Gold Fields Limited (GFI) Q3 2024 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Gold Fields' Q3 2024 Operating Update Market Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Mike Fraser, CEO. Please go ahead, sir.

Good morning and good afternoon, everybody, and thank you very much for dialing into our quarter 3 2024 operating update call. In the room with me here in Johannesburg are Alex Dall, our Acting CFO; Martin Preece, Chief Operating Officer; Jongisa Magagula; our EVP External Affairs; Chris Gratias, our EVP, Strategy and Corporate Development; Thomas Mengel, VP, Investor Relations; and Sven Lunsche, our VP Media Relations. So before we get into the Q&A, I thought I'd just provide a few overall comments on the quarter. Certainly, we're pleased to report an improved performance across all metrics in quarter 3 2024 after a largely slower start to the year. Firstly, on the safety front, pleasingly, we recorded no fatalities or serious injuries during quarter 3 and our total recordable injury frequency rate improved to 2.26 per million hours worked from 3.14 million hours worked in H1 of 2024. Production improved during this quarter with attributable gold equivalent production increasing 12% quarter-on-quarter to 510,000 ounces. Notably, St Ives delivered a 20% increase in production quarter-on-quarter as per plan and South Deep a 23% increase in production quarter-on-quarter. This had the impact of helping improve our all-in cost, which was 5% lower to $1,909 per ounce, while all-in sustaining costs decreased by 3% quarter-on-quarter to $1,694 per ounce. We also were able to reduce our net debt by around $30 million during the quarter to $1.12 billion after paying the interim dividend of $152 million in early September. We finished the quarter with a net debt-to-EBITDA ratio of 0.47x. Slightly down from the 0.53x at the end of June. We are expecting a further strong improvement in production in quarter 4 of 2024 in line with our previous guidance and have kept our annual guidance unchanged at a range of 2.05 million ounces to 2.15 million ounces. The increases in quarter 4 are expected to be driven by continued improvements at Gruyere, St Ives, South Deep, Tarkwa and Cerro Corona. In addition, Salares Norte's first meaningful quarterly contribution coming in the fourth quarter. Based on October's performance, we are confident that we are on track to deliver within this guidance, albeit probably in the lower half of that guidance range. Just moving on a couple of comments on Salares Norte. So at Salares Norte, we did commence the ramp-up slightly ahead of the guided 30 September plant restart date. And as previously indicated, the third quarter, we were really focused on the cleaning of the frozen pipes purging remaining material in the primary circuits and preparing the plant for the restart. During the early winter period, we did install a number of bypass circuits, which allowed us to ensure that the main components of the plant could continue to run and circulate solution while the main circuit has been cleansed. One of the questions have been asked a number of times by the engagements that we've had is whether we're confident that this plant can actually run during the normal winter period. And particularly given that we've had a very harsh winter, we've certainly done a full review again of that and are confident that our design of this plant is as per the design standard, and we are confident that we can continue to run it through winter period. And that once we are normal operations, we shouldn't be experiencing the effect that we've had. We've also had an independent review by independent weather specialists to affirm that view. As I said earlier, we remain on track to meet the 2024 guidance of 40,000 to 50,000 equivalent ounces at Salares Norte. Obviously, for this period, there's a pretty sharp ramp-up in the early months of that ramp-up curve. We are expecting commercial levels of production to be reached in Q4 of 2025 and steady run rate in the back end of 2025. The 2025 production at Salares, you will have seen in this announcement, we have put a guidance range into 2025 and that range is a production rate of around 325,000 to 375,000 ounces. Obviously, as the year progresses and as we get more confidence, we will continue to update that, that's certainly our best view of what is a reasonable target for Salares Norte during 2025. With 2026 being expected to be the first full year of steady-state production. Pleasingly, I can also report that a few days ago, we recommenced the Chinchillas capture and relocation activities in Rockery Area No. 3, following a fixation of activities during the winter period and for the duration of the urgent and transitional measure or MUT issued by the Chile's Superintendence of Environment, SMA where they ordered the suspension of dismantling activities of Rockery Area No 3 and that expired on the 3rd of October of 2024. During the quarter, we used that period of suspension to have a number of constructive engagements with the SMA following which we have implemented several improvements to our planned capture and relocation processes. Just moving on to portfolio. So as we continue to focus on growing the value and quality of the portfolio is one of our key pillars of our strategy. We are also excited to have completed the acquisition of Osisko Mining which was an activity that took place just after the quarter end. Following the announcement of the transaction on the 12th of August, this transaction was concluded post quarter end on the 25th of October following receipt of all regulatory approvals and a positive shareholder vote by the Osisko shareholders. In our view, consolidation of 100% of this high-quality asset and a sort after mining jurisdiction with a very significant exploration footprint will certainly enhance the quality of the Gold Fields' portfolio as it progresses through the various stages of development, and we believe it will be a high-quality cornerstone asset in our portfolio for decades to come. And just very briefly on the proposed Tarkwa/Iduapriem JV, we have been very active in our engagements with government over the past 18 months since this was initially announced. We have made very good progress over the past quarter, but we haven't yet got this to a point where we can actually tackle it in front of Parliament for approval. As such, we announced last week that it was unlikely we would conclude this during this calendar year, and this side of the general election, which is due in early December, and as such, we will reengage with the new government after the appointments in January. During this period, we will continue to progress the planning for the combination of the assets whilst also continuing to progress the optimization of our stand-alone positions. So without taking any more time, I will now hand over for Q&A.

