Earnings Call Transcript - GFI Q3 2024

Operator, Operator

Good afternoon, and welcome to the Gold Fields' Q3 2024 Operating Update Market Call. Please note that this call is being recorded. I would now like to turn the conference over to Mike Fraser, CEO. Please go ahead, sir.

Michael Fraser, CEO

Good morning and good afternoon, everybody, and thank you very much for dialing into our Q3 2024 operating update call. In the room with me here in Johannesburg are Alex Dall, our Acting CFO; Martin Preece, Chief Operating Officer; Jongisa Magagula, our EVP External Affairs; Chris Gratias, our EVP, Strategy and Corporate Development; Thomas Mengel, VP, Investor Relations; and Sven Lunsche, our VP Media Relations. Before we get into the Q&A, I thought I'd just provide a few overall comments on the quarter. We're pleased to report an improved performance across all metrics in Q3 2024 after a largely slower start to the year. Firstly, on the safety front, we recorded no fatalities or serious injuries during Q3, and our total recordable injury frequency rate improved to 2.26 per million hours worked from 3.14 million hours worked in H1 of 2024. Production improved during this quarter with attributable gold equivalent production increasing 12% quarter-on-quarter to 510,000 ounces. St Ives delivered a 20% increase in production quarter-on-quarter as per plan and South Deep a 23% increase in production quarter-on-quarter. This helped improve our all-in cost, which was 5% lower at $1,909 per ounce, while all-in sustaining costs decreased by 3% quarter-on-quarter to $1,694 per ounce. We also were able to reduce our net debt by around $30 million during the quarter to $1.12 billion after paying the interim dividend of $152 million in early September. We finished the quarter with a net debt-to-EBITDA ratio of 0.47x. We're expecting a further strong improvement in production in Q4 of 2024 in line with our previous guidance and have kept our annual guidance unchanged at a range of 2.05 million ounces to 2.15 million ounces. The increases in Q4 are expected to be driven by continued improvements at Gruyere, St Ives, South Deep, Tarkwa, and Cerro Corona. In addition, Salares Norte's first meaningful quarterly contribution is expected in the fourth quarter. Based on October's performance, we are confident that we are on track to deliver within this guidance, albeit probably in the lower half of that guidance range. Just moving on a couple of comments on Salares Norte. At Salares Norte, we commenced the ramp-up slightly ahead of the guided 30 September plant restart date. In the third quarter, we focused on the cleaning of the frozen pipes, purging remaining material in the primary circuits, and preparing the plant for the restart. During the early winter period, we installed a number of bypass circuits, allowing us to ensure that the main components of the plant could continue to run and circulate solution. One question that has been asked is whether we're confident that this plant can actually run during the normal winter period. Given that we've had a very harsh winter, we've done a full review and are confident that our design is as per standard, and we can continue to run it through the winter. An independent review by weather specialists has confirmed this. We remain on track to meet the 2024 guidance of 40,000 to 50,000 equivalent ounces at Salares Norte. Obviously, there is a sharp ramp-up in the early months of that curve. We expect commercial levels of production to be reached in Q4 of 2025 and a steady run rate by late 2025. For 2025, we’ve put a guidance range of around 325,000 to 375,000 ounces. As the year progresses and we gain more confidence, we will continue to update that, as it is certainly our best view of what is a reasonable target for Salares Norte during 2025, with 2026 being expected to be the first full year of steady-state production. Pleasingly, I can also report that we recently recommenced the Chinchillas capture and relocation activities in Rockery Area No. 3 following a fixation of activities during the winter and for the duration of the urgent measures issued by Chile's Superintendence of Environment, which expired on 3rd October 2024. During the suspension period, we engaged constructively with the SMA and implemented several improvements to our capture and relocation processes. Regarding our portfolio, we are excited to have completed the acquisition of Osisko Mining just after the quarter end. After the announcement of the transaction on 12th August, this was concluded on 25th October following receipt of all regulatory approvals and a positive shareholder vote by Osisko shareholders. We believe that consolidating 100% of this high-quality asset in a sought-after mining jurisdiction with a significant exploration footprint will enhance the quality of the Gold Fields' portfolio as it progresses through development stages and will be a cornerstone asset in our portfolio for decades. Briefly on the proposed Tarkwa/Iduapriem JV, we have been active in our engagements with the government over the past 18 months. While we’ve made progress over the past quarter, we haven't yet reached a point to tackle it in front of Parliament for approval. Therefore, we announced last week that it was unlikely we would conclude this during this calendar year, given the upcoming general election in early December. We will reengage with the new government after appointments in January. During this period, we will continue planning for the combination of the assets while optimizing our standalone positions. Without taking any more time, I will now hand over for Q&A.

