Good day, ladies and gentlemen, and welcome to the Gold Fields Limited conference call to discuss Gold Fields' Q3 2022 operating results. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal for an operator by pressing star and then zero. Please note that this call is being recorded. I'd now like to turn the conference over to Mr. Chris Griffith. Please go ahead, sir.
Thank you very much, Claudia, and good afternoon and good morning, ladies and gentlemen. With me on the call is Paul Schmidt, our CFO, and Avishkar Nagaser, our head of investor relations. Thanks very much for joining us for our third quarter operational update conference call. Today we're talking to you from New York because we're currently busy with our final round of investor engagement on the Yamana transaction. I'm looking forward to seeing some of you over the next two weeks. I guess the bottom line is we think we're continuing to make good progress on the transaction. The circular providing the full details of the transaction was posted to shareholders on Monday, the twenty-fourth of October, and the Gold Fields general meeting is expected to be held on the twenty-second of November.
We've also received approval on the transaction from the government of Canada pursuant to the Investment Canada Act. Moving off the transaction onto the quarter, which is really the focus of the call today. Gold Fields had a stable September 2022 quarter with attributable gold equivalent production of for Q3 of 597,000 ounces. That was down 1% year-on-year or down 4% quarter-on-quarter. All-in costs have increased by 1% year-on-year, but also down 7% quarter-on-quarter to $1,279 per ounce, while our all-in sustaining cost increased by 4% year-on-year and has decreased 7% quarter-on-quarter to 1,061. A thousand and sixty-one dollars per ounce.
Our all-in costs would have decreased by 6% quarter-on-quarter, if we exclude the significant project CapEx at Salares Norte, and that would have been $1,145 an ounce, from $1,220, at the same period in Q2. Gold Fields remains in a strong financial position. During the third quarter, we had an increase in the net debt balance, which includes leases to $997 million at the 30th of September from $851 million at the end of June 2022. That's mainly as a result of the interim dividend payment of $151 million. This translates into a net debt to EBITDA of 0.4 times.
At Salares Norte, Q3 construction activities, as I mentioned when we did our H1 results, that we were expecting to see a weaker quarter as a result of the impact from COVID, together with severe weather conditions that started at the end of June or sort of in June, and that flowed over into the third quarter of this year. In particular in July and August, very materially impacted by severe weather conditions. Our total project now stands at 82% at the end of September compared to 77% at the end of H1. As reported in August, our first production is expected to be up to three months delayed. We anticipate being able to provide an update to you for the production guidance at the end of the year.
Given the solid operational performances year to date in 2022, we're on track to achieve the group production guidance that we provide in February. Our mining cost inflation has been higher than expected. However, the weak exchange rates have partially offset the higher cost inflation, and as a result, we're leaving our cost guidance for the year unchanged. With that brief update, I'll open the call to questions and myself, Paul and Avishka will be happy to take any questions you may have. Thank you.
Thank you very much, sir. Ladies and gentlemen, if you'd like to ask a question, please press star and then one on your touchtone phone or on the keypad on your screen. If you decide to withdraw your question, please press star and then two to remove yourself from the list. Again, if you would like to ask a question, please press star and then one. The first question comes from Patrick Mann from Bank of America. Please proceed with your question, Patrick.
Hi. Good day, Chris, Paul, Avishkar, team. I just wanted to ask, touch on your point about cost inflation. What are you seeing going forward and maybe into next year as well? There have been some comments from some of your peers that it feels like inflation is peaking, but you know, it's still at, costs are still at a relatively high level, but maybe it's kind of, you know, the rate of increase is slowing. Maybe if you could just tell us what you're seeing on the ground. Then second question, just on Salares Norte. I'm just trying to, you know, read into what you said on the front page here. Does it feel like it's maybe flipped a little bit more, possibly?
Is it in line with what you were thinking when you gave us the update at interims and said, you know, gave us the three-month range of when it could possibly start commercial production? Thank you.
Thanks, Patrick. I'll just quickly touch on cost inflation and ask Paul to add to that. Look, Patrick, it does feel that cost inflation has peaked and potentially also coming off a little bit, but not materially so. The sort of 9%-10% cost inflation that we're seeing is what we're still seeing, and our expectation is that's probably gonna be the cost inflation that we're seeing going into for the remainder of the year. Remember, about 50% of our cost inflation was coming from labor and, of course, that labor cost is embedded for pretty much the year.
