Good afternoon ladies and gentlemen and welcome to Goldfields Limited Quarter 1 Operating Update. All participants will be in listen only mode. There will be an opportunity to ask questions at the end of today's presentation. Please note that this conference is being recorded. I'd like to hand the conference over to Mr.
Nick Holland. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen, or good afternoon, depending on where you are, and thank you for calling in to our quarter 1 2018 update call. Goldfields entered the 2nd year of our reinvestment program in 2018. Following a strong year in 2017, the demand reinvestment project continued to progress according to our plans in the Q1 of this year. The Korea project was impacted by over 20 days of very severe weather during the Q1 of this year, which has added to the cost estimate and has also delayed the project slightly, while South Deep performed well below expectations.
The international operations continue to perform well, in most cases exceeding their attributable budgets for the quarter. And that bodes well for their performance, I believe, for the rest of the year. Atreusville Gold's production for the group was 490,000 ounces in quarter 1, and that's 1% lower than the corresponding quarter in the previous year. And interestingly, that quarter last year included 14,000 ounces from dollar. So if you take that out, in fact, on a comparable basis, we're a little bit better than last year.
That's 10% slower, however, than production in the December 2017 quarter of 490,000 ounces for the year, that is. All in sustaining costs were 6% lower year on year at $9.55 an ounce, which is in line with the previous quarter, Corp. 417, while all in costs at $11.50 per ounce were 3% higher year on year and also 3% higher quarter on quarter. Despite the high level of project capital being spent by the group, which was previously flagged, as well as the payment of the financial year 2017 final dividend during this past quarter, there was only a modest increase in our net debt balance to $1,370,000,000 up from $1,300,000,000 at the end of 2017. As per the announcement released by the joint venture partners on Monday, that's ourselves and Gold Road, there was a joint announcement put out on Monday.
Abnormal rainfall events in the Q1 of this year have impacted the schedule and cost of the project. As a result, project CapEx is likely to be around 10% higher than previously guided. In other words, 10% higher than AUD 532,000,000 That's 100% basis for the project. And first production is now expected to move into the Q2 of 2019 from the previous Q1 of 2019. At Domingue, the Domingue reinvestment project continues to perform ahead of plan.
At the end of the March quarter, the total material mine since the start of the reinvestment project that's cumulative was 22% ahead of the project schedule, while gold produced was 180,000 ounces, that's 35% ahead of the plan. So that project is in pretty good shape. South Deep has had a tough start to 2018 with the 1st quarter production of 48,000 ounces, albeit that, that was 4% higher than the previous year, in other words, against the March quarter of 2017. It is 41% lower quarter on quarter. Production for the quarter was impacted by the typical slow buildup after the seasonal holidays.
Remember that the March quarter traditionally includes the Christmas break, which is around about 2 weeks and then usually there's another week or so before you hit steady state. So that always impacts the March quarter. We've had 2 labor restructuring processes that took place at the end of 2017 and during the quarter. The end of last year was on the management ranks and during the quarter it was on the general workforce. And we also had a change in the underground working shift arrangements implemented to increase productivity.
In essence, we're trying to get an extra couple of hours on the face. But given that this has only been implemented over a month, it's too early to see any positive results. But obviously, in time, we hope there would be a net benefit of these arrangements in getting more time in the face of our crews. Although these changes were necessary to create a platform for sustainable and consistent performance, these changes have inevitably created workforce uncertainty and a disruption to the operations and that clearly has showed in the production for the Q1 and has continued into April. In addition, continued low equipment reliability, the intersection of active geological features in the high grade corridor 3, in other words, dikes and faults as well as poor ground conditions in the high grade composites area on the western side of the mine have also slowed production rates.
