Ladies and gentlemen, welcome to Goldfields Half Year Results. Before we get started, in the case of an emergency, there are 2 exit points, 1 at the back of the room and the one at the front, and then the master point is at the front of the building that you've entered. I would hand over to Nick Holland, CEO, to get into presentations and we'll do Q and A afterwards. Over to Nick. Thank you
very much, Avishka. Good morning, everybody. Welcome to our first half year results for 2019. Very simple messages for you this morning. Essentially, production is up 9% compared to the corresponding period in the previous year.
All in costs are down 5%, and we're cash flow positive from being over $70,000,000 negative in the same period last year. This year, our core operations, dollars 49,000,000 positive with obviously all of the projects being financed, all of the interest burden having been carried in that number. In particular, Gruyere has commenced production. We're pleased to inform you that we've achieved practical completion at the Gruyere Process Plant. What does that mean in essence?
It's a technical construction term. In essence, it means we've achieved 96 hours uninterrupted through the entire value chain of the process plant. So the crusher, the SAG mill, ball mill, the Aleutian circuit, the gravity circuit are all functioning steady state for 90 6 hours. That's really great news for us. That was achieved on the 10th August.
And so now we're in the process of ramping up that plant over the balance of the year. And as we've mentioned, we're giving a range of production because obviously, with all ramp ups, it's a large process facility. It's over 8,000,000 tons a year. That's large in the scheme of process plants. You might get hiccups along the way.
So we're saying that we should be able to ramp that up over the balance of the year. Bear in mind over the long term, Gruyere is a project as the joint venture announced in a recent joint release that this is a 300,000 ounce a year mine with long term costs of about A10.25 dollars an ounce, at least with 11, 12 years to start with. And then, of course, there's potential on the joint venture property and of course, at the mine itself to look for potential to add to that over time. So really a great addition to the group, in line with the strategy of adding life at lower cost so that we can be defensive in the face of volatility in the gold price. And let's talk about the gold price briefly.
We've seen the gold price come up. Has it gone too quick, too far too quick? Who knows? It may be volatile in the future. Nice to have it for now, but we're not putting our store on a higher gold price.
We'll keep discipline in the business. We are still targeting to achieve a 15% margin at a $1200 U. S. Gold price at a $1600 Australian gold price and R550,000 per kilogram South African price. And I think as you can see, those prices on a relative basis to spot are still some distance away from where we are today, which is good.
Let's keep that flexibility, that cushion on our operations. Demang, as we've mentioned before, and I'll show you a few pictures a bit later, that continues to track ahead of plan. So we're on track to really get to the heart of the ore body around about quarter 2 next year. That's really the big prize for us is to open up the heart of the ore body and get in there. South Deep, after a very painful and time consuming restructuring process that included a 45 day strike, a difficult quarter 1 as we had to recalibrate the mine post that strike, which was only concluded just before Christmas.
So really in quarter 1, we had to take around about 20 to 30 pieces of gear out of commission, drill rigs, loaders and trucks. We had to say goodbye to a third of our workforce. We had to obviously recalibrate all of the logistics and consumables. We shut down, remember, 871 West and 872 West. We suspended the new mine development at the bottom of the mine, and we had to turn South Shaft into essentially a services shaft, not a fully fledged operating shaft.
A lot of things we had to do. That took the bulk of quarter 1 to get going. But in quarter 2, we've got to a better position to the point where production is up almost 70% on the Q1. Costs have come down to about R590,000 a kilogram, and we've made a modest cash flow contribution of ZAR 71,000,000 for the quarter. Bottom line, that is after paying all of the bills.
One swallow doesn't make a summer. I told the staff this morning when we did this abridge presentation to them. And certainly, Maarten, Preece and myself are very sober about this early achievement. We need to build on it, and we need to show that South Deep can actually achieve its goals. That said, where we are today, having produced about 2.8 tonnes of gold for the 1st 6 months, we're on track to achieve our 6 tonne gold target, bearing in mind quarter 2 was about 1.8 tons of gold.
So far so good. What's particularly pleasing for me is not just to see the headline numbers improving, but seeing all of the things behind it, improving our ground support is at the highest levels where I can remember, backfill is at a much higher level than what I've seen for a long, long time, de stress has got up there, development is way ahead of plan. So those are the things at the front end of the sausage machine that will make sure that if we can sustain these improvements that those things will be the important components to make sure that we can do so. We've talked about the balance sheet, the need to basically refinance our debt given that we have maturities coming up. We've successfully done that over the last number of months.
We've issued 2 new bonds, which has spread the maturities out. We've refinanced our revolvers with a big syndicate of banks. And I think we can safely say now that our liquidity is in pretty good shape and very well received by the market. We've been able to refinance our debt at lower cost and we've been able to put in long term bonds, 5 10 years, at certainly lower costs than what we thought were possible in the planning stages. In line with our strategy of paying out between 25% 35% of our core earnings as dividends, we paid out $0.60 We're very proud of our dividend policy.
The fact that it has been a company with a dividend first philosophy. We've said that we'll pay dividends in line with the strategy and that we'll continue to honor that policy, notwithstanding other commitments in the company. So as you've seen over the last 5 to 6 years, we've been very consistent in following that dividend policy. So the people know when they buy into the company, they can rely on consistency in terms of a dividend. So if earnings go up, we'll pay more dividends as a function of percentage of profits.
