Afternoon, ladies and gentlemen, and welcome to Goldfield's results for the 6 months ended 30th June, 2018. Just before we start, the exit at the front or the back, and if there's an emergency, you assemble outside the building. I'll hand over to Nick who will do the presentation, and we'll do question and answers after that. Thank you, Nick.
Thank you very much, Avishka. Good afternoon, everybody. Thanks for taking the time to join us today to talk through these results for the first half of twenty eighteen. I think, first of all, although a lot of the news this week has been focused on South Deep, we shouldn't forget that, of course, there are a number of other operations in the group that are doing quite well actually. Certainly, we believe so.
Strong performance from the international ops, and they made $190,000,000 after taxes and all capital before the project CapEx, so pretty good performance there. They are on track to achieve their guidance for the year in terms of production and look like they should as well achieve their cost guidance. Demang, in particular, is tracking well. I'll talk a little bit about that later. That's ahead of plan.
Korea remains on track for 1st gold in quarter 2 next year. That's what we said previously. We're still on track. CapEx is a little bit higher than what we said before. It's about 18% up from what we thought it would be.
And we're roughly just over halfway through that spend, with physical progress about 60% overall, so tracking reasonably well. South East restructuring and the impairment we announced on Tuesday. I'll talk about that again a little bit later on. Balance sheet is good. The Asanko transaction, we completed on the 31st July.
So we now earn a 45% interest in the Ghanaian operations of Asanko. We've got some slides on that too. In line with our policy, a dividend of $0.20 per share, which represents right about a third of our normalized earnings. So here's some of the headline numbers. Production, this is from continuing operations because essentially, Darla was in the numbers for last year, but in terms of our accounting, we take out discontinued operations.
So this is like for like. Production just under 1,000,000 ounces for the half year, about 2% lower than what we had last year. Most of that decline linked to South Deep, also Taqua. All in sustaining costs, virtually flat. All in costs, slightly higher, and that's really on the back of our projects picking up steam as we expected them to do.
Mine cash flow, $190,000,000 on the previous slide. But if you put in South Deep, there's a $41,000,000 outflow in the 6 months. So that drops us to $149,000,000 nicely up against the previous year of 108 dollars The one thing that Paul and I look at more than anything is our cash. For us, we don't get too hung up on the earnings. We are much more focused on how much money we make, how much cash.
That for us is the real issue. So nice to see that that's up. Project spending, as I mentioned, that's up to $192,000,000 The pickup there is really on Grier and Demang as they picked up. Those are the 2 main contributors and pretty much in line with what we expected. So of course, then after project capital, we are cash negative from the business.
This is what we call the core business, yen 79,000,000 out compared to yen 102,000,000 out last year this time. Also just to remind you, we said that 2017, 2018 would be cash negative with the new projects, and we're reasonably comfortable that these numbers dollars 43,000,000 year. So normalized earnings, dollars 43,000,000 that's the figure if you strip out all of the funnies, the non recurring items compared to 75 That's lower than last year even though our operating profit was higher on the back of the higher gold price. And the main reason for that is higher exploration costs have come through and higher social costs which go below operating profit. That's the main reason for that coming through.
The dividend I've spoken about. Debt, I've spoken about, 1.07. We've always said we don't like to be above 1. And as you'll see later with the Asanko deal, if you rebased that on a pro form a basis up to the end of July, that would be 1.19, which includes the $165,000,000 we've written out to acquire the 45% interest in Asanko. So still reasonably good.
So you've seen the headline numbers in the group, 7 minutees, of course, across the group, 2 projects, 994,000 ounces. But if you look at the individual regions, if you look first at West Africa, Tawke and Damang, attributable production there 319,000 ounces, just a little bit lower than the previous year. Some pluses and minuses. Damang up, appreciably up, taukwa down a bit in line with what we expected it to do. All in costs, which include all of the project capital at demand, dollars 11.14 slightly lower than the previous year.
But if you look at all in sustaining costs, the region is actually down at around about $900 an ounce on an all in sustaining basis if you strip out the project capital. Cash flow before the Demang project, dollars 64,000,000 making good money over there. Americas region, of course, Cerro Corona, very steady, virtually the same as last year. Costs of $7.37 an ounce, slightly higher. That's on the back of the higher strip.
What we're doing now, as we reposition the mine for the life extension to 2,030, we have to progressively move more strip as we reposition the pit for the increased production. So the strip ratio was an average of life of mine of about 1. It's now going to be more like 1.5 to 2 as we increase that strip to open up those additional reserves, but still very competitive. Cash flow of $41,000,000 for the half year. South Deep, as we've spoken about over here, production of just under 100,000 ounces for the half year compared to 119,000 ounces the previous half year.
All in costs here, obviously, way, way high, dollars 1800 and I think that tells you why the restructuring is taking place. It sort of means and the way I've explained this to the media and the way they understand is that this operation is cash negative to the tune of about ZAR3 1,000,000 a day and has been for some time. That is something that is clearly not sustainable for us. We're not getting enough production given the high fixed costs. They had a twin shaft system down at 3,000 kilometers 3,000 meters rather and a process plant on surface, 2 backfill plants, but we can't support all of that.
So clearly, that's one of the reasons for the restructuring. Looking at Australia. Over here, we've got the 3 mines left after dollar is gone. Very solid again, 142,000 ounces on track, all in cost of US900 dollars net cash flow US86 million dollars So we're going along nicely. Balance sheet, I mentioned, we're in pretty good shape.
