Earnings Call Transcript - GFI Q2 2025

Michael John Fraser, CEO

Good afternoon, good morning, everybody, and welcome to the presentation of Gold Fields H1 2025 results. I'm joined here in the room in Johannesburg with Alex Dall, our Chief Financial Officer, who will take us through the specific financial details of these results. I just draw your attention to the forward-looking statements in the presentation pack. Just going into our results, I want to remind everyone that Gold Fields is a global gold miner. We have a number of high-quality operations in quality jurisdictions, and we have a high-quality growth pipeline ahead of us. Just to remind everyone of our strategy, our strategy is very clear. It's around delivering safe, reliable, and cost-effective operations, having a positive social impact on our communities and environment, and continually growing the quality of our portfolio. Our focus really, if you look at our portfolio, we have four multi-decade assets, which provide the production base load. We have an additional four assets that have upside optionality. Through our greenfields, brownfields exploration activities, and M&A, we continue to improve the quality and value of our portfolio. The way we think about creating value is by enhancing the longevity and quality of our asset portfolio; the focus is on growing cash flow per share. If we continue to do that, we're allowed to trade off the options of returning additional funds to shareholders, investing in our business, and strengthening our balance sheet to take advantage of future options. If you look at our first half 2025 results, we've had a strong performance relative to the same period of last year. Firstly and most importantly, the benefits of our safety improvement plan are becoming visible, and we've seen an improved safety performance in H1 2025. In fact, over the last four quarters, we have continued to see the improvements as we've ramped up that program. We are on track to deliver both against our production and cost guidance for 2025. Whilst our H1 '25 unit costs are slightly elevated, they have come off in absolute terms per ounce, and we continue to see an improvement in H2 post the period end, which would benefit our all-in cost during the second half. In terms of improving the quality of our portfolio, we have had a strong performance from Salares Norte with ramp-up progressing according to plan, and we've seen continued operations throughout the winter. Even post-period end, we continue to see good performance. We also completed the signing of the Gold Road acquisition in Q2, and we expect that transaction to conclude in October. We've identified significant opportunities across our portfolio for improving our assets, and I'll highlight a couple of those ideas later in the presentation. Our focus is very much on returns to shareholders, and we've announced an interim dividend today of ZAR 7.00 per share, which is 133% higher than the equivalent period last year and matches the full year dividend that we declared in February. We've made some really good progress in the enablers of our strategy. We continue to invest in creating a sustainable, simple, reliable organization. Moving on to our H1 operational performance. Again, just to reinforce, we've had a very strong delivery in H1. We made some really good progress with our safety performance. We did, however, have two serious injuries, which demonstrates that the journey on safety is never-ending. Every day, we drive our focus. Importantly, and one of the key enablers of that is our cultural changes. We have now completed 90% of the EB&Co recommendations and continue to make good progress in investing in culture. In the first half, we had a 24% improvement in gold production compared to the same period last year. That enabled us to deliver an improvement in unit costs, which Alex will talk to later. Importantly, we saw that translate into a 40% improvement in realized gold prices and a 256% improvement in cash flow from operations. An important driver for performance is the ramp-up of Salares Norte. We saw a 46% improvement quarter-on-quarter for Salares. We see commercial production being delivered in Q3 as planned with steady state planned for Q4. We're well on track for the delivery of our guidance. Our production in the first half is around 48% of the midpoint of our 2025 guidance. Just very briefly touching on our social and environmental performance. We have completed a midterm review as intended in 2025. We've made really good progress across all dimensions of our ESG commitments. We've made good inroads to our safety, health, and environmental improvement. We've made some good progress on gender diversity, where we now have 28% of women in leadership, and 56% of women are in core operating roles. We have delivered $2.9 billion of value created for stakeholders, of which just under $800 million has been delivered to our host community. On decarbonization, we've made some good progress with a 14% absolute reduction against our 2016 baseline. We continue to make good progress on the investment in renewables. However, the one area that's lagging is that the technology in our industry has not caught up and enabled us to make significant inroads into diesel usage in our portfolio, which remains a key area of focus. Last week, we launched our GISTM conformance report on tailings. Pleasingly, I can say that we achieved a high level of compliance against all of our tailings facilities. All of our high-priority tailings are fully conforming. We continue to focus on water stewardship. Again, what I can say is that we have made good progress in production as mentioned, up 24% half-on-half and remain well-placed on our full year guidance. I will talk to some of the highlights on the assets shortly. Now, I'll hand over to Alex to discuss the cost performance in the half.