Clearly, if earnings go down, dividends will reduce. Hopefully, we're going to see higher earnings for the year and hopefully, we'll see a good dividend overall for the year. On safety, we continue to believe we have to eradicate fatalities and serious injuries from our business. At the leadership level in the company, we continue to invest our time in showing the way and making sure we have the right systems, the right leadership, the right behavior to further drive improvements in safety. We can never relax on safety in our business, as we all know.
All right. So looking briefly at the results. At the top there, you can see we've done just over 1,000,000 just under 1,100,000 ounces, all in costs of 11.06 dollars As I said, that's about 5% lower than what we had this time last year. Capital on growth projects is coming down. And in fact, if you look at Grier, we've spent about US65 $1,000,000 in the first half of this year.
That will essentially dwindle down from there to very little in the second half because the project is done. So that will improve our fortunes in the second half. Also, Demang spent about $44,000,000 in the first half. And again, in the second half, that'll be probably about half of that. So certainly, that $49,000,000 that we've generated from the business, if all things stay where they are today, for the second half, we should do reasonably well from this base given that that growth capital is down.
As you can see, mine cash flow before projects, very healthy, dollars 200,000,000 essentially from the business that's before projects, which gives you a sense of what the Australian, Ghanaian and Peruvian business is doing for us, a strong underpin, which has enabled us to finance a lot of our acquisitions and project spend without materially increasing our debt. Remember, over the last two and a half years between the acquisition of Gruyere, the building of Gruyere, the pushback of demand, we spent over $800,000,000 superimposed on top of that. The continued investment in taking Solaris Norte in Chile to feasibility level has probably added another 100,000,000 to 150,000,000. Our debt hasn't moved that much. I think it shows you a lot of the growth in the business has been able to be financed internally, some debt, but the bulk of it internally.
In Ghana, very good quarter, very good half year as well, 400,000 ounces. We got the addition of Asanko. Remember, we didn't have that in the equivalent period in the 6 months last year. We have it in this year. Nice to see as well strong cash flow coming out of Ghana, $72,000,000 $52,000,000 coming out of Peru.
Peru, of course, our lowest cost operation, copper gold's porphyry system and of course with the copper byproduct against a gold grade of about 1.1 grams that helps you to keep your costs down nice and low. South Deep, as we've mentioned, for the 6 months, still up at $15.29 an ounce. But in fact, if you look at the quarter 2, that figure was down at $12.75 on the back of that increased production, so certainly on the right side of the ledger. In Australia, good cash flow before Gruyere for the 6 months of about $92,000,000 So that's just a good quick summary for you as to where the business sits. So turning cash positive sooner.
We certainly weren't planning to be cash positive in this first half. I think the gold price has certainly been the big factor there, and let's capitalize on that in the second half of the year and push on from there after that significant capital expenditure of 2018, 2017 and of course, the early part of 2019. The balance sheet, as I've mentioned, I'm not going to go through a lot of this detail. Paul can certainly answer your questions at the end. We know that we've got a bond of $1,000,000,000 maturing towards the back end of next year.
We bought back $150,000,000 of that previously, so there's $850,000,000 to pay. We decided to go preemptively and essentially refinance that. We've split it into 2 tranches to avoid near term maturities, competitive rates. So we've got €500,000,000 going out 5 years, another €500,000,000 going out 10 years. The weighted average cost ran about 5.5%.
That compares to 4.875 percent on the maturing bond. That was an exceptional pricing we did back in 2010. So we parked that money in our revolvers and then knocked them off. In the meantime, we've also refinanced $1,200,000,000 of revolvers. Again, we've split it out 3 years 5 years with the potential to extend and we'll use that capacity to redeem the 2020 bond and make sure that we're covered on that one.
And the balance of that, of course, will be used for general corporate purposes. We've also sold non core investments. One of the strategies we've had is to take a royalty portfolio, which had no value in our company, vended into a royalty company, go for a ride on the fact that royalty companies are trading at multiples and then cash do. Similarly, we sold Darlo to an Australian company called Red5, went for a ride on them, cashed in so $88,000,000 from virtually nothing. This is a good example of making lemonade from lemons and getting value where there was no value.
We park that in the debt. So that's a nice strategy for us to continue to bring down our debt, which is a key objective over the middle of this year through to the end of next year. We want to make a significant reduction in our debt. And a good time to do it is when the gold price is playing ball. There is some accounting changes which complicate our debt position where leases have to be capitalized.
Principally, these are gas pipelines and gas facilities in Australia and Ghana, where essentially you have to treat it as if you own it, even though it's underpinned by a long term purchase price agreement. So there's a few odd things coming through and we've shown you the figures before and after. Debt goes up and it also impacts assets onto the balance sheet and operating costs, interest charges that all get amended. We've given you a reconciliation in the books, so I won't dwell too much on that. So there's the balance sheet.
I think importantly, you can see now that we have this maturity over here. We bought back another $250,000,000 of that bond. So that bond sits at 600 dollars There's some other odds and sods that will mature over there. So we'll use the revolver to knock that down. We got the capacity now.
So we're not worried about that. So essentially that's finance, that repayment. That's an Australian loan that was used to finance Gruyere around about $500,000,000 $450,000,000 I think it is. And there's your 2 new bond tranches that are rolled out. So much better maturity curve than what we've had before.
As you can see, net debt on the old basis down to 1.36 That's down from the figure at the beginning of the year. And we're hoping that by the end of the year, we can certainly bring that down. Remember, the long term target was 1 times. But I think over time, Paul and I are quite keen to see if we can bring it down even further. All right.