I think the one thing that's a little bit of a flashing red light for all of us is interest rates have gone up. If you look over here, we've seen about 1.5% pickup in the base LIBOR rates that we use to pay our floating debt on. And, in fact, that's flowed through in a weighted average increase of over 1%. I think if you believe what's going to happen in the States with interest rates, it's quite possible we'll see another 1% to 2% over the next 18 months. What does it mean for us?
Every 1% is about $10,000,000 in terms of our interest book. That's the delta. So I think as a strategy, we've got to be looking at delevering over time. Certainly, as our projects come through, and we're just about halfway through our projects now, we should be looking to deploy some of that cash, delever the balance sheet, particularly as gold prices are a bit soggy and might be soggy for a while and particularly given the fact we've got maturity coming up here, we've got a bond coming up there. So we are assessing refinancing options, and we'll make a call on that most probably early next year as to what we do.
Clearly, we want to make sure we manage the tenor of our debt, and we don't like to have too much that is all maturing at once. So we've got a strategy to think about how best we deal with that in time. Also worth mentioning that we got an upgrade on our debt rating as well, which was nice to see, which marginally reduced our cost of debt just recently. Okay. Hedging, we've taken out some hedging to protect us at times of big capital expenditure.
That's bang in line with our policy. And broadly, we've covered it on costs and revenue. The oil hedge we took out some time ago at a basis price of just under $50 a barrel. I mean, as you know, the price today is hovering somewhere above $70 so that's proved to be pretty good business for us. It's made some good money for us and protected us against these big increases.
And we've hedged about 50% in Australia and Ghana. Those are the operations that are most sensitive to oil and to diesel. Then on the gold side, we've hedged Ghana and Australia. Obviously, some of these hedges have now been matured and we've delivered on them, But essentially, we're looking at a situation where we've hedged about 80% of the remaining production at Ghana for the year and virtually everything in Australia. Ghana has a floor of US1300 dollars Australia has a floor of about 1700 a mixture of caps and collars collar structures rather and forwards that will protect us.
We are a little bit in South Africa, but nothing of consequence. We've also hedged out the copper in Peru at a base price of $3 a pound, and that's also in the money now. So this is giving us at least some comfort that we can fund our capital programs. People often ask, well, are you worried about the drop in the gold price of circa $100 over the last month or so and your ability to fund our projects, we're not worried. Our hedges will carry us through.
And as we get into next year, we really are through the hump of the capital on our projects. Let's look at Asanko and what we've bought into. So over here, this is a map of Ghana over here and here's the, Asanko Gold Belt over here and it's sandwiched between 2 big belts on this side over here. Here you see one of Newmont's operations over there. There you see Turano, that's Kinross, another one of Newmont's operations over there and of course, Obuasi, which is over here.
So these are recognized gold belts and we are in a fairly underexplored gold belt in the middle here. And this is the dark blue is the lease area that Asanko has. Here's Tarkwa and Damang down here. We're about 100 kilometers to the north. So that gives you an idea of the positioning.
Then if you look at a higher resolution of that, down here you've got Nkram, which is the main pit source at the moment. They've been stripping the 1st 6 months of the year. They're now back into production. They also are mining from 2 small satellite pits, Dynamite Hill and Enquaza. But the main prize for the future is up here at Sesazi, And we can actually move and show you what this looks like.
So here's a bigger picture of all of this. There's your INCRAM reserve of about 1,400,000 ounces. We're using the last published numbers here. And then Assasi at the top there, just under 3,000,000 ounces. There's about a 30 kilometer distance here.
We'll start stripping this pit from January next year and we'll also be considering whether we do road transport or conveyor transport. And we have a conveyor option permitted with appropriate support from communities. So we'll decide which is the better of the 2 options as we ramp that up. As we ramp this down, we'll be ramping that up. And we have a plant that can do, which is just over here really, about 5,000,000 tonnes a year at the moment with potential to expand beyond that.
So it's early days. We've just really cemented the transaction. As you can see, 31st July, we paid the money. We got another deferred payment, which is likely to be paid at the end of 'nineteen of $20,000,000 Giving an idea of the production, their guidance is about 250,000 ounces, all in sustaining costs of about €860,000,000 over the next 5 years. I stress we're going to be going through a replanning exercise with them, and we've started that process now.
They are the operators, but we have a strong joint venture agreement that allows us get involved. They'll be adopting all of our planning protocols and time frames. So in February, when we are here again, we'll give you a better feel as to what next year looks like and what the future is. The thing that really excites me having been up to the site last month is the fact that a lot of the deposits they're mining are on share zones, and these share zones run right through the property. And so if you follow this kind of footprint, you're likely to see analogues across this entire lease area.
These shear zones run for 100 kilometers. So I think it's a fair bet that there'll be some additional ore bodies hopefully that will be mineable in the future. And as I said, this is an underexplored well. So one of the reasons we got in here is not just what we see now. And I mean, there's a life of mine here in excess of 15 years, but also what we see in the future and what we can bring to bear here.
Ghana is a great country. We know it well. We've been in Ghana now for 25 years. We've been operating there longer than anybody else other than the original Ashanti. So we do have a good understanding of what it takes to operate in Ghana.