While we have seen a little bit of costs come off, or, you know, prices come off for fuel, a lot of those have been locked in for the remainder of the year and some of that is still playing catch up. I think we've sort of seen a peak. It feels like it's coming off a little bit, but not materially so. I think you still expect to see that inflation range in about the 9%-10%. Paul, do you wanna add to any of that?
No, Chris, I think I agree. You know, that's where we're seeing it's just probably flattening, but a lot of it's embedded for the year. For next year, we're probably seeing anything between 7% and 10%. That's what we're budgeting. That's on the assumption that we see a big tapering off in the second half of next year. Chris is right, between 9% and 10% for this year, that's where we think, and that's basically in range with what we guided with the half-year numbers.
Great. Thanks, Paul. Patrick, on the Salares Norte, we know it's very similar to what we'd had. I mean, we anticipated the whole of this quarter being weak, which is what we did see, and we're starting to see a pickup now in some of the teams for construction and particularly in the plant. The mining's going well. We've hit first ore at the end of September. Mining's going well, exploration's going well. Generally, the construction, everything we need is there, and it's just getting the right amount of people and then being able to get those people to be able to work, which was really the impact that the weather had on us. We're not really seeing any big pickup in COVID at the moment. I think all around that should be okay.
I think it's just really the competition for labor in Chile on these big projects that is hampering us. Other than that, there's no other major impediment that should be able to impact us. No, I think we're still in that sort of three-month range. We haven't seen any further slippage from that guidance that we gave. We said that, look, we'll probably have a better feel by the end of the year if you know, we're still gonna get to the end of H1 2023 for startup.
Thanks.
Thank you.
Thank you. The next question comes from Raj Ray from BMO Capital Markets. Please proceed with your question, Raj.
Thank you, Operator. Good morning, Chris and team. The first question is a follow-up on the cost. In Q3, the sales was lower than Q2, but still you managed to lower your AISC. Was that a function of the sustaining capital spend, or did you see some of that cost come off in Q3? With respect to the inflation, the number that Paul gave, is that net of the benefit that you expect from the exchange rates that you're seeing being lower versus the U.S. dollar?
Paul, do you wanna start that?
Yeah.
Go for it.
I'll talk to inflation. When we talk of inflation, we're talking in the currencies that we operate in. We're talking rand, Australian dollar, and U.S. dollar. Obviously, when you convert back to U.S. dollar, you'll get a bit of a offset. But we are talking in-country inflation in the currency that the countries operate. One of the reasons.
Raj-
Sorry, go on, Chris.
No, go for it, Paul. Sorry. Yeah.
One of the reasons.
You carry on. I thought you'd finished.
One of the reasons the all-in costs are down, we had a much bigger GIP credit that was coming through this quarter, in terms of we're doing a lot of mining and stockpiling, and we get the credit that comes against it. That's one of the reasons for the reduction in the cost.
Okay. Got that.
Just to build on.
Chris.
No, sorry, Raj. Let me just answer the rest of that question. Just to give you a sense. Our year-over-year, quarter three-over-quarter three, we were up by 1.2% on all-in cost. If we take that into constant currency, that would have been up by 5%. Still, compared to the inflation that we're seeing, a good performance. Just to give you the effect of what the weakened currencies in South Africa and Australia did to the cost. You know, so that you can see what the effect was at +5%. The currency weakening took that down to +1.2% year-over-year.
Okay. Thanks for that, Chris. One last on the transaction. When do you expect the proxy advisor recommendation?
It seems that that should be out early next week. That was just sort of working back from their time. Avi, do you wanna add anything to that?
No, I think it'll be early next week or so.
Okay. Okay, thanks for that. That's it from me.
Thanks, Raj.
Thank you. The next question comes from Leroy Mnguni from HSBC. Please proceed with your question, Leroy.
Good afternoon, guys. I've got a few questions. The first one is on South Deep. It seems like things are going better there than what you'd initially anticipated in terms of your guidance. Are any of the improvements there sort of influencing your medium-term outlook on the asset in terms of maybe some upside potential to what you've previously guided over the medium term? On Salares Norte, I know you've previously said the chinchillas aren't that much of a concern because you've got a contingency plan to mine underground in that region if you had to. Now, it does seem like progress with the chinchillas is quite slow.
Does that sort of underground plan B scenario that you're considering become more realistic or are you still confident that you will resolve that by the time you need to mine in that region? Just on Asanko, if you had any progress in terms of reaching a decision on what you wanna do with that asset, whether it's keep it as is, sell or increase your stake?
