Good day, ladies and gentlemen, and welcome to the Goldfields Limited Quarter 1 twenty nineteen Results. All participants will be in listen only mode. There will be an opportunity to ask questions later during the conference. Please note that this call is being recorded. I would now like to turn the conference over to Nick Holland.
Please go ahead, sir.
Thank you very much and 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 2 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, while at the same time lowering our costs and extending the mine lives. Having spent total project capital in excess of US500 $1,000,000 over the past 2 years, primarily on Damang and Gruyere, Oilfield is now well placed to maintain a production profile of around 2,000,000 ounces a year at our international operations in Australia, Ghana and the Americas over the medium to longer term, which is around 8 to 10 years.
Looking at the Q1 of 2019, our Chiwitz gold equivalent gold production for the quarter was 11% high year on year at 542,000 ounces. Bearing in mind production in quarter 1 included 27,000 ounces from Asanko. All in sustaining costs were largely flat year on year, but down 5% quarter on quarter at US963 dollars per ounce and all in costs were 6% lower year on year and 11% lower quarter on quarter at $10.80 per ounce. Despite the project capital still being spent by the group in quarter 1 2019, as well as the payments of the 2018 dividend during the quarter, the net debt balance was largely unchanged at $1,600,000,000 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. So we've had to absorb that too. Turning to the projects. Demand continued its strong performance in quarter 1. The mine produced 57,000 ounces at all in costs of $10.27 and all in sustaining costs of $6.33 per ounce.
That's a big improvement from the 40,000 ounces produced in quarter 4 at all in cost of $1600 per ounce. Project capital of $23,000,000 was spent at the Main during the quarter, leaving around $46,000,000 to be spent over the remainder of 2019. And 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, and within the previously announced total cost estimate of A621 $1,000,000 Now that's 100% basis. Construction of the processing plant is near completion at 97%, with finishing works in progress across sites and progressive handover to commissioning.
Mining is tracking ahead of plan with approximately 800,000 tonnes of ore already mined and stockpiled in preparation for the plant started. And I'm sure that will increase further as we get close to the commissioning time. At South Sea, production started to recover from a challenging quarter for 2018 due to the strike and the industrial action, but 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. Planned production 2019 is weighted towards the second half due to the impacts obviously of the strike in the 1st 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. Southheap continues to focus on a number of key enabling activities with tangible progress being achieved at the end of the quarter and into the Q2 of 2019. And these, of course, revolve around things like backlogs, support, backfill, etcetera, and they're all making a difference. Outlook for 2019 is unchanged. As previously guided, Goldfields expects an increase of between 4% and 7% in attributable equivalent gold production in 2019 to between 2,130,000 and 2,180,000 ounces.
All in sustaining costs are expected to be between $9.80 an ounce and $9.95 per ounce and all in costs between $10.75 $10.95 per ounce. As previously mentioned, however, the year is expected to be 1 of 2 halves with both production and cash flow being weighted into the second half of twenty nineteen. And with that, we'll hand over to any questions that you may have. Thank you.
Thank Our first question is from James Baugh of RBC Capital Markets.
Yes, 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.
And 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? And then secondly, just at Domingue, 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.
Yes. Maybe I'll just say, James, on the second question, look at the reserve grade that we've published in the R and R supplement to the annual report, and I think that will 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 tonne or so. 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.
So once we get into that, we should see the grades picking up again. And I'd also remind you that we did give an ounce profile as well, showing year by year what it looks like. But 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 Sunrise doing over 100,000 ounces.
You'll remember too that guidance for the full year is not tracking an annualization of that. It's around about 360,000. So obviously, each quarter is different. The ore bodies we're mining are dynamic. A mine like Cenaios 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 Invincespa open pit. And then there will be a big shift more to underground mining, which of course has higher cost per tonne, but obviously has higher grades to whether or not that all compensates out will remain to be seen. But nevertheless, for the year overall, we're very confident still of the production and the cost of production, the all in cost, all in sustaining cost, all of the operations. So 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 and 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 tenure. So probably should have said that upfront, but now that I've got the moment, I'll just remind you that, that note went out today. Thank you.
Okay. Thanks, Nick. And then 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 Euclid, you said?
