Gold Fields is cementing its role as a globally competitive gold miner as it positions itself to drive its all-in costs to $900 an ounce, attracting investors and keeping cash-generating output above 2-million ounces a year for at least a decade, CEO Nick Holland said.
In a frank assessment of the South Deep mine in SA, the last mine Gold Fields had in the country, Holland said the share price had been "held back" by the difficulties in ramping up the mine up to its full potential.
As part of efforts to tackle the legacy issues of being a South African miner with deep-level, labour-intensive mines, Gold Fields unbundled three of its South African mines to form Sibanye Gold and has pursued offshore growth, targeting low-cost production.
Holland said when he took over as CEO a decade ago, 65% of Gold Fields’s annual output came from SA and just 1-million ounces came from the international assets. SA now represents just 13% of its production while the international mines generate 2-million ounces.
But the full recognition of the change in the company was yet to be reflected in the share price when compared with its international peers, he said. "We are certainly being pegged back by South Deep and … if South Deep was in a better position relative to where we are today we would be right up there."
Another factor worrying investors and potential investors was the commitment from the board to invest $1.6bn over two years starting in 2017 in stay-in-business capital and growth projects in Australia and Ghana as well as a sizeable investment in completing a feasibility study into building a mine in Chile.
South Deep, which has cost $2bn to buy and build so far and needs $200m more to bring it to steady state of 500,000oz a year from 2020, hailed from a "different era, when big was beautiful", Holland said.
If the mine delivered gold at the planned $900/oz at a gold price of about $1,300/oz, it would take just more than 10 years to recoup the investment.
"The deals we’ve done over the past seven or eight years are not big, but you can get a return on your money quickly, with lots of upside potential to make cash. The big, megaprojects are a thing of the past," Holland said.
He wanted to keep production in a range of 2-million to 2.5-million ounces with no more than 10 mines in the company portfolio.
The growth in the international portfolio was also designed to give Gold Fields better balance in its reserve base, moving away from a position where South Deep with its 35-million ounce reserve made up 70% of its mineable gold.
With the growth projects in Australia, Ghana and potentially Chile, combined with the recently completed Asanko deal, Gold Fields will grow its international reserves 50% to about 23-million ounces, putting it on a par with its peer AngloGold Ashanti.