Gold Fields : Conference call transcript - 1MB

H1 2021

RESULTS FOR THE PERIOD

ENDED JUNE 2021

www.goldfields.co.za

H1 2021 Results

Gold Fields

H1 2021 Results Analyst Call

19 August 2021

Operator

Good day ladies and gentlemen and welcome to the Gold Fields H1 2021 results analyst call. All participants are currently in listen only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing * then 0. Please note that this call is being recorded. I would now like to turn the conference over to Avishkar Nagaser. Please go ahead, sir.

Avishkar Nagaser - Head of Investor Relations

Thank you Claudia. Good morning everyone and thank you for joining us on this sell side call this morning. On the call today we have Chris Griffith, our CEO, Paul Schmidt, our CFO, and Tomas and I are also o. Chris will start with some brief introductory comments and then we'll move on to Q&A. Chris, over to you. Thank you.

Chris Griffith - CEO

Thanks Avishkar. Good morning to everyone. Just a couple of opening comments. You would have seen the results by now in all likelihood, but just a couple of comments. I think overall we had a very good safety performance overall with 30% down on total recordable rates. It was a bit overshadowed by the fatality that we had in April of Vumile Mgcine who was a shaft timberman at South Deep, and also I think the impact of COVID and the amount of our colleagues that we've lost. We've lost 19 colleagues since the start of the pandemic so far, the majority of those at South Deep and three at South America as well. So I think that continues to be quite a big strain on the company. Most of the effect at South deep the guys have managed to be better at managing the production impact. But of course the impact on people having lost 19 of our colleagues has been massive.

Production is up 2% year on year notwithstanding the comparative period of last year first half when we had ten more production days. At that time we aligned the month end production with the month end financials, and that put ten extra production days into first half of last year. But production being up 2% versus a comparative period with more production days we think was a solid performance. Cash generation has also been solid with the higher gold price flowing to the bottom line. We've seen normalised earnings up 33% to $430 million, cash from operations fairly constant at about $399 million. I think a very positive message is that we've been able to pay for all of the capex including Salares Norte capex plus the dividend from existing cash generation.

We ended the half at $180 million free cash flow. Our all-in sustaining cost you will see we showed up 11%. I think very important to note that Australia had a 17% strengthening of their exchange rate and in South Africa a 12% strengthening of exchange rate. If you exclude the impact of exchange then the all-in sustaining costs were up by 2%. To give you a similar comparison, if we exclude the extra capital at Salares and we excluded the impact of exchange rate, then the all-in cost was actually flat year on year. I think I shared this with you to show that costs remained well under control other than the strengthening exchange rates which translated into higher US Dollar all-in sustaining costs and all-in costs.

It is very pleasing that the dividend was up 31% year on year from 0.37 US cents to 0.49 US cents, a 30% pay- out of normalised earnings. The balance sheet is in a strong place, a small reduction again of net debt to EBITDA from just over 0.5x to 0.49x at the end of the first half. ESG continues to be a very positive story for Gold Fields on the back of having invested at Granny's and at Agnew in Australia. This year we are in the process of putting a 12 MW solar plant in place at Gruyere. Then we will have three of our mines in Australia

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with renewable energy. And I think very pleasingly we were able to announce before the president announced this 100 MW increase in self-generation capacity South Deep has got approval for a 40 MW solar plant. And that is in construction at the moment and that will be delivered next year. I think all round a very positive story, building on the leading ESG position that Gold Fields occupies. For example, recycling this half was 74%. It's way up on the ICMM targeted of 60% recycling of water. And we had a 12% reduction of fresh water use again in this first half.

So overall I think we're in a good space. I think we had a solid first half performance. I did give some indication of strategy in the booklet. And we can go in more detail a bit later, but I did illustrate that I thought Gold Fields was in great shape strategy-wise. I think the focus the company has had on portfolio and the quality of assets over the last number of years, the focus on value creation and the focus on capital discipline and returning cash to shareholders, that part of the strategy has done well for Gold Fields and I think is important for us to maintain. So no need to have a major strategy change in that regard. I think the continued focus on having a quality portfolio of assets with the focus on quality growth, the quality life of mine extension I think has all been very good. So that part of the strategy remains in place.