So on the projects, here's Gruyere, a good snapshot of essentially this is the process plant you're seeing over there. You can see there's a coarse ore stockpile with the stockpile cover on that side. And you can see it looks and feels like a mine. There's another picture of the there's the Corsoil stockpile. For those miners in the room, you like to see that.
That's nice and full. Basically that's all crushed. There's your stockpile cover. That's to prevent dust and everything because obviously you get some winds coming through here. And then on this side over here here's your 2 ROM pads.
We've got a high grade and a low grade ROM pad. But frankly, when you're dealing with a cutoff grade of about 0.3 grams a tonne, pretty much everything can go through the plant. It's just a question of sequencing the best grade you can get in the early part of the mine's life. So obviously, there's a whole material handling strategy on that. I was in the gold room, in fact, a few weeks ago, but I wasn't there when they were doing this, I would have loved to have been.
But here's pouring the first bars. And by the way, these are not just plastic covered bars, these are real bars. They weigh a chunk of material that's for sure, try and pick that up with one hand. That is something. So just over 1100 ounces produced right at the end of June.
We're ramping up, as I've mentioned. Essentially, that test of practical completion was a key one for us running 96 hours uninterrupted, and we are hopeful that we'll have this plant taken over at that sort of level as soon as we possibly can. Tons mined have been great, as I mentioned. We're sitting at the end of June at around about 65,000 tons mined, very nice position to be in, to have that amount of ore sitting on the stockpiles ready to go. So the plant now that it's running, we're going to drive this pretty hard.
Importantly, capital cost of this project is still in line with what we said, $621,000,000 and being sort of 99.5% complete with just the final bits and pieces, We're pretty confident that we're going to stick with that sort of number. Production for this year, a range of 75% to 100%. But remember, when we get into 2020, we'll be looking to chase down that longer term target of somewhere close to 300,000 ounces a year. On demand, another strong performance for the half year with production up compared to the previous year, and we're on track to meet our full year guidance of 218,000 ounces. Importantly, we made free cash flow.
So with the project capital now starting to come down with ounce production coming up, we start moving into cash positive territory, which is great to see. And looking at the cumulative project, I'm not going to dwell on these numbers, they're in the book. But you can see in all of the metrics, this project continues to be ahead of where we were. All right. So here's some pictures just to show the magnitude of the scale of mining here.
This is the west wall of the pit. You can see over here where they are. When we started, they were up there. These are little trucks over here. Okay.
They're big trucks, but they look like little trucks. Okay. So you've taken this wall all the way down there, okay. We got to get this mine all the way down to the bottom here, okay. So it's a hell of a job and a lot of material has to be moved to make this happen.
So the Western Wall is more advanced than the eastern wall. There's a reason for that because the ore body dips that way. So you want to get that down first before you go to the eastern side. Then if you look at the east wall over here, so you can see where we are on that side over there. You can see that's much less down compared to that side.
Okay. And that's by design. So we've got to get that down there as well. And that will be the target by the middle of next year. We're pumping this water out into another dormant pit we're not using.
So as the water comes down, the wall comes down. All of these things, of course, have got to balance each other and operate in sync. But this is what mining is all about. And here's from north to south. So that's Juno, the old Juno pit there in the south.
That is the east wall over there. The tailings pit, old tailings pit is over there. You can see we've got some cover over there, geotechnical requirements and the West Wall on that side. So it gives you a good idea for those of you who haven't been up there for a long time. As I said before we started, all of this was up there, all of that was up there.
So it's a big earthmoving operation. All right, turning to Australia, a good half year overall. You can see production. We've pretty much maintained. That's about 1% or so down.
It's very, very close to where we were. Costs have gone up a sizable amount year on year. There's a couple of reasons for that. We took the decision to go our own way in terms of accommodation at Agnew. Instead of renting accommodation in Leenster, which was around about 35 minutes drive, we decided to build our own camp, which is within walking distance from the offices and the process plant.
That's cost us almost A40 $1,000,000 once off. There's a payback there of about 4 or 5 years in lower accommodation costs, improved morale, having our whole team together has made a big difference. Also in the previous year, St. Ives was mining more than it could process and there was good reason for that because there was economies of scale in mining the remaining stages of the Invincible open pit much quicker than what would otherwise have been the case. We could bring down the unit costs and we did.
Mining costs dropped to around about $4 a ton from $5 previously. The net result is we stockpiled a lot of ore in 2018. There's also blending issues because the Neptune open pit is softer material whereas the Invincible pit is more fresh, harder material. We need a blend of about 75, 25, 75 fresh, 25 oxides. And so we had to stockpile.
So this year now we're running it all through. So all of those GIP credits last year becoming GIP charges, it doesn't really affect the cash flow. It's a function of stockpiles being built up, stockpiles released and it comes through your costs. The other reason costs have gone up is that now with Invincesible open pit almost finished, we're now transitioning to what will be principally an underground operation once Stage 6 of InvinciBull is done. We expect that to be before the end of the year and then InvinciBull will just be an underground operation.
It will be Invincible Main, Invincible South and then eventually Invincible Deeps. The costs are higher. And over time, we have to get the leverage in terms of grade because underground grade should be higher. Costs will be higher. But overall, on a per ounce basis, once we get to steady state, we think that we'll maintain our costs.
