Business Context and Reporting Period
This Form 6-K filing by Gold Fields Limited (Gold Fields) is dated November 15, 2007. The report concerns the Cerro Corona gold/copper project in Peru, which is 80.72% owned by Gold Fields. The filing announces a significant delay in the project schedule and a revision to the capital cost forecast.
Key Financial Metrics and Project Data
- Revised Capital Cost: US$421 million (previously estimated at US$343 million).
- Additional Contingency: US$20 million included in the revised forecast.
- Revised Start Date: Ore treatment now scheduled to commence in the middle of the June quarter 2008 (previously early March quarter 2008).
- Delay Duration: Four months.
- Project Reserves: 3.2 million ounces of gold and 1,089 million pounds of copper (5.9 million ounces gold equivalent).
- Projected Production: 6.2 million tons per annum (mtpa) of ore; average 140,000 ounces of gold and 27,000 tons of copper per annum.
- Projected Cash Costs: US$300 to US$330 per gold equivalent ounce (first four years).
- Life of Mine Capital Cost Impact: Expected to increase from approximately US$10 to US$30 per ounce of gold equivalent production due to tailings management facility (TMF) cost trends.
Material Changes Versus Prior Period
The primary material change is the escalation of the project budget by US$78 million and a four-month delay in the commencement of operations. The filing attributes these changes to specific operational failures and external cost pressures that were not fully realized in the previous US$343 million estimate.
Outlook, Risks, and Management Commentary
Causes of Delay:
- Tailings Management Facility (TMF): Deficient progress due to poor rock quality in project quarries and inadequate material delivery rates for the embankment.
- Concentrator Construction: Underperformance by contractors over the past two months regarding structural and mechanical installation, causing knock-on delays to electrical work.
Causes of Cost Increase:
- Additional management, engineering, and support costs (camp maintenance, meals, bussing) due to the extended timeline.
- Higher unit rates for mining and crushing construction materials for the TMF.
- Additional cut and fill activities required due to poor ground conditions for facility platforms and roads.
- Escalation of commodity-based products, including electrical cabling, power lines, and piping.
Management Commentary: CEO Ian Cockerill stated that while disappointed, the project remains robust and will make a significant contribution to Gold Fields. Management expressed confidence that steps have been taken to ensure completion within the revised schedule and budget. Work is underway to develop alternative tailings management methods to improve costs.
Investor Verification Checklist
- Verify the revised capital expenditure of US$421 million against the company's current liquidity and debt capacity.
- Confirm the impact of the four-month delay on the company's 2008 and 2009 production guidance.
- Assess the long-term viability of the project given the projected increase in life-of-mine capital costs from US$10 to US$30 per ounce.
- Monitor the progress of the TMF construction and the optimization of the crushing and screening plants.
- Review the status of contractor performance for the concentrator to ensure the revised June 2008 start date is achievable.