In addition to that I think the enhancements that I and the leadership team are thinking about now introducing on top of that base is the maximisation of the value that we believe still exists in our existing assets. The second addition is building on our leading commitment to ESG. And thirdly, having created the value that we will have created over the next few years by the time that Salares Norte is in place - so that's

2.8 million ounces of improving quality of the portfolio in the cash generation ability and of the all-in cost position - we believe that being able to maintain that position is something that we're going to be actively pursuing, as long as it can be value creative to the company. We've got some time to do that. We don't need to chase anything at the top of the market. And at the moment it doesn't seem like there are very cheap assets out there. So we are going to keep an eye on that. Having created that value for our shareholders, we believe that we can, as long as it's a value creation, maintain that value that we've created. So I'll pause there for comments. That's just a few introductory remarks. Both myself, Paul and Avishkar are very happy to take your questions. Thanks.

Operator

Thank you very much sir. If you would like to ask a question, please press * then 1 on your touchtone phone or on the keypad on your screen. If you decide to withdraw the question, please press * then 2 to remove yourself from the list. Again, if you would like to ask a question, please press * then 1. We will pause to see if we do have questions. The first question comes from Catherine Cunningham from JP Morgan. Please go ahead, Catherine.

Catherine Cunningham - JP Morgan

Hi guys. Thanks for the update. I have three questions to kick off. The first one is just on Damang. The most recent resources and reserves statement from 2020 alludes to ongoing assessment to extend the life of mine beyond 2025. Is it possible to get an update or a sense of how that is actually progressing?

Chris Griffith - CEO

Catherine, you said you've got three questions. Why don't you just fire those off?

Catherine Cunningham - JP Morgan

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All at once. Okay, the second one is on the South Deep solar project and R120 million cost saving that you mentioned per year. Can you break down the building blocks on what those underlying assumptions are, i.e. what the Eskom tariff assumed is versus the operating cost per kilowatt hour? And with the newly gazetted legislation now only requiring registration as opposed to licensing for projects up to 100 MW, are there constraints to expanding this particular project beyond 40 MW? I know in the release you say its 200 soccer fields already. Is there a space constraint or can we expect that to be bigger at all? And then the third and final question is at the Q1 results your comment was that you were more positive than you had expected to be on South Deep but that it was still fairly early days. I'm just curious a few months later how your view has evolved since then.

Chris Griffith - CEO

Okay. Catherine, thanks a stack. All right. I will quickly go through that. Damang we've got no new update. I think the Damang cutback is going well. The team are delivering on what they expected and we have now paid back the initial capital that we spent on the cutback. The team are busy working with their advisors and with their team on what the next phase of life for Damang could be. And there is potential for further cutbacks and there is also potential for underground opportunities. But of course they need to finish that work and we need to see if that is value accretive to the company and whether it makes sense for the Ghanaian team with the Ghanaian assets as a cluster but also for the company. So I think we're very focussed on the fact that whatever we do has got to compete for capital elsewhere in the company, but also it has to be value accretive to the company. So I think work in progress, Catherine.

On South Deep, just a comment on South Deep. I have got a comment. R120 million comes from a saving of about two thirds of the cost. I've actually got a note here somewhere that explains that. But it's about two thirds of the tariffs at the moment we save. That's how we get to the R600 million of capital. We pay that back in five years. The operating cost is something like 10 cents per kilowatt hour. And the capital inclusion is about 30 to 40 cents per kilowatt hour. So if you add that back you can see it is about a third of the current Eskom tariff. So that's how we get to R120 million worth of saving a year. It's 20% of our total power, so you don't get it of course on 100% of your power because the South Deep solar is about 20% of our power. So 20% of the power comes in at a third of the cost. That's how the R120 million is made up.

