Earnings Call Transcript - GFI Q3 2023

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Gold Fields Q3 2023 Operational Update. Please note that this call is being recorded. I would now like to turn the conference over to Martin Preece. Please go ahead, sir.

Martin Preece, CEO

Thank you, Irene, and good afternoon, everyone. I appreciate your time for our Q3 operational update for Gold Fields. I will start with a few introductory comments. First, regarding health, safety, and well-being, it's with deep sadness that we report the loss of a colleague at Tarkwa due to a safety-related incident at one of our waste dumps. On behalf of Gold Fields and the executive team, we extend our heartfelt condolences to the family, loved ones, and colleagues of our colleague who succumbed to his injuries. In August, we discussed the Elizabeth Broderick review we launched across the company. We are currently implementing the 22 recommendations from that review and will conduct a follow-up audit within three years. We're also pleased to announce that, as of October 9th, the Board has completed its search for a new CEO. Mike Fraser, who comes from Chaarat Gold and has previously worked with South32 and BHP, will be joining us in January. Mike has a wealth of experience, and we look forward to the positive impact he will have on our business as we move forward with Gold Fields and build on the strong foundation that's been established. Speaking of our solid foundation, we are proud to have achieved the top ranking in the Sunday Times Top 100 Business Companies last Thursday, which reflects the hard work and dedication of our teams worldwide over the past five years in executing our strategy and delivering impressive results that recognize our people's efforts. Despite operational challenges, our guidance remains unchanged: we expect gold equivalents to be between 2.25 million and 2.3 million ounces, and the AIC, excluding Windfall, is forecasted to be between $1,480 and $1,520 for the full year. It's essential to note the significant impact on costs, particularly as we produced 50,000 fewer ounces this quarter, which primarily drives the change in all-in cost. However, our costs in absolute terms remain relatively stable, with the notable increase occurring at Tarkwa, where we have been mining at the bottom of the pit. We accelerated mining in the second quarter in anticipation of the rainy season, but we slowed down in the third quarter. However, when combining the second and third quarters, we are on track with our cost targets for the full year. Additionally, we encountered challenges with lower grades at our St Ives and Agnew mines in Australia due to ventilation issues affecting production. On a positive note, South Deep has shown a 19% improvement in recoveries during the third quarter, despite a slow start earlier in the year. We're comfortable with our positions in Ghana and Peru. The Salares Norte project is currently at 97% completion at the end of the quarter, and after a recent review, construction is now at 99%. We are pleased to announce that the Ball Mill started operating on Monday night, and the SAG Mill commenced operations on Tuesday night, allowing us to feed material into the mill. We are currently processing better-quality material to ensure everything runs smoothly, and we expect to achieve first gold in December, with the project on track in terms of expenditure. Regarding the joint venture with AngloGold Ashanti, we are collaborating closely and progressing on various initiatives, although our engagement with the Ghanaian government is slower than anticipated. We believe that this joint entity will provide significant economic benefits for Ghana, AngloGold Ashanti, and our company. In partnership with Osisko Mining to develop the Windfall project, we submitted the EIA in March and expect that to be realized towards the end of next year or early 2025. In the meantime, we will continue preconstruction activities and have already invested $25 million in Q3, making significant progress. On the ESG front, we've made strides in our Tailings Disclosure this quarter for our extreme and high-risk stance at Tarkwa and Cerro Corona, with no material dam safety issues reported. We also successfully concluded a second sustainability-linked loan for our Australian facilities, matching the terms of our $1.2 billion revolving credit facility negotiated earlier this year, which highlights our commitment to the ESG targets we have established as valuable members of society. We have seen a slight increase in our net debt-to-EBIT ratio to 0.48x due to Windfall payments and the interim dividend. Finally, I would like to welcome Jongisa, who joined us on September 1st, and acknowledge Paul Schmidt, who will be retiring next year, as well as others in our team who are also reaching retirement age. We are actively working on finding replacements for these critical roles. Apologies for not introducing my colleagues earlier, but with me today are Paul Schmidt, our CFO; Jongisa from Investor Relations; Thomas Mengel; and Naseem. Now, I will turn it back to you, Irene, to address any questions.

Operator, Operator

The first question we have is from Adrian Hammond of SBG Securities.

Adrian Hammond, Analyst

Good day, Martin. Thanks for your update. Just got 3 questions for you. I'd love to ask you a bit about safety. Firstly, safety performance has regressed materially, and I think it's fair to say as a global major that's pretty unacceptable. Could you just give us a bit more color on what's going on and why that's happening in the business? And what you would do about it? Because, as you know, safety is a big driver of ratings. Secondly, Asanko gave an update recently from Galiano. They improved the outlook, lower cost, top end of guidance for production, but you didn't mention it. Why is that? And what's the situation with the relationship there and your intentions? And then just on South Deep, what bothers me is the volatility in the grade. Could you give us a bit more detail about how mining has progressed from the fringes and how you're opening up flexibility South of Wrench or plans to do that next?

