tough nut to crack. We've had a number of false starts here. I do think it is different this time and feel that we're on the right track. I guess the one thing that gave me the determination to continue is that the ore body is there. It's not like the ore body is not there. We got something to work with here. It's just a question of improving the portfolio. Thanks for asking me to reflect on the history. Okay. Other questions?
Ladies and gentlemen, just another reminder. If you would like to ask a question, please press star then one. The next question comes from Tanya Jakusconek from Scotiabank. Please go ahead, Tanya.
Hi. Yes. Good afternoon, everybody. Can you hear me?
Yes, Tanya. Good afternoon to you.
Hi, Nick. How are you? I guess congratulations on your retirement. Maybe I could just start on that. Just to confirm that it is a mandatory retirement in South Africa based on age. Is that correct?
It's part of our employment policy, and retirement is at 63. This has been disclosed , actually , in our annual report for some time. This is not something new. It's not a surprise. It's an internal policy issue that retirement is at 63.
Okay. I just wanted to confirm that. I just wanted to ask how the succession planning will go from now until your retirement. Is the plan to have someone overlap with you over the next year? How are you seeing this play out over the next year?
Yeah, look, the board will obviously be in control of this situation. There is a search process that will commence , and we'll work out the timing of all of that with the board. Obviously, we've got to get someone first , and I'll do whatever is required in terms of providing a seamless process. There's a very good management team in the company. Paul has also been with me for a long time. I don't think there's going to be any issue of continuity factors or anything like that. We want to do this in a way that is least disruptive for the organization.
Okay. That's good to hear. Anyways, congratulations on that. I'm just gonna move on to the mining operations, if I could, and exploration, which was very interesting, some of those slides. If I could just start on the mines that were impacted by COVID, and I didn't get to hear all of them, unfortunately, my line was a bit fuzzy. Just on Cerro Corona, I think you said we are up at about 70% of capacity , and we will be within the next month or so at normal rates. Does that mean that Q4 is a more normalized quarter for us at Cerro Corona?
Yeah. I think Q4, we would expect to start getting back to where we were. Obviously, we've had to prioritize our mining with ore to try and keep the process plant going. The waste strip is a little bit behind, and we won't catch all of that up this year. Some of that will go into next year. We don't have an overriding concern about it. I think quarter four will start looking more like quarter one. Not entirely because we haven't fully exposed all of the ore we would have done had the waste been running at the extent it was. Closer to normality, and then next year, I think, will be better. We factored all of that into the updated guidance for the year.
Okay. For South Deep, I understood again that we're up to about 70% capacity or so right now. Is this a similar scenario that Q4 is gonna be a more normalized quarter , and we're just ramping up this quarter?
We're actually ahead of the game. We're up to about 80% now, and we're expecting quarter three to be closer to normal at this stage. We're not going to have the same impact there because we're up to 80%. We're bringing back a lot of the people from the neighboring countries who couldn't get back after the shutdown. I think quarter three should be more reasonable. Not quite there, but not too far off. In quarter four, I think it should be pretty normal.
Okay. Just to confirm that, you mentioned the Australian operations are performing well. You haven't been impacted by COVID, neither on the second wave that's hit Australia?
The second wave has been in the eastern states. It hasn't got to Western Australia. I must just give a caveat on all of the operations, Tanya, is that if we get a second wave in South Africa, we get a second wave in Peru, if all of a sudden Western Australia starts reporting a whole lot of cases, all bets are off. We can't predict that today. We can only give you where we think we're going based on what we know today. That could be very different in a month's time. That's just the overriding caveat.
Yeah. No, I appreciate it was on the east side. Just make sure that nothing has impacted you supplies-wise or other things getting to the mine site.
Yeah.
Okay. And then on the-
Sorry, go ahead.
Yeah. Maybe just on the exploration, I just wanted to make sure I understand when you were talking about Tarkwa, I think I heard an 11 million ounce potential resource number. I just wanted to check that. My understanding is that at a 200 m envelope around your existing deposit, if you were to just project the existing grade and depths out 200 m, that's sort of your potential. Is that a correct assumption I made?