I've talked about this really. SARSI is the next part of the equation that will start developing from next year. And as I say, exploration potential, well, there it is. Very little has been done over the past few years, so it's all ahead of us. Perspective ground.
Demang, as I mentioned, is doing well 26 percent ahead of the plan year on year in terms of tonnes. Contractors are performing well. We're getting down much quicker than we thought we would. And this is the key figure I look at. What is the vertical rate of advance?
6.3 meters a month. The basic plan we put together as part of the reinvestment plan was just over 4 meters. That's one of the KPIs I like to track. Are we getting down into the base of the ore body quickly enough? And that's a key deterrent.
So far, we're ahead of the game. But we know as we get deeper into the pit, it is going to get harder. The material gets harder. Obviously, your drill and blast practices will have to be spot on. Geotechnical compliance, spatial compliance, all those good things when you're advancing down into a deeper pit have got to be on it.
Capital up slightly. You can see $73,000,000 spent as against $61,000,000 the previous year as the project ramps up. Amawanda is a hidden gem that seems to be emerging for us here, and I'll show you why. First of all, here's a picture of Demang. So that's looking north.
That's north up there. This is the western wall and that's the eastern wall. And I think you can see the western wall this is the ramp over here. The western wall has come down a hell of a lot more than the eastern wall. We've only got about 30 meters to go here to the base.
On the saddle side over here, we got about 70 meters to go. Over here on the main demand pit, we got about 130 meters to go. So we'll be in ore over here next year. So that's part of the plan in the Saddle area. We'll be in awe over here in Q2 2020.
So that's the plan over there. But you can see for those of you who were in demand a few years ago, this is unrecognizable. I mean this all of this over here was right up here. So they've moved a lot of material over this period of time. So good to see the progress over here.
So if we look at Amawanda again, I'm looking north that is Temento over there, Temento East up top there, which is there, that's the section view. And this is Amawanda pit 4 over there, pit 3 over there. So here's a section view we've been doing some drilling here and the thing that has surprised us is we thought this was just a palaeoplacer ore body, VIT style mineralization, fairly continuous like takwa, continuous uniform, very average grade. But what we've actually found is that now we have a hydrothermal underprint. So these drill holes over here are actually picking up 2 styles of mineralization with visible gold intersections coming through.
And, as you can see over here, the strike over here is probably about 3 or 4 kilometers. So this is turning into something really, really interesting that we never thought existed. We mined the Amawanda out, the original Amawanda, which is somewhere over here, about 7 or 8 years ago, and we thought that was it. So it shows there's something else there. And this is on the same trend as Domingue, just further south.
So follow the shear zone, follow the trend, you'll find the mineralization. So the potential here is very significant. So we're excited about this as an addition to what we're going to do at Domingue. Gruyere, we've brought in an independent third party review. We were concerned that the project was running a bit behind.
The joint venture partners, that's ourselves and Gold Road, brought in this review. We've completed that work, and we've done a reassessment of the capital forecast. That's now coming in at A621 million dollars compared to the initial plan of 532, and that's got a fairly high level of confidence assigned to it as you can see. We've had a $90,000,000 change in estimate from where we started. About a third of that is force majeure and scope change costs.
We had some really bad weather at the beginning of the year, which stopped us. We've also had some changes in estimates with the main EPC contractor. There were some provisional sums that were included. We've now got final estimates. That's probably another $30,000,000 So we've got a much better resolution on this.
As I mentioned earlier, we're around about just over halfway through on the spend, and we're about 60% through in terms of the overall project. So, so far so good. As you can see at the bottom here, 61%. Engineering is basically done. This is always an area that can cause variations when you do your detailed engineering, but as you can see, that's just about there.
So we don't expect major surprises from here. So here's a view of the complex. In the distance there, you can see that's the tails dam, the circular dam. That's not uncommon in Australia. Here's the process plant, leach tanks, etcetera.
You can see a lot of activity has taken place over here. So, making good progress. Good to see too all of the key things are on-site. All the long lead items have been procured and delivered to site. Now this is one of the ones that we're worried about.
There's the mill shell. That's a big piece of gear as well. Power plant's been done. That's all in place. There's another view of the CIL tanks.
There's the, coarse ore stockpile. There's your reclaimed tunnel underneath there. Very well engineered, designed, reinforced. That's a key component of that reclaimed tunnel underneath. So that's all been done.
And I must say, although the project is costing a bit more, the quality of what we've got here is top notch. So we're very pleased about that too. So Australia production then, steady as she goes, 442,000 ounces, costs $900 making cash. Exploration is looking good. I've got a couple of slides on that too.
The one project that is bubbling under, we haven't told you much about. There's a pre feasibility study on the paleochannel project at St. Ives. Paleochannel is essentially thin riverbed based material largely, sort of alluvial type gold, but also we do have a supergene component, which means it's not all revosant. A lot of it's actually in situ.
It's always been there. There's potential here for between 2,000,000 to 3,000,000 ounces, and we're going through a study here. But this will have to be mined almost as a discrete project because we won't be able to get all this material into the plant. And already, Neptune is a paleochannel in essence, and we have to blend 25% of Neptune with 75% fresh from Invincible and from Hamlet underground. So we'll need something different here.
But this looks exciting, potentially 2 grams a tonne plus, but we'll have to find a bulk mining method to move quite a lot of waste on top of that. It won't be able to be mined conventionally. We'll give you more on this as we learn probably at the end of the year some more. Agnew, now a number of you have asked me, well, isn't Agnew dead in the water? I mean, it's only got 2 years of reserve.