Operator, Operator

The first question that we have comes from Catherine Cunningham of JPMorgan.

Catherine Cunningham, Analyst

Just two quick ones for me. The first is, are you able to comment, even indicatively, whether there are any deviations to longer-term Salares Norte steady-state guidance versus what has historically been outlined in terms of average production? And then could you please remind us in how many years' time the Chinchillas might become an issue based on the areas you'd need to access if we assume that the relocation doesn't go to plan? That's it for me.

Michael Fraser, CEO

Thank you, Catherine. On your first question, nothing has changed in terms of our long-term plan for Salares. You should assume that all of the previous guidance remains intact, and all we've really seen is a delay in the ramp-up to steady state. Regarding the Chinchillas, the reason we call out Rockery Area No. 3 is that it’s the most important area because we require placements of some waste material. It's not likely to be a problem until the back end of 2025, early 2026, given the slower ramp-up of processing due to significant material in front of the processing plant. We believe we have enough time now to complete the capture of the Chinchillas and relocation to access Rockery Area No. 3. Beyond that, we will need Rockery Areas No. 5, 7, and 8, but that will only be required for the back end of 2026 when we start the pre-stripping of the Agua Amarga.

Operator, Operator

The next question we have comes from Adrian Hammond of SBG.

Adrian Hammond, Analyst

Firstly, well done on getting Salares finally producing. I just wanted to understand a bit more about the ramp-up. It looks like it's going to take 12 months to get to steady-state from here. Could you explain why that takes so long? What are the bottlenecks given that the gold is sitting above ground already? That's the first question. In terms of cost, I noted that dollar per tonne is up 17% year-on-year. Where in your business are you seeing these major real cost increases? I note Tarkwa has had some significant increases. Is there a change in the mine plan there? The stripping ratio has certainly gone quite high. What's the outlook for that?

Michael Fraser, CEO

Thanks, Adrian. Starting with Salares, nothing has changed on our ramp-up plan from the original conceived project plan. One key issue around the ramp-up is that because of the high-grade nature of the ore body, we want to avoid accelerating the ramp-up, as that would result in lower recoveries in the early stages, leading to more gold left in the waste. While we refer to a steady state, it's more like a 9-month ramp-up rather than 12 months. However, some ramp-up will occur during winter months, which presents some downtime as well. Regarding costs, I can ask Alex to add more details. But there are a couple of one-offs that come into play on a year-on-year basis. For example, Tarkwa had a higher amount of strip taken in Q3 compared to Q3 in 2023, which contributed to that. We also see a higher contribution from the St Ives microgrid, which was not present in the prior year.

Adrian Hammond, Analyst

I hope to sneak in one last question. Certainly, the higher gold price is a great win for many, including yourself, gold producers. At spot, could you give us some idea of where your free cash flow expectation is for 2025?

Michael Fraser, CEO

That's a tricky one, Adrian. I think I'd like to leave it at saying we think it will be a lot more than this year.

Operator, Operator

The next question we have comes from Jason Fairclough of Bank of America.

Jason Fairclough, Analyst

Just two quick ones for me. One on Osisko and then one on South Deep. Just on Osisko, you've completed this, and I know you were quite happy to get this asset. Could you give a little color about how the development plan might evolve, now that you're in full control? Second is on the mine leakage at South Deep. You're saying that less than 1% of the total backfill volumes placed leaked. Where are you in terms of remediating the previous leakage?