Yeah, it's correct. It's also based on very limited drilling that we've got, which is indicating we're seeing the same geological structures, we're seeing the same number of packages. We're seeing the same sort of grades, the same thickness. That's the magic of Tarkwa; the continuity of the structure and widths of the ore body are very consistent. It's not like you've got to do a whole bunch of closely spaced drilling to understand where you're going. Again, it's only 200 m down dip around that entire perimeter. That perimeter is obviously, it's a large perimeter around all these pits , over 20 km. That gives you an idea. That's resource, additional resource, not beyond that.
Yeah. Okay. No, I understood that. My final question is just on capital allocation at this higher gold price. What are you intending to do with this incremental cash flow?
We've got three main areas we need to focus on. One is we've got to build Salares Norte. Remember, we did a $250 million equity raise, but the total project spends $860 million before inflation. Number two, we want to continue deleveraging. Number three, we want to make sure that these higher profits translate into higher dividends using our payout ratio. Fourthly, we will be looking at how we can add organically to all of the mines in the group. Every mine in the group has the potential to add more. This is really good business for us because we've got the infrastructure, we've got the sunk capital. It's lower risk. We'll be looking carefully at that. Things like at Wallaby underground mine, as we're getting deeper, one of the ways to offset the increase in costs is another decline.
We can actually debottleneck the deeper part of the mine, for example. At Agnew, given the significant exploration potential, we want to look at upgrading the crusher and increasing the plant throughput from 1.2 million tons a year to probably 1.6 million tons-1.7 million tons a year. These are all projects that we're going to be thinking about over the next couple of years, in addition to obviously continuing our exploration and , of course, the Salares Norte project. We've got a fair number of things to do with the money. Let's make it first, of course.
Okay. Just, I understood that your dividend policy of 25%-35%, you're going to remain that intact. You're at the lower end of the range; you could potentially move yourself up to that upper end of the range with this excess cash. Would that be a fair statement?
Yeah. Well, if you look at the average over the last five years, we've been about 30%. Paul and I have discussed that, and we're not averse to that. Maybe Paul should jump in and give his thoughts.
Yeah. Tanya, it's Paul here. As I said earlier, we paid at the lower end. We're just worried that we still may be caught by a second wave of COVID. Assuming that we don't and the operations run and the gold price stays, I'm sure we'll be paying a good dividend for the year, and it may be higher than the 25% that we paid in the interim.
Okay. Paul, my last, how much cash do you need to keep on the balance sheet, your minimum cash that you're comfortable with in terms of running your operations , and before you pay out all the excess that we've talked about?
Tanya, we normally keep around $400 million, but we've discussed this as well. At the moment, we're still in a net debt situation. Assuming we get beyond that, I would still like to keep a bit more than that on the balance sheet because you never know what's going to happen in the future. It would be silly to pay out an extra dividend, pay out all your cash, and the next year prices drop , and you actually then have to go and borrow. Our aim is to de-leverage the company and keep probably between $0.5 billion - $1 billion of cash in reserve once we've got all our debt off the balance sheet. The minimum requirement for the mines is around $400 million-$500 million that we keep at any time.
Okay. That's all. Thank you very much.
The next question comes from Patrick Mann from Bank of America. Please go ahead, Patrick.
Hi. Thanks for the opportunity. I just want to follow up on the reserve price again, and apologies for kind of beating the drum on this constantly. I suppose more philosophically, how do you think about this? We've obviously had a pretty flat gold price for the last 10 years or so. If you were starting with a clean sheet of paper and you weren't at $1,200 an ounce today, what would be the methodology to pick the NPV maximizing or the best value answer for the reserve price? I'm sort of just trying to understand , really, Gold Fields philosophy around this. At the moment, it seems like we're anchored to $1,200 an ounce. We'll move up because the gold price has gone up , and costs have gone up. If you were starting from scratch, what should it be?
What would be the best value-maximizing reserve price to use? Thanks.
Patrick.
Paul, can-
Patrick, a lot of it.
Paul?
Patrick, a lot of it's not only our view, but it's based on the long-term view. Remember, we decided on this number; it was probably March or April. At that stage, the long-term gold price for most of the consensus analysts was just above $1,300 an ounce. It was about $1,314 an ounce. If you check our financials, that's the number that we used in our impairment calculation. That guided us to a large degree as to what we should be using for our reserve based on what the market, and that is analyst consensus, as to what the long-term price was going to be. That was the science behind it. It was based on forecasts, looking at what the market is telling us the long-term prices should be.