How long are you going to persist with Agnew? Well, I think Acne has got a lot of legs in it still. This is the area that excites us the most, Warunga North. This is on a share zone that is essentially parallel to the main Kim share zone. Kim has given us about 1,000,000 ounces of 10 grams a tonne over a 10 year life.
So it's been a fantastic mine for us. The indications are this is looking like another good mine, open at depth, open laterally. We haven't found how big this is yet, but we'll start mining this. We've got about 3 drives in here. So this can be easily accessed and mined from the existing infrastructure.
We could share the ventilation as well. So not a huge amount of money to get in here. So that's part of the future. FBH continues to get bigger down here. So we're seeing extensions up, down and laterally.
So lots to be enthusiastic about at Agnew. New Holland side of Agnew. This is the Al Ullus operation again. We're seeing some new trends over here, Shiba South, New Holland, Shiba North, lower Genesis. This is about 2 kilometers of more than just anomalies.
We've actually got drill holes in here, genesis as well. So a lot coming out here into the future. So pleased to see that too. Then something that really surprised me. We mined an old pit called Redeemer way back when.
This is a long section that's planned here. Backfilled it, gone. We always had a small resource here. There was never economic. Then we started drilling it again.
And it's not underneath the old pit, it's offset to the main pit. And we're finding some really good drill results underneath that. And we put select drill results in here, but in fact, we haven't had any bad ones yet. Normally, the geologists will only give you the good ones. And normally, for every good one, there's about 3 bad ones.
But so far, this has been pretty good going. So we're building something here. So we think there's potential here for another 1,000,000 ounces on top. A lot more work to do. I mean this is not something we're going to be mining tomorrow, but over the next year, we'll do some more work and this will be something hopefully that will be in the future of Agnia.
At Sonaives, you all know about Invincible, the open pit, the different phases here that's been a fantastic mine for us. Sadly, probably going to be at the end in another year to 15 months or so, but we've started 2 portals here into the underground mine. Underground mine is already into its first stopes and building up production nicely. You'll see in the book we indicated what the increase in the ounces were coming out of the Invincible Underground. That's not the end because we've got Invincible South coming on the other side of the Alpha Island Fault.
And we've got Invincible Far South, but they've now called that Jasper. I don't know where they get these names from, but anyway, they've called it Jasper. So that continues down trend. And then at the deep side, we're seeing more. So for those of you who want to see the drill results for the geologists, that's a blow up of some of the drill results at Deeps.
As you can see, I quite like that one. 10 meters at 8 grams. That looks pretty good. 12 meters, 11 grams, not bad at all. If this holds together, we're going to be seeing something really special, 14 meters at 8 grams.
So some interesting stuff here. 7 meters of 45 grams. Definitely something here. Hopefully it holds together. Time will tell.
Granny Smith, remember, this was the Barrick acquisition back in 2013. When we bought this mine, it had 200 and it had 670,000 ounces of reserve, and it had around about 3,000,000 ounces of resource. Today, we've got 2,200,000 ounces of reserve, which obviously excludes what we've mined in the 5 years, and we're sitting on a resource now just over 7,000,000 ounces. So we're quite excited about what we have here. The center of gravity at the moment is here.
This is where we're mining. Most of the mining is coming out here. You'll see we're doing a lot of the mine definition drilling for Zone 110, 120, Zone 135. That's going to be the mines of the future. Now you're looking at anywhere between 1,000,000 to 2,000,000 ounces per load in situ, of which we probably extract around about 60% of that.
So that's the one part of the program is doing mine definition drilling for the future And then doing extensional drilling because what we've seen as we mine these loads above, they keep getting wider. We're seeing more and more and more. That's the other part of the equation is seeing how far it extends. We've got a view that it extends out here. So that's brilliant because if it does, we can maybe go out laterally before we go down further into the mine itself.
So this has been a fantastic operation for us and has made a lot of money, got a payback of just over 2 years. So lots more to come from Granny Smith from Wallaby. And that's really the upper part of the mine. If I just go back for a moment, up over here, zone 25060. We went back and had a look.
This wasn't mined by us. This was mined by the previous owners. But we went back and had another look and guess what? We found some more up here. And, you're seeing a couple of drill holes going in here against some interesting stuff.
So we think we're going to augment from the shallow part of the mine, which will be cheaper as well because not far to get down there. All right, South America. What can you say about Cerro Corona? It just continues to be a fantastic operation. It's been 10 years now, 10 years in production.
It's made a lot of money for us, and there's a lot more to come here, we believe. The feasibility study for the life extension to 2,030 is going well, but we're not ending there. We have an objective to go way beyond 2,030. We're doing a scoping study. There's potential for more tails capacity.
There's potential for different tails, and there's also potential for a pushback on corona as well. So that's the work that we're going to be doing. We can see this going beyond 2,030 if we're successful with that scoping study. SOLAR, as I mentioned, on track for the end of the year. EIA finally accepted, so the clock is ticking.
Could be 18 months, could be 2 years, we'll see. That's the key decision point. Once we got that, we're good to go. Just to remind you, we've got a resource, 23,000,000 tonnes of 4.9 grams gold, 66 grams silver, 4,300,000 ounces of gold equivalent and that's virtually all in the indicator. There's very little inferred in here and virtually all in oxides.
