Good day, ladies and gentlemen, and welcome to the Gold Fields Limited Quarter 1 2019 results. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this call is being recorded. I would now like to turn the conference over to Nick Holland. Please go ahead, sir.
Thank you very much. Good afternoon or good morning, depending on where you are in the world today. Thanks for joining us for a brief update on our Quarter 1 2019 operating performance. Over the past two years, Gold Fields has been focused on reinvesting into the business, with 2019 expected to be the inflection point as project capital decreases and the new projects start to contribute to the group. The key motivation behind the investment focus has been to ensure that our portfolio of mines continues to generate cash into the future sustainably, whilst at the same time lowering our costs and extending the mine lives.
Having spent total project capital in excess of $500 million over the past two years, primarily on Damang and Gruyere, Gold Fields is now well-placed to maintain a production profile of around two million ounces a year at our international operations in Australia, Ghana, and the Americas over the medium to longer term, which is around eight to 10 years. Looking at the first quarter of 2019, attributable equivalent gold production for the quarter was 11% higher year-on-year at 542,000 ounces. Bearing in mind, production in quarter one included 27,000 ounces from Asanko. all-in sustaining costs were largely flat year-on-year, but down 5% quarter-on-quarter at $963 per ounce, and all-in costs were 6% lower year-on-year and 11% lower quarter-on-quarter at $1,080 per ounce.
Despite the project capital still being spent by the group in quarter one 2019, as well as the payment of the 2018 dividend during the quarter, the net debt balance was largely unchanged at $1.6 billion from roughly the same number at the end of the year. Worth bearing in mind, of course, things like tax payments are also often front-ended. Bear in mind, the end of the year is achieved at various of our operations around the world. We've had to absorb that, too. Turning to the projects, Damang continued its strong performance in quarter one. The mine produced 57,000 ounces at all-in costs of $1,027 and all-in sustaining costs of $633 per ounce. That's a big improvement from the 40,000 ounces produced in quarter four at all-in costs of $1,600 per ounce.
Project capital of $23 million was spent at Damang during the quarter, leaving around $46 million to be spent over the remainder of 2019. Again, most of that will be front-ended into the first half. Gruyere remains on target for first gold production in the June 2019 quarter, Gruyere, that is, within the previously announced total cost estimate of AUD 621 million. That's 100% basis. Construction of the processing plant is near completion at 97%, with finishing works in progress across site and progressive handover to commissioning. Mining is tracking ahead of plan with approximately 800,000 tons of ore already mined and stockpiled in preparation for the plant starter. I'm sure that'll increase further as we get close to the commissioning time.
At South Deep, production started to recover from a challenging quarter 4 2018 due to the strike and the industrial action, with the mine producing 34,000 ounces, which is actually tracking the mine's plan and guidance for the year, despite the effects of load curtailment implemented by Eskom. The planned production 2019 is weighted towards the second half due to the impact, obviously, of the strike in the first month or so of the year that we had to recover from, and also due to higher-grade corridors that will be accessed during the second half. The rebooting of the mine post the strike last year, which ended on 18 December, meant that most of January was devoted to making safe, reorientating the reduced workforce, and recalibrating the entire organization to implement the revised mining plan following the previously announced restructuring.
I'm glad to say, however, that momentum did pick up in February after the slow start, as well as March and has continued into April. South Deep continues to focus on a number of key enabling activities, with tangible progress being achieved at the end of the quarter and into the second quarter of 2019. These, of course, revolve around things like backlogs, support, backfill, et cetera, and they're all making a difference. Outlook for 2019 is unchanged. As previously guided, Gold Fields expects an increase of between 4% and 7% in attributable equivalent gold production in 2019 to between 2.13 and 2.18 million ounces. All-in sustaining costs are expected to be between $980 an ounce and $995 per ounce, and all-in costs between $1075 and $1095 per ounce.
As previously mentioned, however, the year is expected to be one of two halves, with both production and cash flow being weighted into the second half of 2019. With that, I will hand over to any questions that you may have. Thank you.