[Operator Instructions] The first question that we have comes from Catherine Cunningham of JPMorgan.

Just 2 quick ones for me. So the first is are you able to comment even indicatively whether there are any deviations to longer-term Salares Norte steady-state guidance versus basically what's historically been outlined in terms of average production? And then could you just please remind us in how many years' time the Chinchillas might become an issue based on the areas you'd need to access if we assume that the relocation doesn't go to plan? That's it for me.

Thank you, Catherine. And I think just on your first question, I think there is nothing has changed in terms of our long-term plan for Salares. So you certainly should assume that all of the previous guidance that we had on the project profile remains intact and all that we've really seen is a delay in that ramp up to that steady state. So nothing has changed on that. I think with regards to the Chinchillas, and what is important, the reason why we call out Rockery Area No 3 is that, that is an area for Brecha Principal, that's probably the most important one because that's where we do require placements of some waste material. Now it was -- it's not really going to be a problem until probably the back end of 2025, early 2026 given the slower ramp-up of the processing given we've got significant material in front of the processing plant. And we certainly think we've got plenty of time now to complete the capture of the Chinchillas and relocation to get access to Rockery Area No 3. And then beyond that, we get to Rockery Area No 5, 7 and 8, and that really is only required for the back end of 2026 when we need to start the pre-stripping of the Agua Amarga. So I think we feel quite confident now, we've got enough float in our plan without risking the mining activities.

The next question we have comes from Adrian Hammond of SBG.

Firstly, well done on getting Salares finally producing. I just wanted to understand a bit more about the ramp-up, but it looks like it's going to take 12 months to get to steady state from here. Just explain why that takes so long, what are the bottlenecks given that the gold is sitting above ground already. So it's just a matter of getting the processing plant up to speed? That's the first question. And then I think on the cost, it was certainly a standout for me dollar per tonne up 17% year-on-year. And that's obviously not factoring in any of higher CapEx. So where in your business are you having these major real cost increases? I note Tarkwa has had some significant increases there. Is there a change there in the mine plan there is the stripping ratio certainly gone up quite high. What's the outlook for that?