10 year life, 3,500,000 ounces produced, that is front ended. CapEx of 8.50. We can see about a 3 year payback on this. But we're doing more work on the district around us. We have many other options on properties, properties we own, properties we've staked, so we can see the potential here for a camp.
West Africa, 319,000 ounces, very similar to the previous half year, costs down, oil and cost down, going well. I'm very happy with the Ghana region and the work that we're doing here. So this is in really good shape. South Africa, we've talked about production being lower than last year. New shift arrangements and labor restructuring probably had a hangover effect and hurt us.
We've also had some ground conditions that have meant we've had to pull things out of mining that we were going to mine. And as always, this happens in the hydrate part of the mine. The, composites as well is right up against the western side in the wedge, up against the shoreline, fairly broken up ground that we've again had to go slower on and, couldn't mine it this year. But it's not gone. The important thing is we will get back into those high grade areas, in time.
The 189 notice, I think you know about, affecting 1100 employees, 460 contractors. So it's about 30%, 25% to 30% of the workforce. Regrettably, we started this process. Remember, it is a consultation process. No final decision yet, but the clock has started ticking yesterday as the notice was served, and we'll engage with the unions.
We briefed the minister, saw the minister myself on Monday and briefed him. So he's up to speed with where we are. Obviously, it's not the kind of news people want to hear, and we've thought long and hard before moving into this. Some people think this is the beginning of the end. We think this could be the beginning of a restart for us by getting this right.
And, decluttering the mine of machines and people in the mining area can make a big difference. Often people have come to us and said, if you could mine the operation with less fleet, less people, your productivities will improve, your logistics will improve, you'll get more people, you'll get more ore out of the mine, you'll get more productivity from your people if you do that. So let's see how we go. We've done the impairment as well on the back of the lower production and assuming that lower production is extrapolated into the next year. Okay.
This restructuring entails us shutting down a big part of the old mine. And although it looks like a big part, it was only giving us about 600 to 700 kilograms a year, but we can take out a lot of infrastructure costs by taking that out. And we can redeploy those crews into the high grade areas further down here where we can get a much better output with the improved infrastructure that we've put in. We then can actually stop servicing all of the mining areas from Twins and South Draught and just service all the mining areas from Twins, thereby having a much more efficient mining schedule and logistics. Because we're losing money and we're ahead on our development in the new mine, We're going to take a break on that and rather just focus the strong performing teams over here in improving our gold winning over here.
And we can come back to that later. We do have the flexibility to do this. So the immediate concern for us is to stop the cash burn. We've had a cash burn of R1,000,000,000 a year now for too many years, which as I say translates to R3 1,000,000 a day. Continue to embed proper mechanized mining practices.
We still believe we have a hangover effect from legacy conventional mining practices, particularly given the fact that you've got to integrate all of your activities of your mechanized mining together, your development, your stoping, your cleaning, your backfilling. If you don't get all of that in sync, you run out of ground to mine very quickly. We still haven't perfected that, and we're working on it. The team does know what the problems are. The important thing is we understand the issues.
We believe we know what the solutions are. We need more time to fix this. Obviously, the mine is disappointed a number of times. There are no guarantees this is going to work, but we do believe this is the best course of option to give this mine the best possible chance for the future. We've got to get into the north of Wrench.
That's the area we've set up with much more efficient structures, redundancy with additional, ore passes, crushers, conveyor belts, the kind of things that mechanized mines across the world have that we will have for the future. And that's the bulk of the ore body that we'll be mining over the next 20 years. This part here is only about 1,500,000 ounces. This part here close to 10,000,000 ounces. That's where the future lies.
All right. So in conclusion, we did say 'seventeen and 'eighteen are reinvestment years as we look to build new projects that will underwrite a better future for us in terms of a longer life for gold fields at lower costs, particularly important given volatility in the gold price. So we're 18 months through what is essentially a 30 month profile. So we're more than halfway. The international portfolio continues to be strong, and it's important that we continue to look after that.
It's the underpin of the company. And the balance sheet is reasonable, and we are engineering a better solution at Softia for the future. Thank you very much.
Okay. We'll take questions from the audience first and then we'll go to the line. Brendan?
It's Brendan Ryan from Mining MX. Nick, you stressed there the importance of getting into the north of Wrench area, and that's where the future of the mine lies at South Deep. And you previously indicated that was going to take some 3 years before you knew what you had there. Does that mean that irrespective of what happens at South Deep from your restructuring and you're not giving us any targets, irrespective of what happens when you're restructuring, are you going to keep this mine going for the next 3 years until you've got into and can assess north of range?
I think the first and most important objective, Brennan, is to improve what we're doing at the moment. And if we're going to be flat lining at the production rates that we are now, we've got to right size the cost base to that. If we do that, I think we can buy ourselves time. We've spent a lot of capital in opening up the north of French. We do know what's there, but it's a question of getting to it.
And the thing that's worrying us here is, although we see a future there, we can't afford to be burning the amount of cash that we're currently burning while we wait to get there. And that's why we're taking the steps that we're taking now. I still believe in the future of South Deep because if we didn't, we wouldn't have selected this option. The team believes in it, and they want to give this a go. But we recognize, like you, there's been many missed forecasts and targets and we're conscious of that too.
So we need to make sure that this is something that has got a better chance of working. Certainly, carrying on as we are and losing R3 1,000,000 a day is not a good option for us. But this buys us time to get into what we hope will be the promised land.