Correct, yes.
Yes. So I think if we're able to achieve the guidance for the year and taking into account the fact that we've taken out a rand gold hedge for 100 and 12,000 ounces, 1,000,000 ounces at an average forward price of about R617,000 kilogram. And 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, then we've got a good chance that given our guidance of R610,000 kilogram for the year at 6 tonnes, that we believe we should get pretty close to a breakeven. We don't think we'll be a 1000000 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 and if we can achieve those costs. So the hedge will certainly help. I think today we're sitting under R590,000 Kilogram. The hedge is at R617,000,000, so that gives us good protection. The price achieved to date on all of our gold sales for the Q1 has been about R590,000 a kilogram.
So we'd average out for the year pretty close to our cost guidance. So 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 serocorona. Rates declined quarter over quarter. Wondering how we should be thinking about Cerro Corona through the remainder of the year from a particularly gold perspective?
Yes. 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 were 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.
Now obviously, we have to take the pit down right across the floor. So you have high grade areas and you have medium grade and you have lower grade areas. There's 2 barren cores in Serra 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, but obviously you have to mine at all.
So grades will vary. Again, I would point you to the reserve statements, Andrew, where if you look at the gold and the copper grades, that gives you an idea of where we're headed. So 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. And just one further question. Can you remind us whether your production guidance for 2019 includes preproduction from Gruyere and or whether it excludes it?
Yes. So we've got production for Gruyere in our guidance of 59,000 ounces, which is our share of the 50% production. So that's implicit in our guidance for the year. And I think you've seen Gold Road when they put up their announcement. They also had 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 globe.
Right. And correct me if I'm wrong, but your expectation is that you will ramp up towards full production rates at Greer 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? And if so, what parameters are you going to use to define commercial production at Gruyere?
Yes. Once we get to around about 70% to 80% plant throughput, we would define that most likely as commercial production. But we'll give more color on this together with Gold Road definitively once we hit first gold, which as we say, is still scheduled to be before the end of June.
And then 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 by the end of June. So we're pretty close. But as you would know, on building fairly large greenfields projects like this 8,000,000 tonne 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. So obviously, there's a lot of work going on right now, lots of electrical
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 bond 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 tenure? I think you
said the 5 to 10 year bond is sort
of the range you'd be looking at.
Yes, if you could just talk a little bit more on that. Thank you. Yes, look, obviously, you will know that we have a term loan of $380,000,000 that's coming up for maturity. You'll know we have a bond as well of $8.50 net that was due to be retired towards the end of next year. So clearly, we've got these in mind.
And obviously, it's always preferable to go early, if you can. But 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 tenure 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 $1,000,000,000 $1,000,000,000 matures in 2020. Obviously, we bought back $150,000,000 so it's net $850,000,000 That's a big chunk of money to pay off in one hit. So clearly, we'd be looking to spread this out and have some early maturities, some later maturities and see what the appetite is. But we don't know what the pricing is going to be. We don't know what the tender is going to be or the amount until we've been out there and done the road show.
So 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. So sorry, I'm not giving you a lot more than that, but let's see where we end.
No, no, that's perfect. Thanks, Nick. That gives us kind of how your thought process is around it and it makes a lot of sense. Thank you.
Thanks.
Our next question is from Adrian Hammond of Sandler Bank.
Hello, Nick. Just a couple of things, if I may. Sure. Just 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. So what's driving that poor results on the cost side?
Yes. I think the Atrium, that is in line with guidance. We're not expecting our costs to be outside of guidance for the year. So 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.
Now we're opening up a new mine front there, which requires more development. And as you get deeper, development is more expensive at Wallaby. We're obviously transitioning Sonae's to be more of an underground mine than an open pit mine. And you'll know as well that Invincible, I think that will be finished this year. Then we'll only have Neptune and we'll have as an open pit, we'll have Hamlet and Muncieville as your underground sources.
So 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, but I think CMF stood out quite remarkably. Does that number of 103,000,000 seems sustainable to you? Or is that something going to normalize towards the guidance for the year?