Thanks for those questions, Leroy. Let's quickly run through those. South Deep, at this point in time, we're not changing the guidance that we gave, which was 2021 +20%-30% increase in production over the next four years. That would take us in the range of around 11.6-11.7 tons of gold. I think at this point in time, we'll probably give a bit more guidance and update on that at the end of the year. You're absolutely right in that the progress is going really well. We've had a very good start to the year in the first half and another good quarter in Q3. It would...
If we kept the guidance for this year, it would look like we're gonna have an absolutely horrible Q4, and we're not. That's the reason. This year's guidance, just on that ramp up, because, you know, as you know, Leroy, it's hard to know on a ramp up over 4 years sort of exactly where you'll be at any given time. But roughly speaking, the increase for this year would have been 9.6-9.7 tons of gold, and we're on track to outperform that, and that's the reason why we've updated the guidance. I think for now we've updated the guidance to 10 tons of gold. We're doing really well at South Deep.
It's on the back of the last few years of consistent performance, so it's not just a flash in the pan. But at this point in time, I don't think we wanna change that trajectory of plus 20%-30%. Clearly we're tracking at the top end of that range at the moment to be able to deliver 11.7 tons of gold by the end of 2024. That's South Deep. I know the guys are doing a great job there. They're delivering consistent performance, and it would just look strange if we left the year's guidance after a very solid Q3, three quarters this year.
On Salares Norte, on the chinchillas, I think the basic point as to why nothing's really happened, number one, you know, they were having all the work on the Constitution, so I think it was expected that all the people that were involved were gonna be focused on that effort. Also in the middle of the winter, it was highly unlikely, and neither would we have tried to move chinchillas in the middle of winter anyway. There's nothing further to be read in the fact that there's been no progress so far. Remember we said for the next two years we've got time to be able to move it before because we only need to start mining in that area in 2023, 2024. No, 2024.
In 2024, we don't need to start, I guess, actioning plan B yet. We have said that we are working on plan B just in the event that we are unable to relocate the chinchillas. We are still positive that we can do that. I think the only reason you see no progress are for the two reasons that I spoke about. Both governments were busy during this period and in the middle of winter, and a very harsh winter. We wouldn't have sought to have moved the chinchillas anyway. On Asanko, we'll probably give a bit more guidance at the year-end, Leroy. We're not yet in a position to provide any update on our decisions at Asanko. Thanks.
That's understandable. Thanks, Chris.
Thanks, Leroy.
Thank you. Ladies and gentlemen, just another reminder, if you'd like to ask a question, please press star and then one. The next question is a follow-up question from Patrick Mann from Bank of America. Please go ahead with your question, Patrick.
Thanks. I'm actually fine with the quarter update. I just wanted to maybe, Chris, if you could give us an update on your interaction with investors and where are the main kind of questions coming from and about the transaction, and how are you feeling about the sort of support for the transaction? Thanks very much.
Thanks, Patrick. We've really just started this roadshow. You'll recall in our previous engagements, Patrick, what we said is, after the previous engagements, so I think the next big step was for investors is to see the circular. That was always gonna be. Many investors were saying, "Look, you know, that is something. So we've heard you. Thanks very much. You've." Many shareholders have said, "Look, okay, I understand the strategy, understand the timing." I think certainly we were starting to get, by the sounds of things, more comfort around what we were paying.
There was a sense that shareholders were saying, and actually they were explicit in saying, "Look, the next big step for us is seeing the circular." Then for us post the circular was the engagement with the proxy advisors. We, myself, Paul, Avi, and Peter Becker, our head of our investment committee, met with the proxy advisors. Well, we had a virtual meeting with the proxy advisors last week, Thursday. That was another big step in the presentation, and I think as one of the earlier questions was, when are we expecting to see the proxy advisor's recommendations. Then we should see that early next week.
After all of that, Patrick, now we've commenced the roadshow, and we'll now be engaging with shareholders. Yeah, I think there's you know we all I guess saw the comments Fonac made in the market. There'll be some of those comments out there. You know, I think generally we have been seeing a much more responsive engagement with shareholders, and we'll be able to get a sense now as we engage with shareholders what their views are. We're really just starting and it's there's no new news other than the fact that you know even the few meetings we've had over the last day have been you know positive and we haven't had any very negative reactions so far.