You say losing ZAR3 1,000,000 a day isn't an option for you. What would be an acceptable rate of loss while you strive towards
this strategic future?
I'll leave that to my financial manager officer over here to answer.
I think we've got to work through the next 6 months. We've got to get through the restructuring if that does happen. And the short term goal is to try and get the mine back to all in cost of ZAR525000 a kilogram, which that basically implies it's almost cash neutral. But a lot of work is going to be done over the next 6 months. We've said we'll come back to you in the New Year with probably a forecast for 2019.
That's about it. At the moment, we just need
to do what we need
to do with the restructuring and everything and reset the mine.
Can I also just ask, Martin Priess is here, who's been working day and night to, get us to this plan and working day and night to try and buy us a future? So maybe we could just give him 2 minutes to give his perspective on how we build a future. I don't know whether you need a microphone.
Thanks, Nick.
Thanks a
lot. I think Paul and Nick have summarized that we've got to I think move and take a step change to move out of this conventional mindset into a mechanized mindset. We've got a good team on board and I think Nick sort of touched on it lightly. I think that he's committed and believes that they want to go the course to land this. The one thing that's really important I think is it's more an engineering endeavor than it is a mining endeavor.
And what's really pleasing is we've got a really strong mining guy in now, a strong engineer. He's been around a while and we've parked him in offices next to each other with a hole we've put a door between the offices and more and more I see them, they co joined at the hip and I think that's the best of them. And then the necessary supporting thing, a lot of effort is going to go into how do we structure our teams and build on some of the work some of the other mining companies have done to drive that frontline productivity and get frontline people to take ownership and own their outcomes that it's not a one man decision plus it's people at the own at the front end are driving their own destiny.
Nick, one last question and then I'll shut up and start the I mean given the history of the mine, you can a tremendous amount of negative and cynic viewpoints on South Deep. So what is it going to take for you to say, okay, guys, this isn't going to work? We've had enough. We're going to sell it or shut it down. What has to happen before you say, we can't make this work and we're out of here?
Yes, I think certainly, let's assume we get through this restructuring, and I think this restructuring is not going to be easy. But let's assume we could fast forward and we're sitting here in February, we need to know that we've got a credible plan that we can meet and that we're starting to see that on a week by week basis, a month by month basis, we meet whatever we say we're going to do. So that, number 1, the team on the ground under Martin can build up their own confidence and 2, that we can. I think the thing that would cause Paul and I to lose more confidence is if we continue to miss targets. I think whatever we set out for ourselves post all of this, we got a hit and we got to build some momentum.
I don't
know if you want to add to that.
So the next 6 months are critical?
Yes, critical.
Hi, it's Yatish from Mahesi Macquarie. Just to touch back on your Salt Deep progress, in terms of assuming the worst case scenario that your production is significantly hampered going into the second half on this restructuring, What levers do you have on your other assets to actually make up your annual guidance between 2,080,000 and 2,100,000 ounces?
Yes. Look, the one thing we don't like to do is push people out of a long term plan. Know, all of our mines have a long term plan and spatial compliance is important. And if you get out of your spatial compliance and you over mine a nice high grade area, you're going to pay the price next year. So I think we've got to make sure that the international mines keep doing what we're doing because we also want to make sure that 2019 is a good year and 2020 is a good year.
But I think what we'll do instead is we're curtailing some of the capital expenditure, as you've seen, on South Deep. We can curtail stay in business and growth capital. We will see some impact on the operating costs. But let me just say, we are not saying that people must down tools today and sit on the ground for the next 2, 3 months waiting for this to happen. People have got a responsibility to work.
I mean, they're being paid a very good wage to work. So we would expect all of our teams from our managers all the way down to the face. And our expectation is for people to keep working to make sure they don't create an even worse future for themselves. But assuming the worst case, you're an analyst, so you have to assume the worst case, It might be that our production is going to be a lot less in the second half than what it was in the first half if things don't go well. And the first half wasn't great either.
That would mean the cash losses could increase. Fortunately, we are making good money on the international operations. We've got a strong balance sheet. And Paul, I think, is comfortable with our overall financial position. But I think we've got to run those assets optimally, and we've got to do the best thing we can do here.
Yes. Then just to follow-up on in terms of where assuming again looking at where the gold price is today and looking at your funding requirements at your other assets, Is there a concern that, again, with South Deep off the table, you're going to run into a bit of a balance sheet constraint going in towards the end?
Could answer.
We are basically hedged at fairly much most of our production at the international operations for the balance of the year. Australia is hedged 100% of the balance of the production with a floor of Aussie dollars. Ghana, we've hedged circa 80% at a floor of 1300 of our production. Peru, the copper is fully hedged for the balance of the year. And we've got a small hedge in South Africa even for South Deep with a floor of ZAR600,000 kilograms.
So for the balance of the year, the gold price will still be good for us because of our hedges.
Nikkiah, Bruce Williamson, Integral Asset Management. Just looking at listening to what the guys have said, talking about structured teams operating like others, which I mean, I'm assuming other trackless mining operations, people taking responsibility. If you look what the mine's been through over a long, long, long period, I mean, your psychometric testing of your workforce, are you guys sure that you actually have a workforce that is correct for what you're asking them to do?