Thank you. Ladies and gentlemen, if anyone would like to ask a question, you're welcome to press Star and then One on your touchtone phone. If at any other wish to withdraw your question, you may press Star and then Two to remove yourself from the question queue. If anyone would like to ask a question, please press Star and then One. Our first question is from James Bell of RBC Capital Markets.
Yeah, good afternoon. Thanks for the call. Just two questions. Firstly, on group costs. Your all-in sustaining costs at group level came in below the low end of your full year guidance. Given the sort of messaging around second half weighting, I just wondered if there was any things we should think about for pushing costs up, maybe in the next quarter or into the second half, that would make that occur. Secondly, just at Damang. Are you able to remind us as to how the grade profile will be changing as the reinvestment plan completes, in terms of the phasing of the grades moving there? Thanks.
Yeah. Maybe I'll just say, James, on the second question, look at the reserve grade that we've published in the R&R supplement to the annual report. I think that'll give you a good indication as to what the grades will be. Which if I recall, we were showing head grades of about 1.8 grams a ton or so. That's what we'd expect to see as we get into the heart of the ore body. Remember, we should only be in the main pit cutback around the middle of next year, and that is obviously the highest grade portion of the ore body. Once we get into that, we should see the grades picking up again. I'd also remind you that we did give an ounce profile as well, showing year by year what it looks like.
That reserve grade is a good indicator as to what you might see. I think the other thing to say is we've had a good start to the year on the international operations. Clearly you're seeing an operation like St. Ives doing over 100,000 ounces. You'll remember, too, that guidance for the full year is about tracking an annualization of that. It's around about 360,000. Obviously, each quarter is different. The ore bodies we're mining are dynamic. A mine like St. Ives has a number of different ore sources that oscillate between open pit and underground. Bear in mind, too, that towards the end of this year, we'll complete the mining of stage 6 of the Invincible open pit, and then there'll be a big shift more to underground mining. Which of course has higher cost per ton, but obviously has higher grades too.
Whether or not that all compensates out will remain to be seen. Nevertheless, for the year overall, we're very confident still of the production and the cost of production, the all-in costs, all-in sustaining costs for all of the operations. It does move around, I'm afraid. It's difficult to look at it by quarter, but the numbers for the year are still a good indicator to look at. I should just also say maybe at the outset, I probably should have mentioned, while I've got the moment just to say we have put out a note on the fact that we're exploring a bond financing. We'll be embarking on a road show that starts in the next couple of days, and we'll be looking to see what the potential is to raise some bond financing in the 5 to 10 year tenor.
Probably should have said that up front, now that I've got the moment, I'll just remind you that that note went out today. Thank you.
Okay. Thanks, Nick. Just one more, if I may, on South Deep. How should we think about the move towards cash breakeven from the asset this year, given progress in Q1?
South Deep, you said?
Right, yeah.
I think if we're able to achieve the guidance for the year, taking into account the fact that we've taken out a rand gold hedge for 112,000 ounces at an average forward price of about ZAR 617,000 a kilogram. That kicks in from June, whereby essentially we'll be delivering about 75% of our monthly production in terms of the prices underneath that hedge. We've got a good chance that given our guidance is ZAR 610,000 a kilogram for the year at 6 tons, that we believe we should get pretty close to a breakeven. We don't think we'll be a million miles away from getting the mine to a breakeven if we can still achieve that guidance, which so far we're sticking to. There's no reason for us to change. If we can achieve those costs. The hedge will certainly help.
I think today we're sitting under ZAR 590,000 a kilogram. The hedge is at ZAR 617,000, so that gives us good protection. The price achieved to date on all of our gold sales for the first quarter has been about ZAR 590,000 a kilogram. I think that gives you an idea of where we're headed.
That's great. Thank you.
Our next question is from Andrew Kaip of BMO.