And typically, these happen in the high grade areas. Production for the month of April was further impacted by a 22 day DMR safety related stoppage, the so called Section 54s that we have in South Africa to stop orders to resupport back areas in 2 of the critical new mine access ramps, which account for half of the total production of the mine. Just to put into context, this was flagged as an issue and was being addressed by the management focusing 1st and foremost on the most critical areas. But clearly, the DMR has given us a stop order there, which we had to then stop what we were doing and accelerate the work that we were doing. The mine team is currently developing a recovery plan against all of these issues that have hit us over the last quarter and that's 1st and foremost mobilizing the workforce close to restructuring and bedding down the new underground shift cycles so that we can increase the productivity and take our faces forward.
Management is also implementing programs to improve and integrate critical aspects of the mining value chain. That's something that I flagged previously that we need to make sure that all of our mining activities are done in sync and that obviously we're cleaning stopes tirelessly, we're backfilling stopes tirelessly, we're backfilling them properly. Time as ground support, time has advance of critical de stress and development ends to make stopes available. Some of these activities are not as well integrated as we would like, and the team is working on this to generate improvements, we believe, over the balance of the year. Based on the above factors, we don't believe that the guidance of 321,000 ounces or 10 times gold provided at the start of the year can be achieved at this stage.
Taking a conservative approach, we're currently forecasting 244,000 ounces for the year against that original plan of 321,000 ounces. The reduced full year guidance is attributable to all the factors I talked about, the ongoing impact of poor equipment availability and reliability, the slower advance rates in corridor 3 given the faults and dikes that we intersected and the need for us to put safety first, we have to just advance those particular areas very carefully, meshing the face as we go, which slows us down, sharp creeting over those meshed areas as well, both on the hanging and on the side walls to provide a safe environment as we navigate through these vaults and dikes is going to slow you down. Hopefully, we'll get through this, we believe, in the next 3 to 4 months. Delayed extraction of the composites as well, whereby high grade stopes tend to be deferred. Again, I think we're going to be another 3 to 6 months to finish all the rehabilitation we have to do around those areas to make those stopes available.
I guess the good news in all of this bad news is that we haven't really compromised a significant amount of gold here, and it will still be available for us to get its ready deferred. On the equipment availability, which has been a perennial problem for this mine over a number of years, additional artisans have been sourced from the equipment manufacturers to urgently address equipment availabilities. This has been a tough nut to crack, and we're hopeful that this will make a difference. Poor ground conditions are mostly a symptom of the transition to more effective pillar designs, whereby we've moved to much bigger localized crushed pillars, but it doesn't happen overnight. And there can be fretting of pillars as you transition the design over that period.
And that's following recommendations of an international independent chair technical review board. So as we implement those, it's tended to make stopes not available until we've continued and finished that work. Lack of time is an effective stope cleaning and backfill is an issue, but I've spoken about that and the need for us to integrate those activities along with more time as secretary ground support. All of these constraints are receiving urgent attention. So as I've said earlier, we have downgraded the forecast significantly, but obviously the team are going to try and come up with a recovery plan.
And number 1 of these underpins this number, but 2 tries to recover some of the situation and ensures that additional flexibility is created for the future. Finally, South Peap has concluded a 3 year wage agreement. Bear in mind that our previous agreements expired on the 1st March 2018. So we got a new 3 year deal with Organized Flavor, which provides for an average annual increase of 7.3% in rand terms. And local inflection is around about 5.5%.
That gives you an idea of what the increase is in relation to inflation. Okay. Look, I think we spent quite a lot of time giving you a short analysis or what was supposed to be a short analysis of the results. With that, we'll hand over to questions. Just to say that I've got Paul Schmidt with me, our CFO, as usual.
I've also got Avish Karnagasa, Head of Investor Relations. So between us, we'll endeavor to answer your questions. Thank you very much.
Thank you very much, sir. The first question comes from Dominic O'Kane of JPMorgan.
Hi, Nick. I can sympathize with the sort of frustration around South Deep in the sense that it accounts for less than 5% of group EBITDA, but devotes so much of your time in terms of sort of investor questioning and market focus. But
I guess my first question is quite
a direct question. In light of the Q1 numbers, which follow, they were up 4% year on year, but Q1 2017 was also a terrible quarter. How long does the board maintain the mandate to keep investing in this mine? Because you've got very good high returning projects elsewhere. How do you continue to assess the sort of capital risk and the returns in South Deep versus your other opportunities?