Yes. It's one of the issues we've looked at in some detail. There are gaps. And I think for us to say that we've got a fully fit for purpose workforce in terms of world class mechanized bulk mining, no, we don't. We've got work to do.
And training is a key part of our program. We are training a lot of people in the classroom and the training facilities are giving some good results, but our ability to translate that into the workplace is somewhat absent. So that's another part of the exercise we're doing here. And again, I think I'd like for Maarten to add a bit more color to the answer because he's been working in detail on this for many, many weeks months.
Thanks Nick.
I think that is a big area of focus. It was a big exercise that was conducted before I joined getting the managerial levels psychometrics done because I think it goes across the board. We're reaching agreement on doing psychometrics on entry level positions as well. And I think it is critical. I think it goes beyond psychometrics.
One of the key things with operators is a test called a Dovid test, which relates to ability to almost operate in a 3 d spatial environment. So we're moving into that space. And Nick did make a point around classroom training and actually transitioning that into the can do attitude at the FASA. It's taking the theory into the practical. We've done a lot of work.
I've been through with our Head of HR. We brought in independent people to look at our training processes. They're comfortable. I've sat with them. The process is good.
The material and content is good. We're getting we're seeing the marked improvement in skills acquisition. What we've got to drive now is skills application.
Certainly, I would identify that as probably your most critical thing to get right.
Are there any questions on the conference call?
Yes. We have a question from James Whale of RBS Capital Markets.
Yes. Thanks for the presentation and taking my question. Just 2 on the international portfolio. Firstly, on Ghana, are you able to comment on some of the press reports that the government are unhappy or looking to shake up the mining royalty and tax regime? And secondly, on Australia, some of the domestic producers we've seen reports have talked about inflation and sort of labor shortages and contractor issues, etcetera, coming in back into the industry.
I mean, is that something you think could have an impact on your cost base looking into next year? And on a hedging side in Australia, is that something you're going to look to continue to do next year and going forward?
Yes. Just dealing first with the second part, James, on Australia. We are starting to see an increase in turnover rates of critical skills as mining starts to recover in Australia. It's something we watch quite carefully. So I do think there is going to be a big play on skills as projects come through.
We've seen this before. When you often find the worst of all worlds is when iron ore and nickel are going up and gold is going down, we still got to pay the same wages that they offer, and it puts us under tremendous pressure. I've lived through that in this company before. So that is a real risk. We've had very benign inflation in Australia for a while, but it's changing.
Had we started the Gruyere project today, I'm pretty confident that the total cost of that project, if we started today, would be a lot more than when we have started. So we're catching the back end of that cost inflation. But certainly, that's a risk for us, and we've got to watch for that. Just in terms of Ghana, obviously, there are some fiscal pressures in the country. But remember, we do have a development agreement that pegs our royalties and our taxes for life of mine.
So we are protected there. But obviously, we watch carefully developments as it unfolds in the country. But for now, I think we're okay. And then on hedging, look, we have taken some opportunistic currency hedging into next year already, and you'll see it's in the book on Australia. Just to make sure that if thing that would worry us greatly in Australia is if the Aussie dollar came back to parity with the U.
S. Dollar. And since we've operated in Australia from 2,001, I've seen the Aussie dollar as low as $0.45 and as high as $1.25 So that's a hell of a wide range for the Aussie dollar against the U. S. Dollar.
So it can be volatile. So that's just the one area we just want to protect ourselves. We're nibbling away there. We'll see how that goes in the future. But it seems to me it's going the other way in the markets because the U.
S. Dollar is something of a safe haven at the moment. People are piling their money there in the midst of all these trade wars and so on. So maybe we're going to be proved wrong and that the U. S.
Dollar continues to be strong. Time will tell.
Okay. Thank
you. The next question comes from Johan Steyn of Citigroup.
Thanks, guys, for taking my question. And Nick, just regarding the whole thing about skills at South Beach, I do find it somewhat puzzling given everything that you guys have done there. And in a sense, I think that South Africans who also find it a little bit insulting. So it either does point to something like you're just not getting the skills, which ultimately should come back to management because it's management's responsibility to fix that Or it's a convenient way of hiding behind something much more fundamental like this mine is just technically too challenging to mine and it's a convenient excuse to which one is it?
Okay. So here's how I would look at that. You've mentioned this before to me, so I think it was you. So I'll revert back to what you said before is one of the things that concerns you is the multiple management changes at South Deep over the years. And one of the issues there is when there's a change in leadership, there's a style of working that comes in and other people come in, teams are built up, and then you get changes in management and often you find that the mine changes.
And I've seen that in the other mines that we used to own that now became Sibanye is a mine might be doing well, then the mine manager changes, then it can come down a bit and then you got to resuscitate it, a similar issue here. So I think the mine manager changes and the leadership changes have not helped. On this kind of operation, we need to get stability on the leadership. And sure, I mean, you could point fingers at us as a leadership of Goldfields that, that hasn't happened because that's our job is to get stable leadership in. But I think though, without the stable leadership, it's been quite difficult to embed the appropriate mechanized mining practices and culture that we need, particularly when there are so much changes.
And if we could get a period of stability, I'm pretty sure that we could improve on that. So in terms of is it just too difficult to mine, I had the same thought in my mind some years ago. And what we did is we brought in a team of professors who were professors in geotechnical affairs and rock mechanics to come and work with us. There's a couple of them from Australia. There's one from Canada.