Thanks Adrian. Maybe just starting with Salares. So what I can say is that nothing has changed on our ramp-up plan from the original conceived project plan. And one of the issues around the ramp up that's really important for us is because of the high-grade nature of that ore body, what you don't want to do is to accelerate the ramp-up because obviously, your recoveries are slightly lower in the early stages of ramp-up. And as you accelerate the ramp-up and you have lower recoveries, you end up leaving more gold in the waste. So that's technically one of the reasons why you want to do this ramp up in a very oddly way. But when we talk about ramp-up, I mean, although we say steady state. Frankly, it's probably 9 months of ramp-up rather than 12 months. So it's probably kind of the way that I presented that information. So it's probably a more 9- to 10-month ramp-up period. And again, because some of that ramp-up is in the winter months, we actually do have some down days for winter in our core plan, which again also affect some of that ramp-up until we get to a steady state. But I would say that there is nothing different to what the original feasibility study had on ramp-up. So I think that's probably the one thing I'll leave with you. And then just on -- moving on to the costs. And certainly, I can ask Alex to add some more color to it. But probably there's a couple of things, and I suspect you're talking quarter-on-quarter. So are you talking quarter...

Year-on-year.

So year-on-year. And I think there are a couple of one-offs that do come through on the quarters. So you mentioned Tarkwa, for example, Tarkwa did have a higher amount of strip that we took in quarter 3 compared to quarter 3 in 2023. So that would have contributed. We also have a higher contribution from the St Ives microgrid, which wouldn't have been in the prior year.

Is a portion for -- because of volumes. So the volumes were lower in the current quarter.

Adrian, are you talking on a per tonne basis?

Correct. Any basis actually.

So I think the all-in cost is what Mike has spoken to. But on the per tonne basis, one of the big drivers is as Australia shifts to more of an underground mine from the open pit historically, you obviously have fewer underground tonnes are more expensive, but higher grade. So that will drive you on a per tonne metric as well.

So this would be largely St Ives would have had that contribution. But St Ives is also mixed by the higher CapEx as well, yes.

I hope to sneak in one last one. Certainly, the higher gold price is certainly a great win for many, including yourself, gold producers. So at spot, could you give us some idea where your sort of free cash flow expectation is for 2025?

That's a tricky one Adrian. I think I'd like to -- maybe I'd leave it to say that we think it will be a lot more than this year.

And any plans for hedging there?

No.

[Operator Instructions] The next question we have comes from Jason Fairclough of Bank of America.

Just 2 quick ones for me. One on Osisko and then one on South Deep. Just on Osisko, so you've completed this, and I know you guys were quite happy to get this asset, to get involved, to take control of it. Could you maybe give a little color about how the development plan might evolve given that you're now in full control? And then second was just on the mine leakage, so the backfill leakage that you're experiencing at South Deep. You're saying here that less than 1% of the total backfill volumes placed, I guess, leaked. Where are you in terms of remediating the previous leakage?

Thanks very much Jason. I can take the Osisko one. I might just hand over to our resident expert on South Deep is Martin to address the second question. So on windfall development, I think, for us, obviously, the next critical step for us is to get the full environmental permitting, which we expect to take place in H1 of 2025, and we've made some good progress to make the submissions and hopefully get into a position where we can get that approved. We are also advancing the detailed engineering as fast as we can with the objective of taking this to our board for a final investment decision, hopefully, by Q3 of 2025. We then probably have an 18- to 24-month build program really including ramp-up, which looks at us getting towards kind of first gold by conservatively back end of '27 early 2028. So those are the kind of rough time lines, which is not really too far from what was previously guided. But we will do a more detailed update probably in our full year results because that will give us -- we would certainly have a slightly better view on that. But those rough time lines are certainly, we believe, are still intact. And then Martin on South Deep...

Thanks Jason. Just to respond to your question. So in terms of the backfill, the backlog, we most probably have about 75% of that backlog eroded. And will be concurrent by year-end. That's the current forecast from the team on site. So we dealt with all the backlog by year-end, and then it will be just the concurrent leakage that we're having. And very pleasingly, the team has worked on trying to seal the stopes, and we're down to that 1% that you referenced. And I think the indicator that you can reference on that is as they've made the headwinds into that backlog of leakage, you've seen that 15% movement in grade mine because it's allowed us to get back into the areas that we had lost access due to the leakage.