Yes.
I promise it's the right sort of question to ask, Dominic. First of all, we're heavily invested into South Deep. And if we look at what we have here, we have an ore body that we're pretty confident is there. That's the one thing that's never changed in the 10 years or so that we've earned it, and we've done a lot of drilling. We've invested a lot in infrastructure and particularly in what will be the future.
If we look at where we are now, the bulk of the mining, as you see in the book, is in what we call the current mine, which should probably be called the old mine because a lot of that is legacy infrastructure that's been around even before we were there. It's not bulk mining as we want to put in place in the north of French area. The north of French area is being developed as we speak. And the one bit of positive news is that that's consistently been ahead of plan, which is interesting when the rest of mine hasn't been as you've seen. And that really represents the heart of what we'll mine over the next 20 years or so.
It's almost 10,000,000 ounces in North of Orange. The current mine area, which makes up the bulk of our mining at the moment, is just over 1,000,000 ounces. And again, it's a bunch of scattered remnants. It's not real bulk mining in the true sense of the word. So if we can get in to the north of Ranch area and increase the proportion that comes from that, which will be bulk non selective mining property setup.
That will make a big difference. I think first, the other thing to say after that is remember that the rebased plan didn't see us making money anyway until 2020. So it's not as if we were going to be in a situation of making cash over the 1st 2 to 3 years of the rebased plan. It was clear that there was going to be an element of reinvestment. And essentially, we believe our problems are not technical, Dominic.
We have spent a lot of time over the last 4 years reassessing and redesigning a mining method that we believe works. That our 4 wise men from the Geotechnical Review Board from all over the world who've been working with us for 4 years believe can work. The geotechnical design around it, which is a much stiffer system with increased localized pillars with a narrower mine expand, I also believe, can work. And what it comes down to really is integrated execution. It's really about people.
It's about getting the right people in the right roles doing the right things. And that's what the management team is trying to do is to change the whole organizational design, far too many layers here that we're streamlining to make it more effective and more efficient. And then really tightening up short infill controls, which is going to make sure that areas that are not packed full time, they are packed full time, they are packed full time, they are packed full time, they are packed full time, they are It is put in place. Where stopes need to be cleaned, they are cleaned. So we believe that these issues, they're properly dealt with, can be managed.
The equipment availability, which again has been a perennial issue, as I mentioned, is really a function now of having a different approach to this and getting a grip on proper plant maintenance in action, not just talking about plant maintenance, a proper plant maintenance in action. So a lot of work is going into that right now. So I think the view of the company at this stage is that we should actually figure out how we're going to recover this operation and get it back on track. So that's our position as of today, Dominique. Thank you.
Just one follow-up question. Just on the cash flow, under the current revised guidance, could you maybe just give us a sense of what the exit rate all in sustaining cost will be at the end of 2018?
Yes. We deliberately not put that in, Dominic, because arriving from this material downgrade in production, we're going to go and reassess what the cost base should be and what we can do about it, but whilst at the same time, obviously, being cognizant of the need for us to make sure we can enable an improved production profile. Paul, I don't know if you want to add to what
Once you finish, you'll get a dividend in June part of the results. We'll be able to give
you the
expected of winning costs for South Beach for the balance of the year.
So more work on that, and we'll see what we can defer or cut out in terms of noncritical sustaining capital expenditure. We want to keep an eye on the future of Post Dominic. If we're going to be able to get into what we believe will be the heart of the ore body with the Norfolk Wrench, We need to keep developing that. Otherwise, we won't be able to get out of where we are and into spending areas in a couple of years' time. So we'll come back to you.
Still work in progress on the costs. Okay. Thanks.
Thank you. The next question comes from David Hartung of CIBC Capital Markets.
Good morning, Nick and team. So I'll move on from South Deep, much to your relief, I presume. Having a look at the Turquoise restructuring costs, there's quite a few going through there. And you've also had equipment sales. How are you accounting for the replenishment costs and the equipment sales, please?