Notwithstanding these increases, don't be alarmed. We're maintaining our guidance on costs and on production for the year as indicated June February. This is just a function of where we are in the year. Just to give you an idea of how the Invincible ore body has developed. Now this was on the lake.
As you know, we have a big lake, salt pan going through St. Ives called Lake Laphroaig. We had an old drill hole that went back to 1994. I think we had a gram at about 2 meters, not too spectacular. But what we didn't know is underneath all of this is 2,500,000 ounces.
It looks like it hasn't even finished yet. This could grow further. This is where we started. We had some initial resources, okay. Then we added some that was the open pit.
Then we added some resource and reserve. You can see the reserve is in the darker color, the resource in the lighter color. That was 2013. Then we added some more in 2014, 2015. You've got to go through this quickly, I'm told to see it properly.
I'll just go back. So that's where we are. So as you can see, what's happened over here is it's growing laterally. This is a fault. That's not a problem.
We've actually already punched through that fault, sent the development drive through. It's opening up deeper. And what we're finding is when we mine this, we're getting more tons, in many cases, slightly lower grade, but more ounces. So if we can actually optimize our cost base, this is going to be something really special for the future and the mainstay of Cenai certainly for the next number of years. All right.
So there's another way of looking at it that just splits it into the different areas. I suppose if you look at the total strike length over here compared to that scale, it gives you an idea of how big this is and why we're saying this is 2,000,000 ounces plus and we're not done yet with this. If we look at Agnew, we've come leaps and bounds on this operation over the last 12 to 18 months. In particular, Wurunga North Calf is expanding laterally and it's going down further. And as you can see over here, it's still open.
So we're going to see a lot more out of this. It's too early to say it's an analog of kin, which was a fantastic ore body. That was 1,000,000 ounces at about 10 grams a tonne, but it looks very promising at this stage. That's just on the existing operations. And then if we look at the Redeemer complex, now this is an old mine over here.
That's a surface mine that was backfilled. We did some work over here, but we didn't find too much. And then offset from that, we found 2 areas, what we call Zone 2 North, Redeemer North and something called Barren Lands. And this is looking very, very exciting, so much so that we believe we're on the cusp of declaring a maiden resource and possibly even a maiden reserve for this area and could even be mining this in 2 to 3 years' time. So this could be a very significant addition to Agnew.
It's been sitting under our noses for some time. It's a function sometimes to spending a bit more time. These orogenic ore systems are time consuming in terms of drilling. You need to do the appropriate geophysics and geochem work. A lot of it's undercover, so you don't find it easily from surface work, but there you are.
So this looks like it will be an important addition. One of the reasons, again, we decided to build a camp at Agnew and also put in renewables over a long term period is we're pretty confident this is going to be around for 10 years and probably more. So we're down here to around about 400, 500 meters, very acceptable depth, not a problem at all. Bearing in mind mines in Australia getting down to 2 kilometers. By comparison, this is pretty shallow.
Okay. All right. Turning to the Americas. Again, Cerro Corona, steady as she goes, a great operation as you can see, good production, very, very low cost, makes really good cash flow. Now for a mine making 280,000 ounces a year roughly, dollars 52,000,000 for a half year, very, very nice cash flow.
That compares to amongst the best on a cash flow per ounce basis. We've done a feasibility for life extension. Sorry, we're in the process of finalizing. We did the pre feas. No real issues at this stage.
We're quite comfortable that, that project should go. And if you can recall, that is accelerated mining in the pit, stockpiling strategy and then input dumping. One of the best way to deal with tails, input dumping, safer, more cost effective. You don't have issues of tails dams running away from you, which I know we've seen issues recently elsewhere. So we're doing input dumping as well elsewhere in the group.
We're doing it at Agnew. We're doing it at St. Ives. And certainly, we've got some good experience on that. Solares Norte in Chile, you've seen we declared a maiden reserve, about 4,000,000 ounces, around about $500 an ounce all in sustaining cost once it's in production with around about 11 years of production, but part of a major district that we believe will get bigger over time.
The next process here is to get the EIA complete and signed off by the authorities. We're in the 2nd round of questions that we've answered. I'm hoping that we'll by no later than the middle of the year, next year, we'll have approval. We'll take the final project to the board. And if all goes well, we'll start building this project towards the end of next year, subject obviously to board approval and a board supported funding plan.
That's been a topical issue. It's an $800,000,000 project. It's a lot of money. You'll be spending that money over about 26, 27 months. So it's a lot of money to spend quickly and we're looking at different options as to how we fund that and we'll give you an update on that, I'm sure, over the next 3 to 6 months.
Looking at the district, we've got very encouraging results at a nearby deposit called Horizonte, which again I think reinforces the camp potential in this area. We bought a 16% interest in Chican. I'll come back to that now. But just to give you an idea, this is the greater area or part of the greater area. There's the Solaris Norte deposit and here's Horizonte over here.
So that's less than 20 kilometers trucking distance from the proposed plant site. And in fact, the ground package over here is at least twice the ground package of Solaris. So we've got 4,000,000 ounces over here. Who knows what might be here? We'll see in time.
We've done about 12,000 meters of diamond drilling here so far this year. And we'll continue into next year. Bearing in mind, Solaris took around about 170 kilometers of drilling over 10 years. Now so finding these greenfields deposits, particularly these kind of epithermal systems, takes a lot of hard work, but let's see how we go. I'm hopeful we'll add another ore body here within the next 5 years.