It's really early days and for the next two weeks we'll be on the road just engaging with shareholders again for the last time. Thanks, Patrick.
Thank you. I mean, maybe specifically to the circular, did you get many questions around the contents of that, or was it, you know, I suppose in line with what people were expecting to see as well?
We haven't. Avi's shaking his head, yeah, saying we haven't. Shaking his head as in no, we haven't received many questions. I think the one positive contribution from the circular was the inclusion of the independent valuation that Yamana provided through CIBC, and that was a positive inclusion, and many people are saying, "Well, okay, now we can see what that." Even those SumVal valuations which are very narrowly defined and quite a conservative way of valuing the assets. You can see that inclusion in the circular, because what it does is it confirms that we paid a premium to the market price of the day, but we haven't overpaid for those assets, and there remains substantial upside for both Yamana and for Gold Fields shareholders.
I think that was a positive inclusion in the circular, but no questions really on the circular itself. I think it's fairly self-explanatory and the inclusion of the valuation was seen as positive.
Got it. Thank you. Thanks.
Thanks, Patrick.
Thank you. Thank you. The next question comes from Bruce Williamson from Integral Asset Management. Please proceed with your question, Bruce.
Good day, Chris, Paul, and Avishka. Chris, you partly alluded to my question, which is if you look at the top end, very top end layer of your skills, right across the spectrum of mining, geology, engineering process, et cetera, to what extent are you able to keep staff? Where you need to find staff, for ongoing existing mines or new projects, to what extent are you finding them? To what extent are you finding them within each country where the operations are based?
Yeah. Bruce, it's a great question and something that's often missed in the sort of headline numbers. Look, I think overall our comment is that we've got great skills in our company. We've had great skills, and we seem to be able to retain our skill levels. But that doesn't mean that it's plain sailing. In particular in Australia, where we've got the largest turnover, and that's very similar to, I guess, all mining companies. All mining companies are doing absolutely everything they can to hold on to their staff. You know, in particular when you're competing with the large iron ore producers and at the moment all commodities in Australia are pumping.
Whether it's coal or lithium or iron ore or gold, you know, the competition is fierce and there hasn't been an ability to bring in staff from, you know, even from east to west coast. During COVID in particular, that really hasn't opened up much. Everyone's doing their best to try and put whatever retention measures they can and make sure their salaries are competitive. But that's also the reason why the costs of inflation are increasing so much in Australia. Relatively speaking, we've had a high turnover, but most of that turnover is on the lower levels and on contractors. To some extent that has impacted us.
To some extent it's playing out a little bit in productivity, but it's also playing out in some instances that we just don't have sufficient staff to do some of the work. Like last year in particular, we were affected badly on development. Overall we're able to maintain our skill levels in Australia. So I know it's a long answer, but it is quite a complicated issue. Then also our other biggest area where we're finding the most difficulty of retaining staff is in the project in Salares Norte, because at the moment all projects are desperate for people. Of course, a successful project like Salares Norte becomes a hunting ground for great staff.
As we're going through the operational readiness now to make sure that we've got our staff in place for when the mine starts producing, already we're finding it quite difficult to hang on to those staff. We're having to look at all sorts of things, all sorts of retention measures to keep our staff. I guess in South Africa, we're finding that our staff that's now at South Deep is performing so well, people are again looking to South Deep now as a hunting ground for mechanized mining skills. Overall it's a-- it is not an easy environment globally at the moment to hang on to your skills, but we seem to be doing, relatively speaking, a good job of doing so. Thanks, Bruce.
Good. Yeah. Thanks, Chris. I think pretty much a global problem for most mining companies. Thanks very much.
Great. Thanks.
Thank you. The next question comes from Jared Hoover from RMB Morgan Stanley. Please proceed, Jared.
Afternoon, Chris and team. Thanks for the call. A lot of my questions around the transaction have been answered. I did dial in a bit late, so apologies if I'm asking something that's asked before. I just wanted to touch on cost inflation and maybe a different angle. I think you mentioned about 7%-10% inflation for next year, and that assumes a tapering off in the second half of the year. Given how elevated inflation has been at the moment, how are you thinking about that impact on your resource and reserve pricing and whether that might be bumped up next year? I guess if that happens, the commensurate increase in your cost base.
I guess the way I'm thinking about it is 7%-10% might be inflation, but potentially your costs end up being even higher than that if you have to bump up your resources and reserve pricing. That's my first question. I'll follow up with one more shortly.