Martin Preece, CEO

Again, thanks for your questions. I think safety, I'll start with the safety question. Certainly, as concerning as it is for you, it's deeply concerning for us. Gold Fields has had a great track record with safety. Unfortunately, we had an incident in Ghana this year, and we had an incident in Australia last year. What we are doing about it? We've had a review of our safety performance, our critical controls, and what is falling through the cracks, where we're failing. I think key issues that we believe that we need to improve on linked to safety and the incidents recently are around contractor management. That we might, as much as we've got, I think, a really strong controlled environment in our own operations, some of the activities that have been contracted out may not have been managed as robustly as internally. So that is certainly a focus area. What we have done? We are bringing in independent experts from outside to assist with investigations so that we can get a more robust view. And we've also initiated work with a well-renowned international consultancy that is doing reviews at 2 of our operations currently. And based on those outcomes, to see what we're missing culturally with safety, if there are opportunities to learn. I think as you move further up the curve with your safety performance, those improvements get harder and harder, and doing the same old things isn't going to deliver the results. So I think we're trying to get a step change. I think the last aspect that we're doing, we've certainly recognized the need. Safety is typically managed in each of the regions, and we're in the process of appointing a group safety lead so that we can try and get the learnings shared a little bit better across the business. I think the second question related to Asanko. We're fairly advanced in our discussions with Asanko on how to take the asset forward. We certainly expect an announcement, hopefully, before we close for Christmas this year. Where we're going to go with that deal? I think we've reached a lot of common ground, and we had a fairly advanced stage of discussing where we are with Asanko. And obviously, at this stage, once we've finalized our discussions, we're happy to update the market. Paul, do you want to talk to South Deep?

Paul Schmidt, CFO

Yes, I can discuss the grade, and Martin can provide information about South Deep. The underground reef grade has been fairly consistent, at around 6.5 to 6.77, and when compared to the same time last year, it was approximately 6.4 to 6.5. The yield varies based on how the material is loaded and transported to the plant. The mine gain has remained stable over the recent period, although timing can affect stockpiles and material in silos as we manage the movement from underground to stockpiles, which is influenced by factors like load shedding and other events. We've experienced some poor ground conditions that were reported in the first quarter, leading to a different mix. However, there aren't significant grade variations at South Deep. It's essential to start from one end and work through to the other, allowing for some upside along the way. The team is currently finding some grade, but there is no established mining sequence.

Adrian Hammond, Analyst

Understood. Well done. The tonnages seem to be holding good ground. And I think if you get the safety right, it's a good value on the stock. Good luck.

Paul Schmidt, CFO

And just on South of Wrench. I think we had talked about it before, Adrian. We are steadily moving towards South of Wrench. That was originally planned to sort of start down in 2031, I think, if I'm not mistaken. As we've reported before, we'd rather go there slowly now. So the team is slowly loading out, developing certain ends, but that gets us there a little bit earlier. And I think it's linked to your questions you've asked before, opening the South of Wrench earlier taxable for critical part, and it will start giving the mine a bit more flexibility of mining areas.

Operator, Operator

The next question we have is from Martin Creamer of Mining Weekly.

Martin Creamer, Analyst

Martin, I'm a little worried. I think when I listen to your presentation these days, I hear about the lack of skills. While we have to be listening to people in Canada, when we're listening to people in Australia, all over the place, it seems skills are dead. What are you going to do about it? There are a few of those smallest book juniors who have opened school of mining in the Northern Cape. There's no effort by the bigger company. What are you going to do about the lack of skills?

Martin Preece, CEO

Thank you for your question, Martin. We are addressing the issue in several ways. In Western Australia, the government is easing entry requirements, which makes it easier for us to bring in experts. The situation there differs from what we see at South Deep, where the unemployment rate is only 3%—most of those are not actively seeking jobs. This creates a market with limited surplus skills, and the significant infrastructure projects in the cities are drawing people in, as they can return home every night. We also face competition from large mining companies that can offer much higher salaries. Although the Western Australian government is facilitating the entry of skilled workers, we are also seeing some of our colleagues from Ghana moving to Australia while we are stepping back from other regions. At South Deep, the difficulty lies in a different area; rather than a broad skills shortage, we are specifically lacking long-haul operator skills and artisans to maintain our underground equipment. Many of these skilled workers are moving to larger mines in Central Africa and parts of South Africa. To counter this, we have been hiring more operators than we need and training them extensively to ensure we don’t lose too many to competitors. Meanwhile, we are enhancing our training programs for artisans, though this training can take 3 to 5 years. While our trainees leave with qualifications, the specific experience required to operate or maintain our advanced equipment takes additional time. Alongside recruiting and training, we have established a dedicated training facility where artisans can learn through practical fault finding and simulation exercises. This investment in training will take longer to yield results, but we are committed to developing additional skilled workers.