Michael Fraser, CEO

Thanks, Jason. On the Osisko development, the next critical step for us is to get full environmental permitting, which we expect in H1 of 2025. We've made good progress to make submissions and hope to be in a position to get that approved. We're advancing detailed engineering rapidly with the aim of taking it to our board for a final investment decision, hopefully, by Q3 of 2025. This will likely be an 18- to 24-month build program that includes the ramp-up, projecting first gold by back end of 2027 or early 2028. For your question on South Deep, I'll hand over to Martin for that.

Martin Preece, COO

Just to respond to your question on backfill, we currently have about 75% of the backlog eroded and expect full remediation by year-end. The team has worked hard to seal the stopes, and we've reduced leakage to the 1% you mentioned. This has allowed us to regain access to areas lost due to leakage, which has resulted in a 15% improvement in mine grade.

Jason Fairclough, Analyst

Maybe a follow-up on Windfall if you don't mind. We have a 43-101 in the public domain published by Osisko. Are you considering an update, or will you not be doing a formal update of that document?

Martin Preece, COO

We won't do a formal update until the new year, but we will be including resource and reserve updates in our reporting for our full year.

Operator, Operator

The next question we have comes from an analyst of Scotia Bank.

Unknown Analyst, Analyst

I just want to ask about your costs specifically. Could you tell us where you're seeing inflation pressures or where you've started to see some release with respect to your costs? More specifically, regarding labor costs, could you tell us what you're seeing or what you're expecting into 2025? Could you give a split of your labor cost in terms of contractors and employees and what the inflation is for both?

Michael Fraser, CEO

From an employment level, about 70% of people contributing to Gold Fields' performance are business partners, not direct employees. Primarily, our employees are on-site at South Deep and Cerro Corona. The bigger driver of costs isn't core mining inflation but a combination of one-offs and changes in fixed cost dilution due to lower volumes. Year-on-year impacts are mainly driven by volume effects and some of the one-offs discussed earlier. In terms of core inflation, areas like Western Australia remain heated, though there are some slight mitigations, but we are generally seeing more single-digit than double-digit inflation. Our labor makes up about 20% of operating costs, with mining contractors representing about one-third of mining costs.

Unknown Analyst, Analyst

Could you tell me what inflation you're seeing with respect to contractor inflation versus employee inflation? Is there a significant gap between the two? What are your expectations for next year?

Michael Fraser, CEO

We don't provide specific guidance, but we expect more like high single digits in terms of inflation, similar to what we've observed in recent years, though not as significant as we saw 18 months or 2 years ago.

Operator, Operator

The next question we have comes from Christopher Nicholson of RMB.

Christopher Nicholson, Analyst

Two questions, and I hope I'm not laboring the point in either of them because it's kind of a reiteration. Just on the Salares guide for next year for 2025, looking back to 2023, you put out a guide in September 2023, expecting first gold in Q4 and guiding for 400,000 to 430,000 ounces in 2024. Now it seems you’re expecting lower ounces into next year. You said nothing has changed in the ramp-up plan, but the current volumes suggest otherwise. That's the first question. The second question, again on cost and specifically Australia, you were producing at an all-in sustaining cost of $1,040 an ounce in 2022. Given the tough first half and normalized volumes now, are these costs for Australia a new baseline, or is there potential for reductions into 2025?

Michael Fraser, CEO

Addressing your question on Australian costs, they are largely driven by a volume profile. We are seeing lower costs on a per ounce basis than in the equivalent quarter last year. Q4 should show a significant increase, with St Ives and Gruyere showing about a 40-45% increase in the second half. This will lead to better cost dilution due to higher production. We expect a more normalized all-in cost per ounce as we progress into Q4, and the team is focused on asset optimization to unlock more value. I don't see this as a new normal.

Unknown Executive, Executive

It's worth mentioning the increase in capital expenditure in Australia due to changes in the raise boring standard. We've been clearing the backlog on ventilation raises at several sites, which will continue into '25 as we open up ventilation for those underground mines. Additionally, significant capital investment in Invincible underground at St Ives positions this as a long-term asset.