Look, maybe a follow-up on Windfall, if you don't mind. So we've got a 43-101 that's in the public domain, which is what was published by Osisko. Is that something that you guys would be looking to update? Or will you not necessarily be doing a formal update of that document?

We won't do a formal update until the new year. But what we would be looking to do is to including the resource and reserves into our reporting for our full year.

The next question we have comes from [indiscernible] of Scotia Bank.

So I just want to ask about your costs specifically. Could you tell us where you're seeing inflation pressures or where you started to see some release with respect to your cost? And then more specifically with respect to labor cost, could you tell us what you're seeing or what you're expecting into 2025? Maybe just give a split of your labor cost in terms of contractors and employees and what the inflation is for both of them?

So what I can say is that from an overall employment level, we probably have close to 70% of the people that contribute to Gold Fields' performance are business partners. So these wouldn't be direct employees of the company. Where we have primarily own employees on site that is typically South Deep, where we largely have a high proportion of owner operator and then probably also at Cerro Corona. And largely, a lot of the other core mining is outsourced. I think probably the bigger driver of cost does not necessarily what you would call core mining inflation on core assets, but it's actually a combination of one-offs and probably relative changes in fixed cost dilution because of slightly lower volumes. And that's probably been the bigger driver of some of those cost movements on a year-on-year basis. But certainly, I think on a core inflation, the heated areas probably still remain Western Australia, even though there is some slightly mitigations coming off with nickel miners and lithium kind of slowing down, but other parts of the economy are still probably heated. But even then, we're probably talking more single digits on core inflation than double digits. But I think from our reporting, probably the impacts year-on-year are largely driven more by volume impacts and then some of the one-offs that we spoke about in response to Adrian's question. But I don't know, Alex, do you want to add?

I mean I can add a little bit of color on the split between labor and contractors. I mean labor makes up about 20% of our operating costs and mining contractors make up about 1/3 of our mining costs as we do a significant mining contract...

And can you tell me what inflation you're seeing with respect to just contractor inflation or employee inflation. Is there like a wide gap between these 2? What are you expecting into the next year...

I think -- and we don't put that kind of guidance out there. But as I said to you, I think what we are seeing is and expecting more like single digits, probably high single digits is the kind of range that you should expect, which is probably not far different to what we have seen in the recent past, but probably not the significant increases that we have seeing probably 18 months or 2 years ago.

[Operator Instructions] The next question we have comes from Chris Nicholson of RMB.

Two questions, and I hope I'm not laboring the point in either of them because it's kind of a reiteration of the question. Just on the Salares guide for next year for 2025. If you look to 2023, you put out a guide in September 2023, at that point in time you were expecting first gold at some point in the fourth quarter, and you were then guiding 400,000 to 430,000 ounces in 2024. So optically, it would seem that 1 year later, you're actually a bit ahead, but your guide now is for clearly lower ounces into next year. So I know you said nothing has changed in the ramp-up plan, but I mean the volumes you're guiding don't suggest that versus what we had a year ago. So just -- that's the first question. And then second question, again, also on cost and specifically the Australia region. I look back to 2022, and you were producing at an all-in sustaining cost of $1,040 an ounce in Australia. Maybe just a more broader strategic question. I mean volumes, I understand had a tough first half, we had the rainfall, looked to have normalize now, but costs are materially higher in Australia. Is this just a new base, a new normal that we should accept from here? Or do you think you have scope for bringing those costs down into 2025, specifically in Australia?

