Just as the South African economy is continuing to grow and modernise, so too is this Johannesburg-based gold producer branching out while staying firmly rooted in home soil
Gold Fields and Johannesburg were both founded 125 years ago and since then both the company and South Africa have grown in parallel, with all of the highs and lows this might imply.
It is one of the world’s largest unhedged producers of gold with a yearly production of 3.5 million ounces per year (Moz/y) across eight operating mines in Australia, Ghana, Peru and South Africa. In addition, four major projects are awaiting construction decisions, anticipated in the next 18 to 24 months.
The modern Gold Fields was formed in 1998 when the gold assets of Gencor were combined with Gold Fields of South Africa. One of the early focuses of this new firm was international diversification, explains Sven Lunsche, corporate affairs manager.
“Last year was a landmark for us because the majority of our production did not come from South Africa, but from our international operations and we want to continue that trend, our target for 2015 is that 60 per cent of production will come from international regions,” he says.
That means Gold Fields is targeting 5Moz/y in production or in development by the end of 2015 - 2Moz/y from South Africa and 1Moz/y from each of West Africa, Australasia and South America.
Mature mines, modern solutions
Admittedly, the firm’s production has remained flat in the last few years and is expected to stay flat as a result of declines at South African operations and rising input costs. In the first quarter this year, total cash costs rose to $870/oz from $767/oz quarter-on-quarter.
“It is becoming more difficult and more expensive to produce ounces at deep level mines in South Africa given rising input costs, such as surging energy prices.
Unless safer and more cost-effective technologies allow for economically viable mining below current depth of around 2.5km – 3km depth raising these operations’ current life of mine will prove difficult.
Much will depend on gold prices. With gold prices hovering at $1,600/oz, it is still profitable, Lunsche notes, adding that a weak rand mitigates price drops to some degree. Still, if gold prices were to fall “well below” those levels, it is obvious that margins will come under pressure.
While at present rising output at its international operations is making up for the stagnant production levels at the South African mines, that doesn’t mean that Gold Fields is turning its back on its home country. Located 45km southwest of Johannesburg on the north-western rim of the Witwatersrand Basin, the South Deep project is expected to produce 700,000oz/y at an optimal run rate by the end of 2015. Last year, the mine produced just short of 250,000oz.
It is a $1 billion-plus vote of confidence in the South African gold mining industry and moreover, a fully mechanised operation.
“As a mechanised mine, South Deep is different from the other mines in South Africa, it still employs thousands of people and we expect eventually about 4,000 to 5,000 people working there, but it is far safer to operate than other mines in the country. It represents our biggest reserve position and it is our investment in the future of South Africa,” Lunsche says.
The focus in the immediate future will be on expediting development, accessing the ore body, completing the surface plants that accompany the “Twin Shaft” underground operations and increasing the rate of mechanised destress mining (relieving pressure concentrations).
Even when South Deep comes on-line, however, Gold Fields will continue to face declining production at its mature operations in South Africa. The reason that production has remained broadly stable, and at historic levels, is because of its international long-term strategy.
A significant step towards this was the buy-out of minority shareholders in Ghana and Peru in the second half of 2011, which also contributed to the strategic goal of achieving 100 per cent ownership of portfolio assets.
Meanwhile, resource development and feasibility projects too are making good progress. The most advanced are Damang Super Pit, Chucapaca and Far Southeast projects in Ghana, Peru and the Philippines respectively.
And while the company is growing internationally, it is managing to post a year-on-year rise in operating profits. Revenue for the first quarter this year stood at $1.44 billion versus $1.29 billion while net earnings were $268 million compared to $158 million, though down from the previous quarter ending December when profits came in at $336 million.
“We are trying to produce gold efficiently in the face of sharply rising energy, human resource and other commodity input costs. This requires a continued focus on cost efficiencies and luckily we have managed to achieve this to date without any forced retrenchments. Given the scarcity of skills in the mining industry it is important to hang onto crucial skilled and semi-skilled labour,” says Lunsche, adding that the weak rand has helped.
Cost efficiencies not only makes business sense, he notes, but are also a critical component in the company’s sustainable development strategy – particularly as investors are increasingly questioning companies’ ability to becoming more energy efficient and reducing carbon emissions. He also points out that Johannesburg-listed companies are required to adhere to the corporate governance requirements of the King III Code of Corporate Governance.
“[The Johannesburg Stock Exchange is] the only market at the moment that obligates companies to report on an integrated basis, so we provide significant details on our energy numbers, our water numbers and community investment numbers, for example. This illustrates to governments and communities that responsible mining can be a good thing, and is more than just digging a hole into the ground, getting the metals out and then closing up shop,” says Lunsche.
The notion of shared mutual benefit with local communities and host governments is not entirely philanthropic. “It is imperative to have good relationships, because local communities can withhold your social licence to operate while governments can withhold your mining licence. Stakeholders also need to understand though that a company has to operate profitably to fund these programmes. On balance I believe we are on the right track in our vision to becoming a global leader in sustainable gold mining,” he says.