Hi, good morning. I've got a couple of questions. The first one is just regarding Cerro Corona. Grades declined quarter-over-quarter. I'm wondering how we should be thinking about Cerro Corona through the remainder of the year from a particularly gold perspective.
Yeah. Again, Andrew, I would say the same as what we said to James, that we're very confident on the guidance, that the guidance we gave for the year, we're comfortable with. Gold equivalent production of about 280,000 ounces, I seem to recall. We're still good for that. The grades can vary depending on where you are in the pit. Obviously, we have to take the pit down right across the floor. You have high-grade areas and you have medium grade, and you have lower-grade areas. There's two barren cores in Cerro Corona, and the closer you get to the barren cores, the lower the grade. If you can be mining in the heart of the ore body away from the barren cores, the grades are pretty good, obviously you have to mine it all. Grades will vary.
Again, I would point you to the reserve statement, Andrew, where if you look at the gold and the copper grades, that gives you an idea of where we're headed. Certainly what we're seeing now is not a surprise to us. It's bang in line with the mining sequence that underpins the business plan for the year.
Right. Just one further question. Can you remind us whether your production guidance for 2019 includes pre-production from Gruyere? Or whether it excludes it?
Yeah. We've got production for Gruyere in our guidance of 39,000 ounces, which is our share of the 30% production. That's implicit in our guidance for the year. I think you've seen Gold Road Resources when they put out their announcement. They also have that, but with a range to it. We've just given an absolute number, and we've given a range on our overall group production, which obviously takes into account potential variations across the group.
Right. Correct me if I'm wrong, your expectation is that you will ramp up towards full production rates at Gruyere through the second half of this year. Is there an expectation or is there a desire to want to consider looking at commercial production in 2019? If so, what parameters are you going to use to define commercial production at Gruyere?
Yeah. Once we get to around about 70%-80% plant throughput, we would define that most likely as commercial production. We'll give more color on this together with Gold Road Resources definitively, once we hit first gold, which as we say, is still scheduled to be before the end of June.
Can you give us any more insight on how that's tracking from a completion standpoint towards achieving that goal?
Well, as we said in the book, we're at about 97% as we stand at the end of the quarter. We've got no reason to say today that we can't achieve the goal of the end of June, so we're pretty close. As you would know, on building fairly large greenfields projects like this 8 million ton a year plant, there's a whole bunch of tie-ups and connectivities to be put in place, electrical, piping, making sure it all talks to each other. Obviously, there's a lot of work going on right now, lots of electrical foremen and engineers working to make sure that all ties together. So far so good. End of June, hopefully we'll be there.
Thank you very much.
Sure.
Our next question is from Patrick Mann of Bank of America.
Hi, guys. Good afternoon. Thank you very much for the call. I just wanted to ask a little bit more on the bonds that you're looking to raise. Can you just talk to the balance sheet, what you're looking to refinance, and how you feel about the tenor? I think you said the 5-10 year bond is sort of the range you'd be looking at. Yeah, if you could just talk a little bit more on that. Thank you.
Yeah, look, obviously, you'll know that we have a term loan of $380 million that's coming up for maturity. You'll know we have a bond as well of $850 million net that is due to be retired towards the end of next year. Clearly, we've got these in mind, and obviously, it's always preferable to go early if you can. We're not really going to give too much more as to what we think is the potential because the markets will dictate and markets can be volatile, markets can change. We will commence this roadshow, and we'll be meeting obviously with a number of fixed income investors, and that will gauge the appetite as to how much what the tenor is and what the cost is. Clearly, we want to try and structure maturities not to be all occurring at the same time so that we can improve the liquidity.
For example, the 2010 bond was $1 billion. $1 billion matures in 2020. Obviously, we bought back $150 million, so that's net $850 million. That's a big chunk of money to pay off in one hit. Clearly, we'd be looking to spread this out and have some early maturities, some later maturities, and see what the appetite is. We don't know what the pricing is going to be. We don't know what the tenor is going to be or the amount until we've been out there and done the roadshow. We should be able to give an indication, I guess, in the next month as to whether or not we were successful and what we've been able to do. Sorry, I'm not giving you a lot more than that, but let's see where we end.