Alex T. Dall, CFO

Thank you, Mike. Pleasingly, we saw a $100 decrease in our all-in cost from $2,060 an ounce to $1,957. This was really on the back of the strong production, as outlined on the earlier slides from Mike, offset by an increase in operating costs of $230. $60 of those $230 is due to the inclusion of Salares Norte in operating costs for the first time. The remaining increase is significantly due to an increase in volumes and mining contractor rates in Australia. We have also seen an increase in sustaining capital due to winterization projects at Salares Norte and higher volumes at our Australian mines, alongside infrastructure spending. Back to you, Mike.

Michael John Fraser, CEO

Thank you, Alex. Just want to quickly run through each of the operations and talk about some of the highlights. Firstly, just to call out South Deep, which has had a 31% improvement in attributable production half-on-half. We had a really difficult start to 2024 at South Deep. However, there have been some significant improvements driven largely by improved underground mining and improved stope turnover. We're also seeing some slightly higher grades from the drilling activities, which have certainly provided a benefit to South Deep. Again, because of the higher fixed-cost nature of the operation, those higher volumes have translated into a lower all-in cost. At Tarkwa, we were slightly down on the half, largely due to planned higher stripping and accelerated stripping in the second quarter, which meant that we replaced fresh rock with stockpiled material, which came in at a lower grade. We see that production weighted to the second half and remain confident of delivering the full-year guidance for Tarkwa. St. Ives recorded a 33% improvement in attributable production in H1 due to improved open-pit volumes and improved grade. We see a second half weighting for St. Ives, and they are tracking really well against their full-year plan. Gruyere recorded a 14% improvement in attributable production. That could have been slightly higher, but we had some challenges in January with the process plant. However, apart from the difficulties faced in Gruyere over the past few years with mining contracts, we saw an 82% increase in tonnes moved, contributing to a slightly higher all-in cost for the asset. We also expect a second half weighting for Gruyere in performance. The most pleasing aspect is the constraint is moving from the mine to the plant, which is what we wanted to see. Granny Smith continues to deliver as expected. Agnew also saw increased production in the past 6 months due to improved grade mines and processing. We also saw slightly higher costs due to increased capital as well as the ongoing ramp-up of Salares Norte, where higher capital was incurred due to delayed commercial production and winterization activities, which were one-off items. Damang continues to track according to plan. We recently renewed our mining lease for 12 months, continuing stockpile processing and mining some of the satellite pits. Cerro Corona achieved increased volumes and better grades, which allowed for a 24% improvement in production. Costs were positively impacted by higher gold sold and some byproduct credits. Regarding catalysts, our planned Investor Day in November will unpack some of these opportunities. We're conscious that we haven't fully explored the potential of our assets, and we will highlight some of the ongoing work. At Gruyere, we are very confident about future life extension and will optimize both pit and plant while looking for exploration opportunities in the larger Yamarna land package acquired with Gold Road. Granny Smith's main constraint is haulage, with an ore body that continues at depth consistently. We are starting the material handling system to unlock future life and reduce costs. St. Ives has a significant ore body in the Invincible ore body, and our focus is on optimizing material handling and improving stope turnover. Agnew's life has conventionally been four years, but we see opportunities to optimize mining costs and extend its life through exploration. Our focus on South Deep centers around stope turnover due to significant installed infrastructure capacity. If you look at the recent 6-month performance of South Deep, we have seen improved backfill placement and enhanced stope extraction, which will help us improve extraction incrementally. Tarkwa is focused on future life extension, where mining costs represent 60% of the cost base. We're working to improve mining efficiencies on Tarkwa to extend its life and lift the value opportunity. Salares Norte is about finding additional ore through brownfields exploration. Lastly, at Cerro Corona, we are looking for additional ore sources while working on tailings capacity. Now, I'll hand over to Alex to take us through the financial performance.