To push a bit on that. If the market will mark to market and we all start using closer to spot prices, does that drive Gold Fields strategy around reserve pricing?
No, I think we would like to keep the $1,300 an ounce fairly consistent for a couple of years. This is the first time we've moved it in a while. $1,300 an ounce has been around for a while, the long-term price. We decided, as Nick said, based on the inflation, maybe it's time to move. It's not that every year when the long-term forecasts change, is Gold Fields going to change its reserve price? No. $1,300 an ounce is going to be around with us for a while, I think, as our reserve price. We'll look at it again in a couple of years, but I wouldn't expect anything in the next two or three years if we change reserve prices. No.
Okay. Thank you. Thanks, guys.
Patrick? Sorry. Most companies that we've surveyed have been around $1,200 an ounce. I think the peer group has been around $1,200 an ounce, and we've been $1,200 an ounce for a couple of years. At some point, you need to flex the gold price because costs don't stand still. Wages, as I said, make up a sizable component of our cost base. We have to have a balance between NPV and margin today. The one thing we've got to be careful about is not being too conservative, but also not being too aggressive. If you're too conservative, you're going to leave money on the table. If you're too aggressive, you're going to be in a difficult position if prices come back. $1,300 an ounce, we believe, gives us 15% margin comfortably, and it leaves a lot of flexibility for margin expansion at higher prices.
Yeah. We've been debating this internally and with clients, which I think, and I'm sure the other analysts have as well. That's why these questions are coming up. If there was a brownfield expansion that at $1,700 an ounce- $1,800 an ounce gave you a 20%-30% IRR, it seems weird to keep your reserve price at $1,300 an ounce and not go for it. With the benefit of hindsight, if you do go for it and the gold price comes back again and you impair it, then you'll be accused of making the same mistakes as the last cycle. Just interested in your thoughts on how you assess it, because it's a very difficult one to have a coherent answer to. Yeah.
Yeah. I was running this company in the last cycle when the gold price collapsed. We had done exactly as you indicated across certain operations, but we had to go through a massive restructuring exercise. The one thing I've learned is that when you let costs into the business, costs are quite easy to get in. They're very difficult to get out; it's better not to relax. We don't know where the gold price is going to go. It could come back significantly. I remember in 2013, people told me gold's going to $2,000 an ounce. Two months later , we were down to $1,300 an ounce. It can change. Experience has taught Paul and me to be cautious and conservative on this one. Certainly, that's what we heard from investors, too.
Got it. Thank you, guys .
The next question is a follow-up question from Shilan Modi from UBS. Please go ahead, Shilan.
Hi, guys. Thanks for taking further questions from me. On one of the slides, it shows that your discovery cost of ounces in Australia is about AUD 80 an ounce. I just want to confirm this is per ounce found. The second thing is, you're talking about looking for about 2 million ounces at Agnew. That implies it's about AUD 160 million that you'd have to spend. Assuming you spend this over four years, that's about AUD 40 million a year. Does that kind of make sense? Should we be baking those into the numbers? The second thing was, how should we think about your CapEx, your overall group CapEx numbers, sustained business , and growth over the next three to five years? Thanks.
Yeah. Just the AUD 80 is per reserve ounce. You'd have to look at what you convert. Typically, you convert between 40%-50%, maybe, if you look at the averages. That will scale it back somewhat. We see the potential to bring those ounces in within the envelope of what we're currently spending in Australia. Wouldn't want you to go away and think we're suddenly gonna be spending a whole lot of extra money. In terms of stay-in- business capital, I think we've said probably somewhere between $250-$300 per ounce is a good number. If you take into account the need to replace mines in the group, the need to obviously continue exploration, replace tailings dams, ventilation, and drives underground. There's a whole heap of things, replacement of fleet when you're doing your own operations.
That seems about the right number to us and probably the right number for the industry at large. I don't know if Paul wants to add something to that.