Martin Creamer, Analyst

And just my final question. When we spoke last, you said, in 2024, there might be some new moves in renewables. You said you're investigating things for South Deep going into wind and solar for 2024. What have you done on the renewable trend in South Deep, or what are you going to do? And what about renewables elsewhere?

Martin Preece, CEO

So Martin, at South Deep specifically, we are busy with the wind study to put up those wind turbines. It's certainly delivering very positive, I suppose, results on the tower we put up. We put a net mass up to measure the wind, measure the bird life, bat life. We are currently busy with the environmental permitting for the wind facility. That should be close to complete sort of quarter 2 next year. At the same time, the team is doing the positioning of where those turbines would be. We've got the Board earlier, and we're busy doing the engineering, design, detail, and costing on the wind turbines. And so hopefully, we can make a sensible argument to the Board about advancing that project in fact to the Board towards the back end of next year for approval. Paul has made provision in our long-term costing for that. But obviously, we need to produce a business plan. In terms of other renewables at our mines in Australia, we have approved additional solar at Granny Smith and Agnew mines, and we're busy finalizing a big study to take our St Ives Mine to about 72% renewables. That will be going to our Board before year-end for approval, that's over $200 million investment, U.S. dollar investment, not Aussie dollar, that will be spent over the period of '24 and '25. I think we know about Cerro that's now on renewable electricity. The only other piece that is new is the Windfall project in Canada. We have just been, in the last week or 2, been granted allocation by Quebec Power, which is a fully renewable source from hydropower. And we are obviously constructing the power line in from the bell to the mine, that's about 80% complete. And so early next year, we should be able to switch Windfall on to a renewable source of electricity from hydroelectricity that I was commenting about. And then the Salares project that we're busy commissioning, the EIA has been approved for the date, but we've still got to do the study workout. I think it's more important right now that we get the molds mills turning and some gold coming at the back end than people focusing and losing focus with solar panels.

Martin Creamer, Analyst

And if you remember what you think you'd have at South Deep for wind?

Martin Preece, CEO

We must probably going to be somewhere between 50 megawatts and 80 megawatts. We haven't planned the exact number for South Deep on the megawatt shed.

Operator, Operator

The next question we have is from Ed Stoddard of Daily Maverick.

Ed Stoddard, Analyst

Yes. So Martin, I'm just kind of interested if you can give us an update on the ESG front on the chinchilla project in Chile. Has the new attempt worked keeping the rodents at bay?

Martin Preece, CEO

Thanks, Ed. So in terms of where we are with that, the compliance program or what you call the PDC, we got that back from the regulator earlier this year. We've been busy preparing for the monitoring and preparation of that location. We've increased our cameras in building night vision capability from 35 to 158. We have to do all the monitoring of the areas that's up at 35% now. Importantly, one of the learnings, we've increased our veterinarians on site from 3 to 5, 2 shifts. So that's basically 10 vets in total that we have on site and 12 during the relocation phase. We've identified the buffers and we're busy demarcating those and we'll have everything on site ready to start relocation by December. We will start relocation in January, and we expect to first capture in the first 2 weeks of January. We're starting in an area called R3 with 8 chinchillas, and then the plan is in terms of to liberate to rocky, it's a minimum of 40 days. You do 10 days of capture, 20 days of observation, and then another 10 days of capture. And then obviously, there's a release. We'll start with areas of R3 with 8 chinchillas and R5, those are about critical part in quarter 1 next year. As you know, we're stopping winter. And we'll then recommence in September with areas R8 and R10. That's 2 chinchillas there. And then early '25, in areas R7 and R6, which is a total of another 11 chinchillas. So that will allow us to commence pioneering activities in quarter 1 2025, because we'd have cleared the areas R5, R8, and R10, and we are looking at pit redesign to make sure that we can get that going and start pre-stripping in quarter 2 2025. So that's where we are at. We're certainly significantly more monitoring, more veterinary staff on site, and so a clear plan that's aligned to the critical part that we will now actively push, but not aggressively push.

Ed Stoddard, Analyst

Just as a follow-up. So you're saying you've got 10 veterinarians on site. That's about 1 veterinarian to 2.5 chinchillas, if I'm doing my math correct. And then also, have you decided to reconfigure the pit? Are you going to go underground?

Martin Preece, CEO

We have developed a backup plan and will continue to progress with the underground study, which also involves permitting challenges. However, we must move forward on both fronts; we can't choose one over the other. There is still a solid case for the open pit, and we will persist with the underground study as previously mentioned, but we cannot delay the relocation of the chinchillas while waiting for the underground study to be completed.