Alex T. Dall, CFO

Thank you, Mike. This is a summary slide. I'll unpack each block in more detail on the following slides. Based on the strong production increase of 24% and a 40% increase in the gold price, we were able to deliver very strong headline and normalized earnings of approximately $1 billion each. This enabled us to declare an interim dividend of ZAR 7 per share, a 133% increase over the H1 2024 interim dividend of ZAR 3 per share. We delivered adjusted free cash flow of $952 million against an outflow of $58 million in the prior comparative period, marking an over $1 billion swing or $1.06 per share. Despite the funding of the Osisko acquisition in prior periods, our net debt to EBITDA is sitting at 0.37x. Looking at cash flow, operations before taxes generated $2.1 billion. We paid $463 million in taxes due to the higher gold price. After interest, working capital, and other movements, we had $1.7 billion of free cash flow, including funding $100 million for Windfall. We spent $665 million on capital, with significant capital expenditure at Salares Norte for winterization. We expect this to normalize in the second half of the year alongside underground and open-pit development at our Australian operations and the St. Ives Renewables project. This allowed us to achieve $952 million of adjusted free cash flow. We have a robust capital allocation framework for our spending. We have maintained our investment-grade credit ratings through reviews from S&P and Moody's. We made significant investments in our business, including ZAR 500 million on sustaining capital, ZAR 100 million at Windfall, and ZAR 160 million on growth. We declared a base dividend of ZAR 7 per share, or 34% of normalized earnings. This enabled us to maintain ZAR 950 million of remaining free cash flow for returns. After the dividend, we had ZAR 600 million to improve the balance sheet.

Michael John Fraser, CEO

Thanks very much, Alex. I want to talk now about our portfolio and the work we're doing to improve its quality. Firstly, the way we think about growing the value of our portfolio involves several levers. Firstly, we look at M&A through bolt-on opportunities. The two recent transactions were really opportunities that we knew were low-risk. One was acquiring the other half of the Windfall project that we already owned, including a significant land package in Canada, around 2,500 square kilometers of highly prospective land. The second involved consolidating 100% of Gruyere, alongside additional opportunities identified through the Yamarna tenements. We will continue to seek value-enhancing opportunities in key jurisdictions. However, M&A is something we will continue to monitor; it's not mandatory but is a part of our growth strategy. The second lever is brownfields exploration, which has been successful historically, particularly in our Australian assets in replacing reserves. In H1 '25, we spent $63 million on brownfield exploration, with $48 million spent in our Australian business and $5 million in Chile focused on extending the life of Salares Norte. Additionally, we invigorated our greenfields exploration program to build an early-stage project pipeline for Gold Fields, aiming to fill the opportunity set that will deliver projects a decade from now. We have built an attractive portfolio of greenfield interests, focusing on leveraging excellent opportunities held by juniors who remain capital-constrained. Looking at the near-term options, we are excited about both opportunities in our portfolio. Salares Norte, despite a difficult 2024, has had uninterrupted operations during similar weather conditions. We have also captured and relocated 5 Chinchilla before the program was paused for winter. We are on track to achieve commercial levels of production in Q3 and make good progress towards delivering steady-state production in Q4 as per our plan. At Windfall, the next 6 months focus on execution preparedness, advancing the EIA process, the IBA program, and detailed engineering for an FID in Q1 of 2026, coinciding with the expected construction timeline for first gold delivery in 2028. We have a lot of questions about capital estimates for Windfall, which we will address at our Capital Markets Day in November. I also want to highlight the acquisition of Gold Road, which consolidates Gruyere’s ownership. The timeline for this transaction is being followed closely, with an expected implementation date of mid-October. While Gold Road will report production in Q4, the cash flow starts benefiting us from the date of the transaction signing. An independent expert report confirmed that our offer was within a reasonable valuation range. Regarding the Yamarna land package, while it has been explored for some time, the strategic rationale remains intact as Gruyere is an operating asset in our gold portfolio. We are keen to unlock the full value of this package and continue finding smaller packages like Smokebush and Gilmore, which provide greater operational efficiency due to their proximity to the Gruyere mill. Lastly, on our greenfield exploration portfolio, we've made fantastic progress over the past two years by forming partnerships. During H1, we continued to forge significant partnerships in projects like Onyx Gold, and we've maintained our stake in other successful projects. We are developing an increasingly promising pipeline of opportunities through these deep partnerships, which will support Gold Fields' long-term success. Pleasingly, I can confirm that our production and capital and cost guidance remains intact and unchanged for the full year. Our focus for the remainder of the year is very clear: it involves continuing to improve our safety performance to ensure everyone goes home safe and well daily. This involves work on our safety improvement program and our investment in culture. It's about the predictable delivery of our plan. It's about the continued safe ramp-up at Salares Norte and delivering on our core asset plans while improving the quality of our portfolio through Windfall FID preparation, completing the Gold Road acquisition, and continuing safe delivery of exploration activities. We have a planned Capital Markets Day on November 12, where I'm hoping many of you will join us. At that meeting, we intend to provide a longer-term outlook on Gold Fields and our evolving portfolio. We are excited about our opportunities, as not only are there larger projects, but each asset has potential to deliver on our strategy focusing on growing company value, increasing cash flow per share, and ensuring disciplined capital allocation while enhancing shareholder returns. Thank you, and now I'll move over to questions.