All right, Turkana. So given that we've been in Peru for a long time, around about 15 years, built up some experience, What better way to leverage off a great operating team platform and look for something else. So we've taken a 16% interest in the Soleday project, which is it's a series of Breccia pipes, which copper gold as well, similar to Cerro Corona. It's in a great part of the country and cash, easier to operate there than where we are. As you can see, we're up here.
That's down here. So it's early days. A lot of the money that we've subscribed for in the company is going into exploration. So again, this could be one for the future. We think Peru is one of the best destinations to be in the mining industry.
And, untapped, the Andes region up the western perimeter has not been properly explored and we believe hosts many polymetallic style ore bodies. Not too much gold on its own, but if you're happy to mine gold, copper, maybe a bit of silver, you're going to be in the right terrain to look for that. And certainly, we've been successful mining our copper gold mine at Serra Corona for the last 10 years. Right. West Africa, as you can see a big increase in production.
That's mainly because of the addition of Asanko in this first half, which wasn't in the previous half. And you can see as well nice increase in cash flow. That's what I like to see. As demand's capital comes down, as the production comes up and we start seeing the cash. So asanko, we've been in this for a year.
I guess the agreement we've come up now with our partners is that let's get to an operation that can make good money for us over at least the next 10 years. That's just the start, it's not the end. And at the same time, let's work out an exploration strategy for the Greater Camp. This is lodged in between Newmont's operations on the one side, a half hour Kim and a Wassy Anglo Gold shanties operations on the other side, a large piece of ground that has been sitting there waiting for someone to come in. Shear hosted deposits, which is the 2 main deposits we have at the moment, Enkran and Esaase, and we're seeing many potential analogs of that.
But we haven't invested enough exploration. So 2 pronged approach, let's get Osasi up and running. We're just mining the top of the hill now, which is soft oxides. That's going to be the main source of ore over the next 10 years and beyond. And then let's crank up the exploration and let's get a new camp.
Again, I think this could be something really special over the next 20, 30 years in Ghana. That's why we bought it. All right, I'll try and run through the rest quickly. Tarkwa, a Vitz style ore body. If you take the Vitz Basin here in South Africa and you could actually superimpose that on the surface, that's what you've got at Tawke, a stacked conglomerate package of reefs which are very consistent.
So we've been here a long time. If you look at what Tarkwa is mined to date and what it has on the books, 20,000,000 ounces. How many 20,000,000 ounces deposits do you have in the world? Not too many. All right.
So here's the outline of the pits over here. What's interesting, if you look at these sort of mauve shaded areas, okay, these are the possible extensions that we're drilling out now. So it proves what we believed is that these kind of ore bodies, these conglomerate packages just continue. And they're stacked packages. There's a number of them, obviously interposed with waste.
So you have to strip out the waste, then you expose the reef. But when you've got multiple packages, there's quite a lot of meat on the bone to go for. So we believe this is something worthwhile. Early days, but we're seeing potentially up to 20 kilometers. I was talking to our GEO just the other day.
There's potentially 20 kilometers of additional strike here that we could add. So pretty exciting work to do. Tarko has been a great mine. It's the biggest producer in our portfolio, over 500,000 ounces a year, makes good cash. So if we can have this longer, fantastic.
Let's see. All right, South Africa. So as I've mentioned, I think I've said pretty much all of this. In quarter 2, as you can see, gold up 67%, 57,000 ounces for the quarter. We've dropped our cost to ZAR590,000 a kilogram.
That's $12.75 an ounce. We've made some cash. As I've mentioned earlier, all of the front end things that support production are looking reasonably good. And if we can keep that going, then we'll be in good shape. And here's a good example of how decluttering the mine in terms of equipment and people has helped.
We've increased our productivity from 37 meters per rig last year to 55 this year. We still think 55 is very modest, not by international comparisons, but by South African comparisons. There are operations in South Africa that are doing close to 100. So if we can get this up some more, I think this shows you stoping tonnes have doubled over the equivalent period. As we mentioned, these are short term stats.
We've got to build on it and prove to you and to ourselves that actually this will be a good mine for the future. ESG, very briefly, I've talked about safety. It's a big focus for our business. What we're doing with the ESG issues now is we're integrating these into the business. Let's make sure that we manage these things in conjunction with the business, not on the side.
And we have an eye on these things in everything we do. We want to be sustainable on all fronts. So the safety stats are here. I'm not going to dwell on them, but I can assure you this is a big focus for the business. If we cannot mine safely, we will not mine.
Similarly, on ESG type things, we have an eye on this in particular, environmental incidents. We don't want to pollute the environment. We don't want effluent or dirty water to be discharged off the property. And that's all of those important things. On renewables, we've done a lot of work in Australia, and I was recently down at Agnew standing in the middle of 10,000 solar panels, which will give only 4 megawatts, but it's a start.
We will be building now 20,000 solar panels at Granny Smith, which will give 8 megawatts. And with the technology changing all the time, in fact, you can now attract the sun on both sides of these panels and keep moving them backwards and forwards. Battery storage is evolving as we speak. And I think within 3 to 5 years, we're going to see a lot more renewables. We will be putting up our first five wind turbines at Agni, and they'll be commissioned by the middle of next year.
This will bring down our costs. It will bring down our carbon footprint, and there's a good business case all around. Okay. So I think with that, possibly taking a bit longer, but I think we still have around about 20 minutes for question, which I'll ask Aveshka to manage between Paul and myself and the team. Thank you.
