Gold Fields plans to cut up to 1,560 jobs at South Deep
Volatile three months ahead at loss-making mine, says CEO
Gold Fields is preparing to lay off up to 1,560 people at its loss-making South Deep mine, marking yet another attempt at restoring the operation, which has absorbed R32bn so far.
"It is envisaged that approximately 1,100 permanent employees could potentially be impacted by the proposed restructuring. In addition, approximately 460 contractors could also potentially be impacted," Gold Fields said.
South Deep employs 3,614 full-time employees and 1,940 contractors.
News of the job cuts sent the company's shares into freefall on Tuesday, with the stock plummeting 12% by midday on the JSE, wiping more than R4bn off its market capitalisation.
Gold Fields CEO Nick Holland ruled out a closure or sale of the mine, saying the board had given all options long deliberation and had decided the best value for shareholders would be from retaining South Deep and earning back the investment it had made in buying the mine for R22bn and then spending another R10bn in trying to ramp it up to steady and profitable production since 2006.
Asked by Jason Fairclough, an analyst with Bank of America Merrill Lynch, whether “anybody would fall on their sword for this debacle”, Holland said on a conference call that there had been a “churn” in management at what had proved to be a difficult mine.
“Overall, accountability rests with the board and management,” Holland said, adding the board still backed South Deep.
The announcement follows a week after Impala Platinum, the world's second-largest platinum, said it would cut 13,000 jobs at its mines as it shuts five of its 11 shafts over the next two years to address six years of losses at its Rustenburg mines.
Lonmin, the world number three platinum miner, has said it will cut 12,600 jobs over three years as it stops old and unprofitable mines.
Holland said mineral resources minister Gwede Mantashe had been briefed about the restructuring and the necessity to stop the loss of R100m a month at the mine and that the minister had expressed concerns about potential job losses and the sustainability of the operation.
Lack of engagement a ‘worrying trend’
Mantashe, however, said Gold Fields was not following the processes laid out in the Mineral and Petroleum Resources Development Act around layoffs.
“We are beginning to notice a worrying trend where some mining companies do not meaningfully engage with the department on their restructuring plans, and only brief us as a mere formality or tick-box exercise, ignoring processes outlined in the law which are binding to every mining right-holder,” the minster said.
We are beginning to notice a worrying trend where some companies do not meaningfully engage with @DMR_SA on their restructuring plans, & only brief us as a mere formality or tick-box exercise, ignoring processes outlined in the law which are binding to every mining right-holder pic.twitter.com/0SvuAydDNQ— Gwede Mantashe (@GwedeMantashe1) August 14, 2018
“To this end we will be initiating a follow-up meeting with the Minerals Council, to take forward our discussions when we met two weeks ago, on how we can together address investment, growth, employment and youth challenges facing the sector and economy. It is our view that the spirit in which Gold Fields is engaging contravenes the agreed approach and the laws governing the sector,” he said, referring to the Minerals Council SA, the former Chamber of Mines.
Gold Fields has embarked on a Section 189 under the Labour Relations Act, giving it 60 days to consult with organised labour — the National Union of Mineworkers (NUM) and Uasa — to find alternatives to the proposed job cuts.
The next two to three months were likely to be volatile at South Deep, Holland said, but stressed the restructuring was needed to ensure the future of the mine.
Gold Fields has repeatedly revised down its production targets at South Deep, which it bought in 2006, and on Tuesday it said the restructuring of the mine meant it was unlikely to reach the 480,000oz gold output forecast for 2022.
It is the last mine Gold Fields has in SA and it has run up losses of R4bn over the past five years as management tried and failed to successfully convert the mine to a large, deep-level, mechanised mine from the labour-intensive conventional mine it used to be.
The losses Gold Fields has incurred at its South Deep mine over the past five years.
"Given the significant impact of the restructuring from late 2017 and early 2018, we are unable to quantify the impact of the proposed large-scale restructuring on production in 2019 and beyond. Consequently, the previously guided build-up plan for the mine (released in February 2018) has a high degree of risk and uncertainty and can no longer be relied upon," Gold Fields said.
Gold Fields has taken a R4.8bn impairment against South Deep, giving the asset a carrying value of R20.7bn.
South Deep’s production in the second quarter was flat at 49,000oz compared to 48,000oz in the first quarter despite 261 employees leaving the company during the first three months of 2018 after the departure of 47 management-level employees in the last quarter of 2017.
The mine spent R295m more than it earned in the second quarter, compared to a R361m cash burn in the first quarter.
Gold Fields said the restructuring had negatively affected morale and productivity.
There was further bad news for Gold Fields’ shareholders on Tuesday, with the company warning of a $0.52 per share drop in basic earnings to a $0.45 loss for the first half of 2018.
The loss came from the R4.8bn impairment of South Deep as well as a $96m charge in Ghana where it changed to contractor mining, incurring a $65m retrenchment cost and a $31m impairment of its mining fleet.
First-half gold production fell to 994,000oz from 1.05-million ounces, with the all-in cost rising to $1,169/oz from $1,103/oz a year earlier.