There's one from South Africa. They've been working with us closely for about four and a half years. And the questions we've posed to them is, can we make this mine work? Do we have the right mining method? Do we have the right, support practices, protocols, etcetera?
And they've been working with us and guiding us to the finishing line. And what they've said to us, and again, they were here literally 6 to 8 weeks ago, is it can work provided that we improve our mining practices. In essence, what we've got to do is we've got to open up the ore body quicker, we've got to mine it quicker and we've got to backfill it quicker. In essence, that's what it comes down to. And we've been taking too long between all of these things and activities.
What's the result? The result is that you get deteriorating ground conditions. You have to come back and rehabilitate pillars and side walls and haulages. It slows you up, and you're not advancing quickly enough and you don't open up place. So that's been the issue for us And that comes down to do we understand from an integrated fashion what we've got to do.
So we understand the problems. I think we've understood the problems for a while, but it's now getting all of our levels of management and our teams focused on that. We believe we can achieve that, but it's going to take some time. And obviously, we've had multiple disappointments along that pathway. I'm going to also ask Martin Priess, who's here, to just add his perspective to that because it's quite a fundamental question that you raise.
Thanks Nick. I think that's the question that plugs us all in. I sat with the team on a teleconference I think yesterday morning. We asked ourselves the question again and I think there's broad consensus with the team that focusing on the right things. This is doable and this is why we're taking the pain we're taking now.
It's a long hard slog. I think Nikas touched on the integration and I think it's the integration in the planning, it's the integration in the execution and I think that has been lacking. We started taking the steps to address that integration at a planning space. We brought in external people to come and sit and help us build the plan together. And in terms of organizationally, the restructuring we undertook earlier in the year was also aimed at trying to get single points of accountability, which would drive that integration at the front end.
Thank you. The next question comes from Teppo Malefe of Value Capital.
And the team, thanks for taking my call. Nick, I think from the tone and actually how this conference call is growing, it seems like you passing back to Martin, Martin passes back to you and it's all gibberish and garbage that you guys are actually feeding everybody else. Last time, when I spoke to you on the phone, you're quite arrogant when I pointed out to you that this mine has sucked up some R30 plus 1,000,000,000 of shareholder money. And you are dismissive of it, you didn't take accountability for it and neither did you subsequently and your team release some kind of a technical view or overview of exactly what's bedeviling the South Beach. Now the question I want to put to you, out of the 20 odd 1000000 dollars of actually share compensation that is actually in the income statement, how much of it is yours of that gain given?
And how much does it relate to you? That's the first question. Secondly, are you and your team able to release the actual expert reports that you guys are keeping referring to so that everybody else can actually read them and make a view about what's happening at 12 D? I think those are my 2 first questions and I'll wait for your response.
Yes. I think on the second question, we'll take that under advisement. But we hear what you're saying in terms of transparency. And thanks for the suggestion of being transparent and even more transparent on some of the stuff we're referring to. So we'll take that under advisement.
The first question I didn't quite understand. Could you maybe just repeat that first question?
Of the US20 $1,000,000 in share compensation for the first half year of FY 2018. How much of that US20 $1,000,000 relates to your compensation?
I will talk to it.
That is for the whole group. It's for 6 months. Nix is a fraction of that number. That's for the whole group. It covers all the regions, corporate office, the 4 operating entities.
It's a menu portion of that.
No. What is minute? How much? I mean, minute is a bigger number. That's why you can keep
€20,000,000,000 on
the income statement.
It's a calculation that's done on an overall basis, not on an individual basis. When this pays out, you'll see what it gets. At the moment, it's a globular calculation done for the whole group and it's a valuation methodology. It's not done on an individual person at the moment. It's done for the group based on the metrics that have been set in the share scheme.
When it matures and they mature each year in February, you will see what each person gets and the next will be disclosed. At the moment, I cannot tell you what is, but I know it's there's lots of people in that scheme and there's no person that accounts for a huge portion of it.
Then I'll take the questions on the lines.
One for you, Jaafar. Could you detail the quantum in terms of the debt that matures in 2019? And what's the plans for the maturity?
It's the $380,000,000 term loan that expires. We'll consider our options as to how to refinance it in the year coming up. That's it. It's C380 $1,000,000 that expires. Cost
of the debt interest
rate? The cost of that debt at the moment is just from about $3.75 if you take it, about $2.4 to $2.5 above LIBOR.
Brendan?
Nick, Brendan. Ryan again, Mining MX. You mentioned in your report that the Ghanaian government wants to enforce its right to buy up to 30% of your gold directly. Can you elaborate on that, please? What's in it for them?
And are they going to try and force you to sell it at discount?
Brendan, I'll answer it. We've just it was a letter that was sent to the chamber. That's all we've seen. It was literally a 1 page letter. We replied yesterday as a chamber, we need explanation.
There was no information on how, if, why, how are we going to be paid, when are we going to be paid, what is going to be based on, U. S. Dollars, CDs, we have no idea. We are waiting now for explanation from the government as to how they would want to implement it. But we thought it was prudent that we notified ourselves and said we have received this as an industry.
And Goldfields being one of the members, we've received this letter and we put it up, we don't understand the implications of it because we have no more information.
But it could be negative depending
We don't know, could be. We really don't know until we see the terms as to what they propose to do.
Thank you. Okay.
Can you
ask questions here? On the call, is there anything else? No. Well, thank you very much. We will see you again in 6 months' time.