Okay. So we'll take questions from here first and then we'll go to the conference call. Thank you. Patrick?
Thanks a lot. It's Patrick Mann from Bank of America Merrill Lynch. I just wanted to ask on Australia. It's obviously very prospective region and you've got large tenements in place. Is there a way for you to bring forward some of your drilling or increase the life of mine by spending more?
Or is it just a case of these things take time and whether you throw more money at it, it's not going to increase the rate? And then the second thing that caught my eye was just around the potential for a shaft haulage at Granny Smith as you guys go deeper. Just what the thinking is around that and when that would have to come in and whether haulage costs are getting too expensive there?
Maybe I'll start at the back end, if I may. And in fact, your question is opportune because I was at the bottom of the mine about 5 weeks ago when I was down in Australia, where we're actually doing development in Zone 120. And it took us in the light vehicle, it took us a little bit over an hour to get out of the mine. Bearing in mind, we've got light vehicles and we've got trucks going up the spiral, inclines out and that's at 120. Now imagine we got Zone 135, it's a package that's like a replica.
We got Zone 150, which is down to 1.9 kilometers. It's clear to us that if we're going to capitalize on what we think is somewhere between 7,000,000 and 10,000,000 ounces here, We have to think differently both in terms of material handling and mining. So one of the things we'll be doing over the next year is a mining and material handling study But material handling study is code for a shaft, all right, let's be clear. So we're going to be doing a study on a shaft and work out at the same time how we can crank up the mining because we're going to put a shaft in, we want to be able to increase the ore. The ore at the mine at the moment is about 1,700,000 tons a year.
And you know as well, Patrick, that the process plant can do about 3,500,000 tonne. So if we can get more ore up, one is we utilize more spare capacity in the plant. There's economies of scale. And if you're going to spend money on a shaft, which is no small check to write, you want to get the volume up. Now I don't want to overpromise on behalf of the Australia region, but clearly, we want to be looking at something over 2,000,000 tonne ore, bearing in mind what we believe sits towards the bottom of Granny Smith.
Bear in mind, it's still open even beyond 150. So a study on that, it's 12 to 18 months as you saw in the book, and we'll come back on that. In terms of exploration, the one thing that sometimes surprises me is geologists will always want more money. If you offer them more money, usually they'll take it. And it's interesting that the geologists say don't give us any more money because if you do, we're going to waste it.
The thing with this exploration because of these orogenic greenstone style of deposits, you've got to do it sequentially. You can spend a whole lot of money drilling out like crazy and find you missed the ore body. They pinch and swell. They're discrete. They appear in clusters.
So you've got to actually have a program that goes in a sequence. Let's find things that matter. Let's have a second follow-up program. And when you get into diamond drilling, which is trying to get reserves on a balance sheet, fairly expensive, particularly if you're doing it from surface. So I'm afraid to say, although we believe the potential of Senayas, Agnew Grannies is to go longer and you want to see it reported in reserves, I'm afraid to say, although we could probably add a bit here and there, it is what it is.
But we're confident that we'll keep replacing. Last year, we replaced reserves in Australia. The year before, we did. I think this year we're reasonably confident that we'll replace again. But $90,000,000 is a lot to spend.
We're drilling out 400 kilometers. I think we're doing about a third of total gold exploration in Western Australia. So, it's a chunk of change. So let's get some success and see how we go. But if we bring a Redeemer in, that could add significant ounces.
And if we can bring in resource conversion at Granny's, we can add more. Let's see how we go. But it's I'm afraid it's a complex geology. It's not like the Vitz Basin again where you put a few holes in and bingo, you've got a big reserve.
Thanks.
Nick, it's Brendan Ryan, Mining MX. You, the last 5 years, you've been a strong supporter of gold prospects despite what the market has been through. You've now got the gold price going in the right direction. Could I have your assessment of what's going on? Is this a flash in the pan?
Or do you think there's something more fundamental at work here in the gold market?
I think the one thing you learn about being in the gold industry for a long time, Terrence is just smiling next to you because he knows what I'm going to say. I've been in gold fields now for 22 years, and the longer I'm here in the industry, the less I know about the gold price and what it's going to do. There's so many different factors impacting the gold price, Brennan. We just don't know. And day traders will tell you today it's going up.
The same day trader next week will tell you it's going down. So it's very volatile. Paul always says our fortunes lie in the dollar. I think that's still his view. It will go up, it will go down.
It's going to be volatile. At the moment, it looks like it's pretty good. Let's enjoy it, but let's not get carried away. Let's be cautious. I'll ask Paul to add because I know he has some strong views.
I think a lot of it is sort of interplay in what the U. S. Is doing in the dollar. Remember, there were 2 big investment vehicles, U. S.
Dollar and gold and how people move to it. At the moment, I think there's a perception that gold is more of a safe haven. So gold is running us toward all the political instability, but you don't know. We're all guessing.
Let's be cautious. And if we're wrong being cautious and we make more money, that's not a bad problem.
Could I throw a follow-up in on specifically South Deep? The rand, what do you think is going to happen to the rand? Because that obviously has a huge impact on something?
Well, I think we are as South Africans we are worried about the balance of payment issue, the national debt going up all the time. We are emerging market. We get caught up in the trade wars. We are a victim of trade wars potentially. And added to our own sort of fragile finances, the rand could be under pressure.