Michael Fraser, CEO

Regarding Salares, we need to be clearer on the reconciliation. We want to put out numbers we're confident we can deliver. We've incorporated more winter days into our plan, adjusting our ramp-up recovery factor conservatively. We previously overestimated outcomes, so we're cautious. We believe those numbers represent a high degree of confidence that we can achieve, and as our confidence improves, we can revise them.

Operator, Operator

The next question we have comes from Rene Hochreiter of Noah Capital.

Rene Hochreiter, Analyst

I'm looking to get my DCF model aligned with your production profile. For next year, I'm thinking about 350,000 ounces for 2025, with possibly 400,000 to 450,000 ounces after 10 years as you start coming down from the open pit to underground. Is that in line with your thinking?

Michael Fraser, CEO

The Salares profile is different from what you’re suggesting. When we talk about steady state in 2026, we're looking at 550,000 to 600,000 ounces for 2 to 3 years, then a decline towards the end of 2034 as we migrate to the lower-grade Agua Amarga. We can share that profile which we shared previously. Nothing has changed on that original feasibility plan.

Rene Hochreiter, Analyst

And this is all open pit, correct?

Michael Fraser, CEO

Yes, currently our base plan is open pit extraction of the Agua Amarga deposit. We're doing a trade-off study for both underground and open pit options, but no decision has been made yet. We continue to explore the land package for potential higher-quality deposits.

Rene Hochreiter, Analyst

Are there any depth extensions to the pits you're planning to mine?

Michael Fraser, CEO

We haven't conducted all the necessary work at depth. The team has drilled 1 or 2 deep holes to assess what's underneath. There are known extensions, but we need a complete view before making a decision, part of the trade-off study.

Operator, Operator

The next question we have comes from Luke Roberts of Barclays.

Luke Roberts, Analyst

I have a couple of balance sheet-related questions. Could you share any details about the $750 million bank facility used to partly fund Osisko? Maturity or structure would be quite helpful. Additionally, following the redemption of the bond earlier in the year, how are you thinking about the funding mix, and would you consider issuing another bond?

Michael Fraser, CEO

I'll hand it over to Alex, who handled that fund raise.

Alex Dall, Acting CFO

The $750 million facility is structured as a bridge facility with a 1-year term and a 6-month extension option effective from middle October, going until next year. It's structured like any bridge with a lower margin that ratchets up over three-month periods. As it nears the year's end, it will align with our group RCA margin. We have time to explore options for how we want to recapitalize our balance sheet, including potentially accessing the bond markets again.

Michael Fraser, CEO

We believe gold prices will remain firm despite recent weakness, so exploring how we manage our balance sheet will be important as we generate good cash flow.

Operator, Operator

The next question we have comes from Arnold Van Graan of Nedbank CIB.

Arnold Van Graan, Analyst

Could you provide an update on your culture journey? Has there been stabilization in senior leadership turnover compared to last year?

Michael Fraser, CEO

We've made significant progress in our culture journey. A major shift came with the rollout of the Elizabeth Broderick report and the Gold Fields way. Our operating model changed to connect our business globally, helping us leverage capabilities and drive simplification and standardization. The leadership team's cohesion is also improving, with two roles that need closing out, including our new CFO joining in the new year. While there have been changes, we don't feel significantly lacking. Overall, we're moving fast on our cultural journey, focusing on predictable performance.

Operator, Operator

Ladies and gentlemen, at this stage, there are no further questions on the conference. I will now hand back to Mike Fraser for closing comments. Please go ahead, sir.

Michael Fraser, CEO

Thank you very much, and thank you all for the considered questions. I think there have been some really great questions today. We are pleased to conclude that we've had a better Q3. Q4 is going to be another big year for us, and as part of our planning for 2025, we're focusing on delivering a relatively boring 2025, which is our biggest aspiration for '25. With that, thank you very much, and I look forward to speaking to you in the New Year.

Operator, Operator

Thank you, sir. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.