Look, I think just again, I'll probably add a little bit of -- just starting with the Australian question first and costs, and then I'll ask Alex to add some color to it as well. I think a large part of the Australian costs is really a volume profile driven one. And we certainly are lower on an ounce basis compared to the equivalent quarter in the prior year. And what you will see in quarter 4, again, we've got a very big step-up. St Ives, we've got probably a 45% increase in the second half. We've got Gruyere, 40% increase in the second half. So you'll see quite a big dilution on costs coming through because of those additional ounces because the additional ounces come at a fairly low cost base. I do also think there are quite a number of -- if you look at it in an all-in cost per ounce base, a number of those kind of one-offs that you see in the period as well, which doesn't create a bit of noise for it. So I'm hoping that when you get into quarter 4, you'll start seeing a bit of a more normalization because you're going to have a much higher base, and we're expecting to see, on average, across the portfolio, part of another step up into Q4 as per our plan. So again, I think the cost dilution has certainly lagged that volume improvement. But having said that, I mean, I think this -- one of the great things about Gold Fields is we're not short of opportunity. And I think we know we can always do better. And I think the team are very focused on that through our asset optimization program. Each of our sites have got their own journey to go under, we're doing full potential studies at our sites. And we haven't spent a lot of time talking about that, but we will in due course because we do believe there's more value to be unlocked at our existing operations. So I don't think it's a new normal. Maybe that's to answer that question.

I think the one thing worth raising is the increase in capital expenditure in Australia, particularly related to the change in the raise boring standard and we've been clearing the backlog on ventilation raises at Agnew, St Ives and Granny Smith. And I think we will see a bit of a continuation into '25 as we open up the ventilation for those underground mines. And then also particularly at St Ives, we've had quite a significant capital investment in Invincible underground. I was trying to as we set that up at the long-term asset. I see that as more wonderful.

And then maybe just to get on to your question on Salares and I think it's a good question, and we probably need to just be kind of clearer on that reconciliation. And I'm happy that we come back and talk about that a little bit further at the full year. But I guess the starting point that I'll take is that we are very mindful, and it's not about sandbagging our targets in any way. But we wanted to put out numbers that we absolutely are highly confident that we're going to deliver. I mean I think what you would expect us to do is to be managing and targeting our people on site to be trying to perform to the high level of those ranges. But again, given what we're going through, we have put more in our plan more winter days in there, just to kind of be a little bit more conservative during the winter months. We've also just put in a slightly slower recovery factor in our plan just because it's new and certainly, the one thing that we're wearing scars on our back is not to be over bullish on Salares, certainly given that we're in a ramp-up here. And if we can blow those numbers out and get back to kind of a lower probability outcome or a high probability outcome, we will certainly do that. But I think at this point, that was the number that we felt comfortable with a higher degree of confidence that we can get to. And as our confidence improves, maybe we can improve on that.

The next question we have comes from Rene Hochreiter of Noah Capital.

The risk of really over laboring the Salares production profile. And what I'm trying to do is sort of get my DCF model into a shape that is more or less what you're thinking at the moment. So next year, 2025, we're looking at about 350-kilo ounces. And then in 2026, I assume you're going to go to like 400, 450, do that while you're mining the ore body open pit. And then probably after 10 years or so, start coming down again from the 400,000 as you go underground. Is that more or less your thinking...

No, I think we have -- and we can certainly provide the profile that we've shared previously, which was when we first approved the project. But the profile for Salares is actually quite a different profile that we would have. And when we talk about steady state in 2026, we're talking more of that 550,000 to 600,000 ounces, which would probably be for 2 to 3 years, and then you start seeing the decline to the back end of [ 2034 ], because as we migrate from Brecha Principal and move to Agua Amarga. Agua Amarga is certainly provides the back end of that, but it's certainly a lower grade than Brecha Principal and delivers lower ounces even though we keep the mill much fuller during that period. So we can share that profile that we shared previously. Nothing has changed on the original profile, but it does go -- basing next year, 350,000 at the midpoint, '26 goes to kind of 550,000 to 600,000 that's sustained through to 2028 and then it starts dropping off from '29.