No, that's perfect. Thanks, Nick. That gives us just kind of how your thought process is around it, and it makes a lot of sense. Thank you.
Sure.
Our next question is from Adrian Hammond of SBG Securities.
Hello, Nick. Just a couple of things, if I may.
Sure.
Just briefly, if you stand back and look at the cost performance year-on-year. Your production was a very good result, up 11%, but your sustaining costs were up as well. What's driving that poor result on the cost side?
Look, I think, Adrian, that is in line with guidance. We're not expecting our costs to be outside of guidance for the year. We have guided it. Obviously, one needs to remember that there are a bunch of sustaining capital that has to be spent across the different operations, particularly as we get into the deeper parts of Wallaby. We're opening up a new mining front there, which requires more development. As you get deeper, development is more expensive at Wallaby. We're obviously transitioning St. Ives to be more of an underground mine than an open-pit mine. You'll know as well that Invincible open pit will be finished this year. We'll only have Neptune, and as an open pit, we'll have Hamlet and Invincible as your underground sources. That will change the cost structure, too.
I don't know if there's any particular operation you wanted to pinpoint that I could help you with.
Not really, I think St. Ives stood out quite remarkably. Does that number of 103 seem sustainable to you, or is that something going to normalize towards the guidance for the year?
Yeah, it'll normalize. I think you have to look at St. Ives as being about a 360,000-ounce operation. Bearing in mind as well that we processed a lot of stockpiles both in quarter four last year and in quarter one. That's a blending issue as well as just, let's make sure we fill the mill and it makes money for us. I think over the rest of the year, we'll see St. Ives normalize to the run rate of about 360. 103,000 ounces is a standout quarter. That won't be repeated over any quarter going forward.
Lastly, just any update on a new plan for South Deep?
Well, I think at this stage, given that we've just gone through six months of restructuring, getting the mine to recover its momentum is the key focus for us, to get the mine to achieve its plan for the year and to get as close as possible to break even. That's the most important focus for now. Obviously we'll update you later in the year as to where we go from here. Right now, we're getting the team to focus on the short end results and not to be too concerned about the longer end. Obviously, if things go well, we'll need to resuscitate new mine development at the end of the year. That is really where the future is. We've got plenty ahead of us to mine now.
We're going to be getting back into the higher-grade areas of the mine in the second half, which is going to help us. Yeah, step by step. I think we're taking a short-term approach for now, We'll give you a better strategic view as to where we go, I guess, towards the end of the year, early next year.
Thank you. That's it from me.
Sure.
Ladies and gentlemen, just one final reminder. If anyone would like to ask a question, please press star and then one on a touch-tone phone. Our next question is from Gerrit Hoover of RMB Morgan Stanley.
Hi. Afternoon, team. Thanks for the call. Just two questions from my side. The first relates more to, well, on a strategic/outlook side, and the other is a bit more operational. Just in terms of your outlook and some of the statements that were made in the presentation or in the release earlier. You mentioned sustaining a production profile of about 2 million ounces from your international ops in the medium to long term, which isn't too different to the 5-year outlook that was released in about 2017. I think what actually does look a little new was your all-in sustaining costs target by 2020, say 2021. I think previously it was pegged at about $865 an ounce in 2017 money terms. It's probably about $980 odd at the end of 2021. I think your target now is about $900 an ounce.
I just wanted to get a bit more of your thinking around setting that new target. We know that Damang and Gruyere are nearing completion. We know project CapEx is rolling off. You also have South Deep, which is no longer contributing as much as it was previously expected to, so probably having a higher cost profile. Just wanted to get a bit more of your thinking around that.