Operator, Operator

Thank you so much, Mike. Just because we've got a combination of questions that are coming from the webcast online as well as through Chorus Call, I propose taking one from each and starting with the webcast questions. The first one is from Tom Middleton. He says, "Mike, leadership is such a critical factor in delivering on the strategy in mining. How do you approach building and sustaining that leadership strength across Gold Fields? And to what extent do you draw on specialist partners in the industry to help you identify and secure the right talent?"

Michael John Fraser, CEO

Tom, thank you very much for that excellent question. In the 18 months I've been with Gold Fields, we've made numerous changes in our organization, which has been a significant aspect of our culture and change journey. We have invested heavily in leadership development, a journey that started about six months before I joined, recognizing, as part of the feedback from EB and company, that we needed to work on leadership development. We partnered with experts to identify gaps in our capabilities. Additionally, we acknowledged that we had a wealth of latent capacity that hadn't been cultivated. Through benchmarking talent externally, we recognized we had gaps, but we also had individuals like Alex Dall, our CFO, who has grown within the business and has been doing excellent work. This balance is crucial: we strive to cultivate our own talent while supplementing it with external hires when needed. The sustainability of our business hinges on our culture and capacity for the next generation.

Operator, Operator

Thank you. I'll pause for a second, Mike, and we can hand over to the operator to advise if there are any questions coming through the call. There are a few questions from the call. The first question we have comes from Josh Wolfson of RBC.

Joshua Mark Wolfson, Analyst

First question I have is on Salares. There was some very solid performance this quarter on throughput improvements, and grade was healthy. On the recovery side, gold is a little below plan, silver improved. Given all of this, I'm wondering what we should be thinking about more specifically regarding grade and recoveries in the second half of the year? I've heard there has been some discussion about managing stockpiles and what that implies for the second half?

Michael John Fraser, CEO

Thank you, Josh, for that question on Salares. We have acknowledged earlier this year that we struggled with recoveries due to the silver we could process, impacting realized gold equivalent throughput. To address this, we installed a larger capacity furnace, which was commissioned in early August. We are already witnessing the benefits from this, and we believe the challenges previously encountered were just teething issues that will now be significantly mitigated. In terms of grade, while we manage our stockpiles, we track our processing against our life-of-mine grade profile to avoid high-grading. We should expect to see a return towards our long-term grade profile of approximately 8 grams per tonne in the second half.

Joshua Mark Wolfson, Analyst

And then one other question on...

Operator, Operator

Please go ahead, Josh.

Joshua Mark Wolfson, Analyst

Sorry if I can ask another question. Just as it relates to Gold Road in the Northern Star share position as part of the company. Could you remind us what the mechanism there is exactly and what the intention is with that share position?

Michael John Fraser, CEO

Yes. Thanks, Josh. Chris Gratias, our EVP of Corporate Development, is in the room, so I'll ask him to elaborate.

Chris Gratias, EVP Corporate Development

Sure. The mechanism agreed is that the value of our offer will float with the Northern Star share price, using a 5-day VWAP calculation around the court hearing date at the end of September. This will fix the cash amount paid to the Gold Road shareholders. We will then inherit the shares, but this will not be a non-core holding for us, and we will look for ways to offload that position to avoid any unnecessary risk.

Michael John Fraser, CEO

I think it's worth mentioning that since signing on May 5, we have seen a slight construction.