But the one thing Paul and I have also learned is a weakening rand in our game is like an interest free loan. You're going to pay it back. It's a question of are you going to pay it back in 18 months or 24 months? The inflation follows behind. And the other thing about South Africa that worries us is your energy costs for us are probably going to double in 5 years.
We just us are spending about ZAR500 1,000,000 a year on energy, okay? If that doubles in 5 years, that's another ZAR500 1,000,000 for us. What about the rest of the industry? How are they going to cope? We're fairly modest in terms of what we use compared to the big conventional gold mines and the platinum mines.
How are they going to survive? The structural inflation here is a major concern. And wages as well continue to go ahead of inflation and have not been matched by productivity enhancements. If anything, productivity has gone down, wage has gone up. So we've got some serious structural issues here to deal with.
Can we seek the questions on the conference call, please?
Yes. We have a question from James Baugh from RBC Capital Markets.
Yes, good morning and thanks for the call. Just two quick ones around Soze Deep. Do you think the asset can attract capital when you compare us to some of the other projects and exploration you have in the international portfolio? And secondly, given your closest peer is potentially looking to exit South Africa both from an asset and a listing point of view, Do you think it's time now for you to have a look at strategic assets strategic options around South Deep or a potential exit from there?
Yes. Let's deal with the second part of your question first. I think we wouldn't have gone through the massive pain of restructuring allied with a strike if we were checking out on Saudi. So I think that gives you the answer. We have restructured the operation.
We've taken about ZAR1 1,000,000,000 a year out of the cost base. We've improved the discipline on the mine. We've improved the quality of the management. That is not the signals of someone who's checking out. On the first half of the question, one of the beauties of South Deep is we've actually spent a lot of the money on the fixed infrastructure.
Remember, we built the plant expansion, we built the backfill plant, We put in a significant amount of additional cooling, ventilation. We deepened the vent shaft. So the real thing ahead of us now is development. We've got to develop the ore body. We've got to open up the ore body, which is not dissimilar actually.
I mean, if you look at Wallaby underground gold mine at Granny Smith, in order to access down to level 150, we've got to open up the ore body. That is the bulk of it. Obviously, there's infrastructure maintenance that will continue. So it's not like we have a mountain of capital ahead of us. It's really development that will be the key thing, obviously replacement of equipment.
But as you know, we've taken a lot of equipment out of surface out of operation rather than parking it up on surface. So that will also defray a lot of the necessary replacements, which would otherwise have to have been affected. So we've done a lot of the hard work here, James, and we'll get back into new mine development towards the end of the year. And in addition, a lot of the team that we'll deploy to that, we redeployed into doing ground support and backfill. So in fact, we'll leverage off just redeploying people back to restart those activities.
So that will actually mean that the incremental costs won't be as high as it would otherwise have been. Hopefully, I've answered your question.
Yes. That's very clear. Thanks, Nick. And then just one more on Solaris Norte. If we see spot prices persisting at these higher levels, do you feel like that's a project you can go alone on?
Or is your strong preference still to look at a partner to help you around the CapEx build, the construction there?
James, I think we're still considering all our options as to how we will bring this to account and how we're going to fund the project. That's in process at the moment. Obviously, we'll need to come to a decision by the middle of next year, but we're working on it and there's various streams of work going on as we speak.
The next question we have is from Johan Thijs from Citibank.
Thank you very much. Thanks for taking my question. Nick, you've been very successful if you strip out the Southeast situation over the past decade. You and your team have been very successful with kind of bolt on acquisitions and disposals. And I think you've created a lot of value for your shareholders through that and probably something that you guys don't get enough credit for every day.
In this current environment, it seems like you've opted out to go more towards greenfield development as opposed to further bolt on acquisitions. Is that a correct assessment? Or is it just the fact that the bolt on acquisitions have now just become too extensive?
It's a good question. And I think the one thing we must remember in this global consolidation, which I think is going to gather speed over the next year. 1 of the Canadian analysts sort of asked me the other day on a call, what did I think the gold industry would look like in a year's time and who would not be here anymore? And I'm not going to mention Lance here, but what I did say is I think it's going to be different. But I think consolidation is a means of trying to deal with the fact that the gold industry has been undercapitalized for years.
And the strategy here is let's keep the least undercapitalized assets and get others to pay a premium at a $1500 gold price to buy the more undercapitalized assets with shorter life, looming closure obligations. And hopefully then we can take the money we get from those investment sales, recapitalize our own business, smaller business, lower cost and move on. So these companies who want to do this are obviously hoping that other companies are going to give them attractive prices for the assets they don't want because they're not going to put the best assets on the block. So we've been countercyclical. We invested in new assets 3 years ago when everybody else was retiring debt and making their costs look better by not spending, we were still spending.
And now that we finished spending, we have 8 to 10 years ahead of us. We don't have any major production gaps. We're happy with what we've got. We've got Solaris coming. As Paul has just mentioned, we're looking at funding options.
But clearly, we're going to compromise our funding options if we go and buy other assets that maybe are inferior. I mean, how many assets can you buy that can give you a 2.5 year payback and $500 an ounce costs in this environment? I don't think anyone would want to sell assets like that. They'd want to keep them. Organically as well, Johan, all of our mines have potential.
We have potential on all of our existing mines to extend life, and particularly given the fact we have the sunk capital spent in the infrastructure. It's lower risk because we know the ore bodies. The best place to find gold is where you're mining it. I think that's lower risk, high return options for us. So never say never.