Sure. I think if you look overall, you hit the nail on the head up front by saying, Gruyere is going to come in at lower cost. Clearly comes in at just over AUD 1,000, which is probably around about $750 or so, or even lower today, U.S. That's going to have a major impact. Damang, you can see already, we're starting to see all-in sustaining costs are below $700 this last quarter. Once the big project capital is spent, we'd expect to see that at least track what the reinvestment plan indicated, which was between $800 and $850 across the meter. That's around 230,000-240,000 ounces a year. Gruyere is going to be around about 150,000 ounces a year. Straight away, you've got 20% of your production coming in a lot lower.
With what we're seeing, the likes of Tarkwa, you can see Tarkwa is getting closer to $900. That's a 500,000 ounces a year operation. You can see in particular with the AUD exchange rate that St. Ives, Agnew, and Wallaby, Granny Smith, are all looking to be below $1,000 U.S. Of course, Cerro Corona, we expect to stay somewhere around about $750-$800. Even if South Deep remains fairly high relative to the target of $900, because it's only going to be about 7% or 8% of our production, it's not going to have a huge impact. We believe that target of $900 or thereabout, assuming that there's no major inflation pickup based on the portfolio that we'll have at that time, it looks like a reasonable assumption for us.
Okay, great. I guess it's fair to say that we can leave South Deep in at about 7%-8% of production then.
Look, I'm not saying that. That's where we are today. It really just depends what we do next year and how hard we push it, bearing in mind we want to get short-term performance. We're looking really to get a solution on short-term performance and then decide where we go from here. Also, as demand picks up, as Gruyere comes in, already you're adding another 8%-10% production anyway. Even if South Deep just went up a little bit, it still wouldn't increase significantly in relation to the total. Longer term, like every other asset, it has to achieve its goals to be a franchise asset. It's got to make a 15% margin. It's got to get its cost down. Obviously, let's bear in mind, we've just come through six months of stop-start production, and you don't just switch these things back on quickly.
Yeah.
In January, we hardly got any production. We had to spend most of the month just going back, re-supporting, making sure that everything was safe for people to enter. You've only really seen the momentum start in February. It's very early days still.
Okay, great. Then just my second question, just relates to Damang. As you mentioned, it's tracking according to plan. You're now into the high-grade Saddle area of the Damang pit cutback. What I did see was that there was a reduction in the strip ratio, which obviously has been positive for cost. Can you give us an indication of how we can expect that strip ratio to evolve throughout the year? Obviously, that gives us an indication of where costs would land up for the year or even going into the second and third quarter.
Sure. Look, obviously, we've said that Amoanda in its current state will be mined out by the middle of the year, which has been a useful satellite deposit. We've essentially done all the strip we needed to do there. We're getting to the base of the pit now. That's one of the reasons that we've come off. Obviously, at the same time, we still have some ways to go to get to the heart of the ore body I talked about on the call earlier.
Yeah
whereby the main pit will be the high grade. By the middle of 2020, we'll get there. There'll still be a fair chunk of strip to go. I would say you should still be thinking that we're going to be mining around about 35 million tons or so, 35-40 million tons this year. Obviously, ore is going to be about 4.5 million tons or so. The strip ratio will come off, but there's still quite a lot of waste to be mined this year. As we get to the middle of next year, we'll see a dramatic decline again as we get down to the level where it'll open up all of the ore. I don't have it quarter by quarter.
What we can tell you is the cost estimate for the year is still a good cost estimate that we gave in February, so you can rely on those numbers. I'm pretty confident that we'll hit those.
Okay, perfect. Thanks, Nick.
Thank you. Sir, you can make your closing comments. We have no more questions in the queue.
Well, thank you very much, everybody, for dialing in today and receiving the update. I'd just like to reiterate that I think it's quite a positive start for the year for us. It basically meant that we hit the ground running. We're feeling confident about our forecast for the year, our guidance, both in terms of production costs. Obviously, we're looking forward to Gruyere getting into production in June. We're looking for further momentum from South Deep to make sure that it's a much better 2019 than 2018 we just went through. We look forward to talking more to you at the half year and giving you a further update as to where we are. Once again, thank you very much for dialing in today.
Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.