Chris Gratias, EVP Corporate Development

The headline value of our offer on May 5 was AUD 3.40 per share. The current implied value is AUD 3.30 per share reflecting some pressure on the Northern Star share price. However, the value passed to Gold Road shareholders will not represent a risk to us.

Operator, Operator

Operator, just mindful that you said there's quite a few questions on the call. I will take one more and then we can go back to the ones online. The next question we have comes from Adrian Hammond of SBG.

Adrian Spencer Hammond, Analyst

Thanks, operator. Yes, I appreciate your slide on 14, the catalyst for portfolio optimization. It sounds like you've got a lot of good things planned. Obviously, this will come at a cost. I just wanted to get a sense of where Gold Fields sits in the CapEx cycle, knowing that you have a few projects lined up.

Michael John Fraser, CEO

That's a good question, Adrian. As we pursue these opportunities, we must prioritize them by delivering the most value-accretive options. We rank all options carefully. At this privileged point in the price cycle, we are generating substantial cash and aim to invest wisely for long-term success. Our approach is to balance three goals: investing in the business long-term, reducing debt, and delivering upper-quartile returns to shareholders. We need to be judicious in allocating capital to opportunities, and we aim to manage this balance effectively.

Alex T. Dall, CFO

Mike has hit the nail on the head here. Adrian, a lot of the opportunities on the slides focus on life extension, particularly with Gruyere and Agnew, as we look to optimize material handling systems. These generally involve baseline expenditure we typically incur.

Michael John Fraser, CEO

Additionally, we need to identify at what point investments become sterilized options. If we fail to act on opportunities promptly, those should move to other hands. This highlights the importance of effective capital allocation.

Adrian Spencer Hammond, Analyst

Yes, that's clear. These are the challenges in mining. While Alex discussed the dividend, I think it’s fair to say that the market is looking towards returns now that you have a windfall from the gold price. Your payout ratio is still somewhat short of the top end. Should we be more conservative in how we model dividend payouts?

Michael John Fraser, CEO

No. Alex can speak to this; our approach to the interim this year has been consistent with how we've paid in previous years based on underlying earnings. We know additional returns are possible, and Alex will address that in November. With our portfolio outlook and cash generation even at consensus, we are confident in being more generous regarding shareholder returns.

Alex T. Dall, CFO

That's correct. We've consistently paid out around 35% of normalized earnings as our interim dividend, and we evaluate top-up options at year-end.

Michael John Fraser, CEO

We are very confident in our portfolio outlook, which positions us well to fund internal growth, address capital improvement options, and deliver superior returns to shareholders.

Operator, Operator

Thanks, Adrian. Just two from online. Please, can you give us some color on the winterization program at Salares? Is the operation now fully winter-proofed for the coming years? And can you provide high-level production and ASIC guidance for '26 and '27?

Michael John Fraser, CEO

On the winterization at Salares, the additional capital spent this year followed an independent review assessing what could further protect Salares. This wasn't about a lack of faith in our current design but rather enhancing it. We implemented several protective measures, including heat tracing on larger pipes and full encapsulation of exposed elements. Given this, if operations are consistently managed, there's nothing further needed for future winterization. Regarding the second question, I will provide guidance on long-term matters at the Capital Markets Day in November. I appreciate your patience.

Operator, Operator

Thanks, Mike. One more from Peter Comridge. Could Gold Fields consider another U.S. dollar bond to replace the Gold Road acquisition facility?

Michael John Fraser, CEO

Alex?

Alex T. Dall, CFO

Thanks, Peter. After the Gold Road bridge facility is established, we’ll consider our various takeout options, which may involve bank facilities or entering the U.S. dollar bond market, capitalizing on our cash flow. We should always keep options open, but the bond issuance window typically opens in April and May following our 20-F publication. We have time to assess our debt profile.

Operator, Operator

Over to you, operator, to check if there are any other questions in the queue. At this stage, there are no further questions on the conference. There's none further on the webcast or online as well, Mike. So over to you for closing remarks.

Michael John Fraser, CEO

Great. Thank you very much, and thank you, everyone, for joining our results presentation. We are pleased to have safely and reliably delivered the first six months of this year and remain confident in our second-half delivery. We are excited about the optimization and simplification work we're undertaking to set up the company for long-term success. We look forward to sharing our outlook and the substantial potential at our Capital Markets Day in November. I look forward to engaging with you again then. Thank you for your participation.