Business Context and Reporting Period
This Form 6-K filing by Gold Fields Limited, dated February 16, 2017, announces the results of the South Deep Rebase Plan. The report details the turnaround strategy for the South Deep mine in South Africa, which entered a critical rebase phase in early 2015 to address operational challenges before establishing a new long-term steady state profile.
Key Financial Metrics and Operational Performance
South Deep Mine Performance (FY 2016):
- Cash Flow: Generated net cash flow of US$12 million.
- Breakeven Status: Achieved cash breakeven for the year, even excluding the benefit of the rand hedge.
- Production: Gold production increased 47% year-over-year to 9.0 tonnes (290,000 ounces).
- Development: Total development increased 47% to 6,933 meters; new mine development increased 9% to 811 meters.
- Stoping Volumes: Longhole stoping volumes increased 74% to 745,000 tonnes.
- Productivity: Longhole stoping rig productivity increased 28% to 9,805 tonnes per rig.
Company Overview: Gold Fields is a globally diversified gold producer with eight operating mines. Attributable annual gold production is approximately 2.0 million ounces, with Mineral Reserves of around 46 million ounces.
Material Changes and Operational Improvements
The filing highlights significant operational shifts compared to the prior period, driven by a new management team and 68 identified business improvement projects (29 completed, 27 expected in 2017, 12 in 2018).
- Mining Method: Completely phased out the low profile (2.2m) destress mining method in mid-2016 in favor of a high profile (5.5m) layout, which accounted for 69% of destress mining in 2016.
- Fleet Renewal: Commissioned 58 category 1 units over the past two years, bringing the total category 1 fleet to 111 units.
- Infrastructure: Commissioned a 200m x 200m underground workshop on 93 level and improved regional pillar design to enhance rockmass stability.
- Skills: Filled most of the 168 critical skill positions identified in 2015 and implemented mechanised mining skills development programs.
Guidance, Outlook, and Capital Requirements
Five-Year Ramp-Up Plan (2017–2022):
South Deep is expected to ramp up to a steady state production of approximately 500,000 ounces over the next five years, reaching steady state in 2021/2022. The plan targets an All-In Sustaining Cost (AIC) below US$900/oz (in 2017 money terms) at steady state.
| Year | Production (koz) | AIC (US$/oz) | Sustaining Capex (Rm) | Growth Capex (Rm) |
|---|---|---|---|---|
| 2017 | 315 | 1,277 | 1,004 | 287 |
| 2018 | 358 | 1,239 | 1,135 | 424 |
| 2019 | 393 | 1,194 | 1,370 | 582 |
| 2020 | 440 | 1,014 | 1,237 | 353 |
| 2021 | 495 | 905 | 1,289 | 274 |
| 2022 | 497 | 872 | 1,066 | 253 |
Capital Requirements: Total growth capital of R2,280 million is required over the next six years, peaking at R582 million in 2019. Major expenditures include underground infrastructure (R1,044m) and follow-on development (R724m). Significant investment in ventilation and refrigeration is required to support the ramp-up in the North of Wrench mining area.
Risks and Contingencies: Continued improvement is required in people/skills, fleet maintenance, underground working conditions, and mining methods. The ramp-up assumes no significant productivity improvements beyond those achieved in 2016.
Key Facts for Investor Verification
- Confirmation that South Deep achieved cash breakeven in FY 2016 without the benefit of the rand hedge.
- Verification of the R2,280 million growth capital budget and its allocation to ventilation and infrastructure.
- Monitoring of the transition to the high profile destress mining method and its impact on long-term productivity.
- Tracking of the ramp-up trajectory against the 500,000 ounce steady state target and the US$900/oz AIC goal.
- Assessment of the completion status of the remaining 39 business improvement projects scheduled for 2017 and 2018.