Ed Stoddard, Analyst

Okay. And just again, on the vet, I mean if you have 10 vets on site, that must be costly. I mean, I'm guessing that the whole project has now gone beyond its initial $400,000 estimate?

Martin Preece, CEO

Well, it's significantly more. But I think it's important. This is something that's important to us. I think it's important to our stakeholders. And so do you count that in money? Or what is the right thing to do?

Operator, Operator

The next question we have is from Raj Ray of BMO Capital Markets.

Raj Ray, Analyst

I apologize in advance if you already answered some of these questions. There was a bit of a trouble dialing in. But Martin, first up on the Australian operations, the one takeaway we had from the site visit last year was that there's a lot of upcoming underground development and infrastructure development that's needed and also extension of resources that's needed at the underground operations. With the skill shortage that you are having, how are you tracking with respect to your underground development? And looking forward to 2024, is there any impact on operational flexibility at those operations, if you can comment on that? And my second question is regarding the Asanko asset. Wanted to see where Gold Fields is with respect to making a decision on that?

Martin Preece, CEO

Raj, thanks for your questions. Certainly, the development pressure we're under now, we have stress-tested that leading up to our business plans that are being presented next week. There's certainly no risk for next year. The impact has been, part of it skills, but part of it also ventilation following the incident. So we obviously have to review how we raise more. That has obviously delayed some ventilation. We do believe we've got the flexibility we need for next year, but it's something we've got to keep our fingers on. And we can't let it sit for another 2 years, but we've stress-tested our plans. I think Stuart and his team have had enough development in place and are very comfortable that next year we're not going to feel pain due to the performance this year. In terms of Asanko, we had fairly advanced discussions with Galiano, our JV partners there on the way forward with the asset, and we certainly are hoping to be able to make some sort of announcement before year-end on the way forward with Asanko. I think that's the answer that we've got on that.

Operator, Operator

We have a follow-up question from Adrian Hammond of SBG Securities.

Adrian Hammond, Analyst

Yes. Thanks very much. Martin, just briefly on Salares. What critical items remain to get to first gold? What's still left to be commissioned? And just give me a sense on how quickly you can ramp up? I mean, as I understand, you must have all of next year's gold above ground already. So does that suggest you could get to a steady state within the first quarter? Or are there other critical items in terms of the processing that need still to be commissioned or fully ramped up there?

Martin Preece, CEO

Thank you, Adrian. By the end of the year, we expect to have more than next year's gold in stockpiles in front of the process plant, totaling 600,000 ounces, while we're projecting 400 to 450 for next year. The key figure to reach steady state is around 50,000 ounces per month during this initial period, and we aim to achieve that ramp-up quickly. Currently, the combination circuit is nearly complete, including the primary crusher, stockpile, and mills. We are processing better material through the mills now and have paused introducing it into the leach tanks and thickeners, which are functioning well. This process will enable us to start sending sludge to the filter plants, which are ready but awaiting material. The final components remaining are the Merrill-Crowe process, which captures about 85% of the metal and is about 85% built, including the reagent tanks and facilities for final processing. We need to complete the construction and commissioning of these by the end of this month. Additionally, the carbon circuit for the remaining 15% of the metal is expected to be finished by mid-December, thereby allowing full plant capacity. From a mining perspective, the ramp-up poses no risk since the material is already there. Max and Lucho's team has been very strategic in transitioning the plant to the operational team as construction progresses. The mine's general manager is taking ownership of the combination circuit this week, followed by the leach tanks and thickeners next week, then the filter presses the following week. This approach allows the operational teams to operate and manage parts of the plant while the construction team completes the work, which we believe will reduce potential issues. Generally, project teams finish up and then hand over to operations, but doing this in parallel increases our likelihood of success as the operational team handles parts of the plant during construction.

Adrian Hammond, Analyst

Thanks for the detail. So all going well, when do you think 50,000 ounces per month is achievable?

Paul Schmidt, CFO

It is quarter 3. We get to commercial levels in quarter 2, and quarter 3 is when we get to the 50,000 ounces a month, Adrian.

Operator, Operator

It seems at this stage we have no further questions. And I would like to hand it back to Martin for any closing remarks.

Martin Preece, CEO

Thanks a lot to everybody for joining. We certainly look forward to closing our year out. I'm sure you have had as long a year as we have. And we're fairly confident. Paul and myself spent yesterday with our teams across the globe assessing the sort of full year guidance reported. We believe that's intact. So we're looking forward to reporting a good set of results in January or February when we talk to you next time, and thanks to my team that's here with me. And all the very best to all of you. We won't get to you again for the festive season, and may 2024 be a fantastic year for you. Thanks, Irene.

Operator, Operator

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