We continue to run the rule on everything that's out there. But less likely, I think, given Solara is coming as well and the fact that we want to pay down our debt, show some cash that we would be a participant in this process.
Mr. Holland, you mentioned one of the risks you had was electricity supply. Looking at Eskom and their ability to underachieve targets that they've set on an ongoing basis, what is the how much can you actually access from alternative sources and how much of a problem would that be? How much of a setback would it be if they continued to take even longer than expected to get the new operations going?
So we've done a study on a 40 megawatt solar field at South Deep, which we think is viable, which bearing in mind, you can't use solar when it's dark and the battery storage is limited. That could probably add on average about 20 megs. And we are using somewhere between 60 and 18 megs. So that's quite a material change to our power composition. So we have a process.
We're in a regulatory process now. We need approvals from the likes of NURSA and so on. We believe there's quite a lineup of people in as well. But if we can get approval, we will implement that in stages because on a cost basis, we believe that makes sense from day 1. Now bear in mind what I've just said is that if Eskom continues getting 15% a year, that you're going to double your costs over 5 years, it will be even more in the money in 5 years' time.
So we think it's an imperative and we'd like to be in a position if all goes well to start the first stage of that early next year.
Sorry, we do also have standby generators. Martin, correct me, 10 going up to 12 at the end of the year of 12 megs that we really got on-site. So
good one, yes.
Thank you. May I ask another question? Yes. When you look covering the South African operations, you had a number here, gold production increases on the South Deep and we're looking at $12.75 an ounce. Now looking at the volatility of the gold price, which has been immense recently, how far down could that go before you actually said, sorry, we've got to cease operations or slow down operations considerably?
Yes. Well, look, the fact that we've already brought our costs down significantly in the second quarter, I think you're showing in fact it's going the other way at the moment and off a very high cost base. Clearly, we've said that Goldfields franchise assets, we want to get to as close as we can to $900 and make a 15% margin at a $1200 gold price. So that's the task for the South Deep team is to drive us down there. And if you look at an increase in volume, look what it does.
You've dropped your costs 30% plus just by getting a modest increase in volume. And we're still only using at these sort of production levels a third of the installed capacity. So we've got capacity here. So the marginal cost of extra tons will be lower, quite a sizable amount lower than the all in costs. So that's why it's a volume it always has been, always will be.
And if you can get more open stoping through, which is your big volume, development and destress is on reef, but it's low volume, get your open stopes through, that's really where you're going to see the leverage here. So let's see where we go. But we're encouraged by where we sit today.
Thank you.
Brendan?
Nick, following up on your comments on South Africa, could I ask you for your overall assessment of what's going to happen to the gold industry here? I mean given AngloGold wants out, Harmony wants to go to PNG and even the PIC says it wants to invest in South Africa. What is the future of gold mining in this country? Sorry, West Africa.
Well, look I've been saying for a long time that the gold industry is in decline in South Africa. And recently, we were eclipsed by Ghana, as you saw. Ghana now is the largest gold producer in Africa, and I think South Africa now is down to sub-one hundred and thirty tons a year. I think the die is cost because if you look at increasing depth, declining grades, increasing costs, that's a combination altogether that is a real storm against you. So I think the rand when it weakens, it gives you some respite.
But we've seen this over the years. The rand weakens a bit. You get a bit of respite. Inflation comes up. Then you get the combined effect of increasing depth, more capital required to access depth, more ventilation, more cooling, grade comes down.
The gold industry is in decline and it will continue to be in decline. We're only now 1% of GDP, the gold industry. So how relevant are we in terms of the economy? That's the reality of where we are.
Okay. Let's get one from the webcast. Please can you unpack the impact of the hedge and the potential impact going into 2020?
Well, it's in the book. As we said, the mark to market loss at the end of June was $120,000,000 We've basically hedged half of Australia's production for next year, half of Ghana's production. We've hedged 75% of South Deep. One of the main reasons is your concern you raised earlier, we've got hedges of around R680,000 a kilogram for South Deep for next year. That's to give Martin a bit of headroom to get the mine back to the cost level where we want it.
Yes, the reason we have taken out the hedges is not that we're trying to guess the gold price. Our planning assumptions for next year are 1200 U. S. Dollars, A1600 dollars and R555000 a kilogram. When we embarked on this hedging exercise, it was about 3.5 months ago.
You need to remember where the prices were then. What we did is we had a draft ops plan for 2020. We had a certain cash flow and we were requested what can we do to improve it. The value of these hedges, let's ignore the mark to market, but vis a vis what we saw is the planning process adds about US130 $1,000,000 of free cash flow post tax to our proposed cash flow financing. That's the reason we took it.
So we said, we don't know where the gold price is going, we really don't know. We saw some very attractive prices and we said, let's take some of the money off the table. We are not strategic long term hedges, we will only hedge for a year in advance and that's what we have done. It's underwater at the moment, but who knows where it will be at the end of the year, maybe it's worse, maybe it's better, but we're not trying to guess it. I at least now know when I finalize my plan for next year which we're doing in the next 3 months, I can put in some definite numbers.
We're good on production, we're good on cost. We always were subject to gold price volatility. We've locked in a lot of it now. So we can basically know what our cash flow will be for next year when we do our plans and complete it in 3 months' time.
Thank you. Is there one last one here? No,
good there.
Thank you very much. Media, the roundtables upstairs. Thank you.