Yes, it will normalize. I think you have to look at some ice as being about a 360,000 ounce operation. Now bear in mind as well that we processed a lot of stockpiles both in quarter 4 last year and in quarter 1. That's a blending issue as well as just let's make sure we fill the mill and it makes money for us. But I think over the rest of the year, we'll see some items normalized to the run rate of about 360,000 ounces.
So 103,000 ounces is a standout quarter. That won't be repeated in the quarter going forward.
And lastly, just any update on new plans for South Deep?
Well, I think at this stage, given that we've just gone through 6 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 breakeven. That's the most important focus for now. And obviously, we'll update you later in the year as to where we go from here. But 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 high grade areas of mine in the second half, which is going to help us. But yes, step by step, I think we're taking a short term approach for now, and 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.
Our next question is from Jared Hoover of RMB Morgan Stanley.
Hi, afternoon team. Thanks for the call. Just two questions from my side. The first relates more to on a strategicoutlook side and the other is a bit more operational. So just in terms of your outlook and some of the statements that were made in the presentation or in the release earlier, I mean, you mentioned sustaining a production profile of about 2,000,000 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.
But I think what actually does look a little new was your all in sustaining cost target by 2020, say 2021. I think previously it was pegged at about $865 an ounce in 20 17 money terms. It's probably about $9.80 odd at the end of 2021. And 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.
I mean, we know that Demang and Grier are nearing completion. We know project CapEx is rolling off. But then 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. So I think if you look overall, you hit the nail on the head upfront by saying Grier is going to come in at lower cost. It clearly comes in at just over A1000, which is probably around about $750 or so or even lower today U. S. So that's going to have a major impact.
Demand, you can see already we're starting to see all in sustaining costs of 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 $800,000 $8.50 a plus better, and that's around 230,000 to 240,000 ounces a year. Korea is going to be around about 150,000 ounces a year. So Australia, you've got 20% of your production coming in a lot lower. And with what we're seeing, the likes of Taco, you can see Taco is getting closer to $900 That's a £500,000 a year operation.
You can see in particular with the Aussie dollar exchange rate that Senayas, Agnew and Wallaby, Granny Smith are all looking to be below US1000 dollars And of course, Cerro Perona, we expect to stay somewhere around about US750 dollars to US800 dollars So 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. So do you believe that target of 900 or thereabouts, 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. So I guess it's fair to say that we can leave South Deep in at about 7% to 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. Bear 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.
But also, as demand picks up, as Gruye comes in, already you're adding another 8% to 10% production anyway. So even if South Deep just went up a little bit, it still wouldn't increase significantly in relation to the total. But I mean 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.
But obviously, let's bear in mind, we've just come through 6 months of stop start production. And you don't just switch these things back on quickly. In January, we hardly got any production. We had to spend most of the month just staying back, we supporting, making sure that everything was safe for people to enter. So you've only really seen the momentum start in February.
So it's very early days still.
Okay, great. And then just my second question, it just relates to Domingue. And I mean, as you mentioned, it's tracking according to plan. You're now into the high grade Saddle area of the Demang pit cutback. But what I did see was that there was a reduction in the strip ratio, which obviously has been positive for costs.
So can you give us an indication of how we can expect that strip ratio to evolve throughout the year? And 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. So look, obviously, we've said that Amawanda in its current state will be mined out by the middle of the year, which has been a useful satellite deposit. So we've essentially done all the strip we needed to do there. We're getting to the base of the bid now. And so that's one of the reasons that we've come off.
But 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, whereby the main pit will be the high grade. By the middle of 2020, we'll get there. So there'll still be a fair chunk of strip to go. So I would say, you should still be thinking that we're going to be mining around about 35,000,000 tonnes or so 35,000,000,000 to 40,000,000 tonnes this year. And obviously, ore is going to be about 4,500,000 tonnes or so.
So the strip ratio will come off, but there's still quite a lot of waste to be mined this year. And then as we get to the middle of next year, we'll see a dramatic decline again as we get down to the level where we'll open up all of the ore. So I don't have it quarter by quarter, but 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, Jim.
We have no longer we have no more questions in the queue.
Well, thank you very much everybody for dialing in today and receiving the update. And 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. And obviously, we're looking forward to Gruyere getting into production in June.
And 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. So 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.