I'll hand over to Paul, who will give you a better answer than I could.
The retention cost is showing on the item and so will the sale of the fleet. The fleet is basically going to be at breakeven. It's spread between quarter 1 and quarter 2, the payer we're getting. As we finalize that, yes, it's not in any of our all in costs or anything like that.
Just to
add to that, so over and above those costs. Sorry, Nick, I spoke over the top of you.
No problem, David. Just to add to what Paul is saying, the way this deal is structured is the order of change from cost you can see are funded by the equipment sale. And we can still maintain our guidance moving to the contract on our all in costs for this year. So I must say the transition has gone pretty smooth. We haven't really seen any hiccups in production.
In fact, quite pleased with where we are. Obviously, there's been opposition to it, but we believe that's now behind us, and we're looking forward to moving on. So all told that it's taken us 6 months to do this, and we thought it might be 2 or 3, I think the end result will be everyone.
Okay. Over to your development projects of Grari and Salares, how much was spent in capital on each of those projects in the Q1?
We haven't given those numbers in the book. I don't have that offhand Can you give me the book, it is in the book?
The book is in the book. I'll tell you now, the name on the project, we spent 53 point $8,000,000 We haven't split out Gruyere. We can get back to you, Gruyere.
Okay.
And with the increased capital yes, go ahead. Sorry, David. Sorry, I'm interjecting here, but just I'll fully answer your question. It's around $45,000,000 That's 100 percent our share, sorry, our share of $45,000,000 So on a 100% basis, it's probably going to be a little bit more than double that because we have a few costs we allocate that were owing to us. So total project cost is over 100, but we don't normally give all that resolution in this operational update.
We get that in the half year. So I hope that helps you, Tom.
Yes, it does. Thank you. And with the capital increase with the weather and some changes of scale at Gruyere, how should we be thinking about that increased CapEx? Should we just be bumping it up during 2018? Or would there be some top up in 2019 given that we've got a 1 quarter delay on the start up?
How should we be thinking about that additional CapEx?
Yes. I think some of it will happen in the back end of 2018 and some of it will happen in the front part of 2019 because we had a low capital burn rate in early 2019. So heroic assumption here, when I haven't seen a resolution on this yet because we're still sort of working through the resolution, I would probably slip that between the 2 years roughly if you want to do the additional $50,000,000 on the project.
David, it's 4 years, dollars 52,000,000 on our share at the premium.
Thank you. And
you sold Arctic Platinum during the quarter. Have you had did you receive that $40,000,000 from the sale in the quarter?
Yes. Yes, we got it.
Okay. And then one other thing, I noticed that shares on issue on your front cover here is $40,000,000 more than the December quarter. Wondering where that went to?
Well, we haven't issued any shares.
Okay. So I suspect that there might have been a bit of a misprint on your front cover because ordinarily it's 820,000,000 roundabout shares on issue, but your release is 860,000,000
dollars So let's check that. My recollection is like you is that it was around about 8.20 something. So I can tell you this for sure, David, we have not had a share issue. We haven't told you that. So I think we'll start it.
I think this is I have to concede. I think this is an error.
Okay. All right. I'll just leave it there for now. Thank you, Nick and Paul.
Thanks for pointing it out. Anything else, David? That's it for me. Thank you. Thank you, sir.
The next question comes from Tanya of Scotiabank.
Good morning, everybody. I'll leave South good morning. I'll leave South and I just wanted to come back to Tarqua. I just wanted to talk a little bit about the pit wall geotechnical issue that you had, exactly what was happening next to the faults? And has everything been resolved?
And has there been any impact to your mining for 2018 or sterilization of any of the reserves?
No. A small issue, as we said in the report, it was resolved. Not a big issue at all for the quarter. There's no residual to technical risk there. We've covered that out, Tanya.
So it's actually quite isolated. This is the first time that I can remember us having some kind of localized issue there. But now we have about now. And obviously, we've looked across the mine, again, at all of the geotechnical designs, the pitfall angles. We have a geotechnical team internally as part of our group technical group that goes to all the mines once a quarter.