Great. Paul, do you wanna start with that question and I'll follow up on anything? We did pick up some of these points earlier, but why don't you go for that again, Paul?
Yeah. I mean, at the moment the plan is that we are going to declare our reserves at $1,300 as we've done in the past. So we don't see that we're gonna up the price and obviously there could be an impact of the inflation on the reserves, but we've only just started with our R&R process and as you know, that comes out the end of March when we release our R&R. No plan at the moment to up our reserve price. I hope that answers your question.
Yep. Of course. That does answer.
Jared.
Yep. You go ahead.
I'll just answer. Yeah, I'll just add to something we discussed a little bit earlier is that yes, we are seeing the inflation, but overall the mining inflation is sort of around 10%. You'll recall at the H1, we were a little bit lower than the mining inflation, even if you excluded any of the currency benefits. You know, I think the guys are doing a good job to do what they can to make sure that we're always beating that mining inflation. No, I don't think that we should assume that we'll be higher than the mining inflation. I mean, the mining inflation is impacting us, but the guys are continuously looking at ways as to how to improve that.
Under this kind of condition, and even if you sort of compared us to our peers in the gold mining industry in the first half, and again this quarter, relatively speaking, I think we're doing a good job of maintaining those costs in this high mining inflation environment. We're certainly not planning to be higher than those costs. We're sort of doing everything we can to reduce those costs and be lower than the global mining inflation.
Okay. That was quite helpful. Then just one more follow on that. The one table that I missed in your booklet was the inflation in the different regions that you operate in, because I think you did disclose it previously in the first quarter and half of the year. Are you able to give us an update on what's the level of inflation you're seeing in Chile? I guess the background is that I'm trying to gauge whether that $600 gold equivalent AISC in Salares Norte is still a good number to use for next year, and really just back test that against the inflation that you expect or you're seeing at the moment in Chile. I'll leave it there. Thanks.
I'll answer the inflation in Chile. I think it's made up of two. This year they're looking closer to 13% in Chile, but the problem is you've had a substantial weakening of the currency. When you convert back to the U.S. dollar, you get a big credit against it. You're having an offset because we should be. I'm just looking at the project at the moment. Close to 50-60% of the costs were incurred in their currency. When you convert to dollars, we're getting a massive credit against it. The dollar value is substantially lower. At the moment, you've got high inflation, but the weakening of the currency to the dollars it has negated quite a bit of that. There's probably net in dollars, we're looking at probably 7 or 8%, for Chile at the moment.
Okay, great. Thanks, Paul. I guess that's $600 AISC roughly that you guys, I think, mentioned at the half year is still on track for next year then?
Yeah, in the ballpark of that, yeah.
Yeah, yeah.
Remember what we gave you in June, that was in 2022 numbers. Obviously, you would have to take into account inflation for 2023, but yeah, it's still on track. That was a 2022 number that we gave. Everything we gave in June was in 2022 numbers.
Got it. Very clear. Thanks, Paul.
Jared, just a reminder though that that's actually when we are producing at 600,000 ounces. That actually will be a 2024 number, and that you just have to inflate as Paul has said with, from, 2022. You'll have to do that. Next year, remember there's only gonna be a small bit of production and still large amounts of capital. You need to look at that as when we are producing on a normalized basis. That's just the one point I just wanted to add. That won't be the all-in cost. The all-in cost next year will be small production, large amounts of capital. I don't even wanna think of what that number will look like.
I mean, that you can just see it's not a production number yet. Then, for that table, we just do that at the H1 and the end of the year, where we do a detailed breakdown. We don't do that in the end of Q1 and Q3. We don't put that table in. We'll do that again at the end of the year, Jared.
Yeah. Jared, just to confirm that the numbers are very similar. The numbers that we saw, that we gave you in the mid-year, we're seeing very similar numbers at the moment.
Okay, very clear. Thanks very much.
Thank you. At this time, we have no further questions in the queue. Mr. Griffith, I'd like to hand back to you for closing remarks. Thank you, sir.
Yeah. Thanks very much, Claudia, and thanks very, very much everyone on the line. I think it was just an uneventful quarter, which in mining terms is good. Overall, other than the large impact that we had on the weather at Salares Norte, it's been a relatively stable production quarter. Thanks very much everyone for your time and look forward to chatting to many of you soon as we go through our roadshows. Thanks very much.
Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for joining us. You may now disconnect your lines.