No, I think you're right. It's around, it's probably just over $600 million. If you look at our guidance for this year, it was about $630 million, and that included some CapEx for Salares Norte. I would say if you want to model to stay -in -business, they're around $600 million. That ties up with Nick saying, the $300 on 2- million -ounces production circuit. Yeah, that's a fair number.
Okay, thanks. If we added your explorations, it should be about $50 million-$100 million per year for exploration?
No, that's in there.
Yeah, that's included. Sorry. Yeah, we include exploration in our stay-in- business capital. If you want to, then you can take this , probably close to $100 million , out of what we're spending between Australia and the other regions on exploration. If you want to back scale it, you can look at $500 million stay-in- business capital, $100 million exploration capital, if you want to put it that way.
Yes.
Perfect. Thanks.
Okay. We got some other questions coming through.
Yeah. I'm gonna ask a couple of questions on the webcast. Paul, I think you're gonna answer a few of these. Do you expect to book further hedging losses in H2 and into 2021 , given current gold prices?
No, I don't think there'll be any hedge losses in 2021 because remember, the only hedging we've got for 2021 are the puts that we've already paid for, so they are basically done and dusted. Obviously, we mark our hedges at the end of the half year. They've done. Gold has moved a little bit since then. At the moment, for modeling, you can work on about $30 million-$35 million a month that we're paying out on the hedges, and that will be till the end of the year. Again, you need to pick a gold price to work out how much more the loss could move from what we had at half year end. We were using just over $1,800 gold price at the end of the half year.
Okay. Nick, this one's for you. In your forward-looking statement that contains a list of general risks that shareholders should be aware of, one of the statements is the effects of regional re-watering at South Deep. Has there ever been such an event that caused a problem?
No, we haven't got any events that have indicated a problem. At the moment, we are dewatering, so there's no water that is getting out of the mine. It is a risk of operations around us, I suppose, as a concern. That's really part of the issue. We have been looking at that again, and we might update that risk into the future based on new information as we evolve that. If anything, it looks like the risk might be reduced.
Okay. Paul, another one for you. Did you say that you'd retire the debts due in October 2020 with cash on the balance sheet, or would you look to refinance that going forward?
No, we wouldn't refinance. Remember , we did the bonds last year; we've got cash on the balance sheet. Obviously, we're making a lot of money this year, and it'll be paid from cash on the balance sheet. As we said, we're sitting with just over $900 million at the end of June, we would use that cash to pay down the debt, the bond that's due.
Okay. One more for you, Paul. The company's leverage has reduced significantly. Under what conditions will Gold Fields consider materially increasing its leverage?
Well, we're not forecasting to increase our leverage at the moment. We've said, even if we take into account, as Nick mentioned, the $500 million that we're going to spend at Salares Norte next year. At conservative gold prices around $1,300 an ounce, we still forecast net debt -to -EBITDA to be below 1.0x at the end of next year, even with the capital plan. That's all that we've got on the horizon at the moment is Salares Norte , and, using a $1,300 gold price, we still stay below one times net debt -to -EBITDA. We don't see any reason for a big increase in the leverage.
Yeah, I think in terms of just adding to that, we do have a lot on our plate in terms of building Salares Norte. I've talked about the organic growth potential, the existing assets, and the need for us to show higher dividends given higher profits. We don't really think we need to do anything beyond that. I wouldn't necessarily think that we're going to be out there looking to do stuff. We're quite happy with what we have now, and we think it's going to add significant value, even at lower prices than where we are today.
Good. Okay, that's it from the webcast. Operator, is there one or two more questions we probably have time for, if there are any?
We do not have any other questions on the audio line.
Perfect. Thank you so much. Nick, closing comments?
I think just to say thanks for dialing in. I must just say again, the company has been able to produce really good results despite the COVID issue and has shown that it's very resilient. Lots of liquidity. We're in pretty good shape. We're ready if things get worse, second waves, et cetera. Hopefully, we've got the protocols in place. If you've got the time, have a read through all of the COVID procedures and protocols we've put in place. We've written a long section in the book because we get a lot of questions on this, so we thought we'd give that. If you have any follow-up questions on that, feel free to contact us because we've taken this incredibly seriously, as you can imagine.
Lastly, be safe wherever you are in the world, and we look forward to engaging with you again soon. Thank you very much for your attendance today.