And they've been out there since then. They're quite comfortable with what we're doing. We have geophones and stuff like that in the wall, so we can pick up any movements, and that gets tracked by a control room. So this was very localized. And in the scheme of things, it's such a big footprint of corporate.
Not a big issue, but it did push us back a little while.
Yes. Because I don't remember ever having issues at the mine there with any pit wall. So it was a bit new. And I'm just trying to just picture, how much material are we talking about?
Look, I mean, we're mining 100,000,000 tons a year here. This is tiny in the scheme of things. But over a quarter, and if you lose some ore because we're mining obviously around 12,000,000 to 13,000,000 tons of ore, I don't recall the exact figures, but we would have lost a couple of 100,000 tons of ore. We would have lost it. So that's an active curve.
So obviously, if you look at that, it does have an impact on your output for the quarter, but we'll pick it up. And as I said, it's been resolved since then. Okay?
Okay. And then maybe we didn't see you reiterate your capital or your all in sustaining cost guidance for 2018. Has that changed at all given the change on South Beach?
Well, obviously, we need to just reassess the impacts of Korea on that number. We'll do that at the half year, and we'll reassess what we're going to do on South Deep because there may be the potential for us to pull back some capital there. So until we finalize all of those numbers with good resolution, I'd rather not give updated numbers at this stage, but we'll certainly do that at the half year.
Okay. So besides okay, if we were to adjust, as you mentioned on the just recently on I think it was David's question in terms of moving half of the increase in capital grew year this year and half next. And has there been any additional capital that you'll talk about, I guess, in midyear for Southgate that we should know about besides just the underground development?
There's not going to be more. There'll be less. If anything, we might cut back on the sustaining capital. But we've got to just start against cutting back on project capital because that's our future getting into the heart of the ore body. But obviously, the overrun on Gruyere, it's not the full impact of that is not on us.
Obviously, there's a component of that, that the joint venture party carries with us. So let's see if we have to bring it back to U. S. Dollars. Usually, with these things coming to pluses and minuses, but maybe we'll be slightly higher is what I'd say, but not materially higher, slightly.
Okay. All right. Appreciate that. Thank you.
Welcome.
Thank you. The next question comes from Brendan Ryan of Mining MX.
Hi, next. Brendan Ryan, Mining MX. Could you talk a bit about your decision to step up your hedging programs in Australia and Ghana, please?
Sure. So as you know, we're in a year of significant capital expenditure around about $850,000,000 we will take. We're building 2 mines in Australia They're on a, obviously, the continued investment in South Deep, the Solaris feasibility study. So there is a lot of activity going on. And in our hedging policy in the annual report, you'll see that it does provide provision for us to establish hedges at a time of high capital expenditure to shield us from potential volatility.
And that's exactly what we've done. So it's not a long term program, I want to stress. I wouldn't be brave enough to try and guide long term on this stuff. It's really to address a particular funding need this year and to make sure that if there's volatility in the gold price that we put in sufficient floors. Generally, what you'll find with these hedges, we put in a floor of around about $1300 an ounce in Ghana and around about $1700 an ounce, that's Aussie, in Australia.
So it's to make sure that we don't have any problems if prices go south in funding our capital program. It shouldn't be conservative that we now have become long term and systematic hedges, Brenna, if that's where you would go.
Go. Ladies and gentlemen, that was the final question. Nick, do you have any closing comments?
No further questions?
None, sir.
Okay. Well, thanks everybody for dialing in. And we look forward to giving you a half year update in August. What's the date average, Pavel? 17th August.
17th August. We'll give you a full update on a full set of financials with all of the cash flows and capital figures, revised estimates to the extent that we need to put them in. So hopefully, that will give you more granularity on some of the questions we've asked. So thanks very much, everybody. Have a good day.
Look forward to talking to you soon.
Thank you. Ladies and gentlemen, that concludes today's presentation. Thank you for joining us. You may now disconnect your line.