And then with the 100 MW having lifted the constraints the answer is for now we won't expand more than 40 MW. The team are looking at some small incremental upside on that. But we haven't even built the plant. We've said to the team, build the plant. You can do some of the homework. But the reason why we wouldn't want to do more than the 40 MW for now is because of course the sun is only shining during the day. And it's about 6.5 hours that we calculate to get the value of the sun for the solar. Anything more than that that we generate would mean that we'd have to store that power so that we can use it when the sun's not shining.

So at the moment it's not our plan to expand beyond that, but we are investigating cost effective storage options. The moment that we can land on that, then it makes sense for us to expand given the capital and operating cost make a lot of sense for us at South Deep. So it's on our radar. Work is being done, but it's not important now because we are still building the plant and we need to find storage solutions that are cost effective. Once we do that, we'll be able to expand that plant. We've got enough space. Even if it's 200 soccer fields there is still some more space at South Deep for us to construct. The team on the mine are very keen on that, but we're saying to them, look, let's deliver the project first and after that we will continue exploring the storage options.

On South Deep I did say that I would wait to see. I had no vested interest in South Deep when I joined Gold Fields. But having spent a lot of time with the team, having been underground now - fortunately the one

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place I've been able to get underground - I think I'm in a space to say that we believe that South Deep is a Gold Fields franchise asset. The fact is that the asset is making money now. It's improving its productivity all the time on almost all the metrics. And so if we continue with that trajectory we will be able to deliver the guidance that Nick gave at the beginning of the year to say over the next four years or so post 2021 we believe we can add another 20% to 30% production to South Deep. I think that's still okay.

The plan is let's get along that trajectory and then we'll evaluate what the next potential for the step up is from there. But what we're saying to the team at the moment is let's focus on continuing the ramp up, continuing to generate cash, continuing to reduce the cost of that asset. So the bottom line is that we believe that South Deep is a franchise asset that belongs with the company. It has all the makings of a very slid mine within our portfolio. And it will still only be when we increase the production about 10% of the overall production, so I think that feels fine for us, the production that we've got in South Africa. So a long answer of saying that we believe South Deep's recent history over the last few years of generating cash - it has almost generated as such cash in the first half as it did last year - that trajectory is continuing. We believe that it belongs within the Gold Fields portfolio. Thanks Catherine.

Catherine Cunningham - JP Morgan

Awesome. Thank you.

Operator

Thank you. The next question comes from Adrian Hammond from SBG Securities. Please go ahead, Adrian.

Adrian Hammond - SBG Securities

Morning Chris. I've got three questions for you please. Firstly, since joining the group what are you impressed by the business? What areas of focus are for you? You talked about quality. Which assets are most prospective do you think or undervalued within the group? Secondly, you talked about 2.7 million ounces with Salares Norte coming into the portfolio. How sustainable do you think that run rate is going forward? Thirdly, just on Damang, it looks like you've got some grade issues there regarding some of the [unclear] you're encountering at the Huni pit. Could you expand on how concerned you are about that, whether it's temporary or permanent, and what should we be looking forward to next year? Thanks.

Chris Griffith - CEO

Okay, Adrian. Thanks. What are my impressions of Gold Fields so far, and what I think has been done well. Look, I think let's start in Australia. I think the work that the guys have done in Australia has been some incredible work. These were unloved assets by other companies. We have taken over those assets and I think Stuart and the team in Australia have done some fantastic work. 20 years ago we bought some of those assets in 2002. We now have notwithstanding 20 years' worth of mining the same level of reserve that we had when we started there after 20 years of mining. And we can still see a number of life extensions beyond that. Just the nature of the ore body means you actually have to get down because they're steeply dipping ore bodies. So you can't really drill them from surface, but what you can do is drill out the next tranche when you get down there. So for 20 years we've had eight or nine years' life at some of the assets, at some of the assets three or four years' life. So I think what's impressed me at Gold Fields is the commitment of brownfields exploration of $80 million to $100 million. We've converted reserve there at about A$60 per ounce. So we are generating reserves very cheaply. I think all round that's been a fantastic performance.

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