And this is all open pit, open cost?

Yes. We have -- we are doing a trade-off study on Agua Amarga doing a trade-off study on an underground option versus the current assumed plan, which is an open pit on Agua Amarga, but we haven't made that decision and so the base plan as per the original feasibility is an open pit extraction of the Agua Amarga deposit. And obviously, what we continue to do is we continue to try and explore the land package around us because obviously, prize #1 would be finding another higher-quality deposits in the near vicinity although we've been working that quite hard now for a while.

Are there any depth extensions to the pits that you're going to mine?

So Agua -- I mean I think on -- and look, we haven't done all of that work at depth. I think, Chris, you can maybe comment, but I know that the team have done some directional drilling at depth and put in 1 or 2 deep holes just to kind of test what's underneath. We do know there are some extensions. We are yet to get a full view of what that could look like. And that's part of the tradeoff study on Agua Amarga to understand whether we go underground or go from surface. But again, if you do it as an open pit, I think the strip ratios would be impossible.

I think -- I've got a good idea now to sort of produce a sensible model.

The next question we have comes from Luke Roberts of Barclays.

I was just wondering if I could ask a couple of balance sheet-related questions. So firstly, would you be able to share any details of the stage about the [ $750 million ] bank facility that used to partly fund Osisko, for example, maturity or structure would be quite helpful. And then secondly, I was wondering following the redemption of the bond earlier in the year, how you're thinking about the funding mix and if you would potentially consider issuing another bond?

I'm going to probably pick that on to Alex, who actually did all of that fund raise. So he can answer that...

Well, the [ $750 million ] facility is structured as a bridge facility with a 1-year term with a 6-month option to extend effective sort of middle October to give you an idea, so that goes to middle of October next year. And that is structured as any bridge would be with a lower margin that then ratchets up on 3 monthly basis. And after a year, it equals with the same margin as our group RCA roughly. So that gives you an idea, it starts off actually a very good cost. And then from a -- that obviously gives us sort of a year to explore how we want to recapitalize the balance sheet and definitely things we are considering is whether we do access the bond markets again or how we do refinance that $750 million facility. A lot of that is dependent on the gold price over the next year. But if we were to come to the bond markets due to just our nature of being a South African entity on the back of our 20-F, that will probably put us in April, May time frame, which is well before the bridge is due.

And so we haven't made a call on that. But I think as we look at our -- the structure of the balance sheet. And obviously, we -- to answer that first question, we do believe that gold prices will stay be firmer even though we're seeing a period of weakness now, we should generate some reasonably good cash. And so part of that we'll be thinking about our balance sheet and what we do with it. But yes, we've got time to do that.

And I mean we definitely could pay down some of that bridge in the [indiscernible].

[Operator Instructions] The next question we have comes from Arnold Van Graan of Nedbank CIB.

Mike, people-related questions. So can you just give us a sense or an update on your culture journey and the progress might be? And could you give us a sense of whether there's been stabilization in your senior leadership turnover relative to what we've seen over the last year or so.

So just on the culture journey. I think we're making some very, very good progress. So one of probably the biggest cultural shift that we took place during the year is, apart from all of the work that we've been doing around rolling out the Elizabeth Broderick report, all of the good work that preceded my time with the development of the Gold Fields way, the investment in leadership development and aligning our senior leaders around the culture that we are aiming for. We also changed our operating model where we moved away from the regional structures that we had in the past to a more global model where it's actually connected our business in probably a way that we've never connected before. And that's certainly helping us to leverage across the capabilities that we have in the business to create connections that we didn't have before and to really start driving simplification and standardization of ways of working across our business. And that's presenting huge opportunities for the cultural journey that we're seeing for ourselves. I think the other element that we are finding, having huge value in this cultural shift is the work that we've done around our safety transformation because ultimately, safety transformation is the people journey in its own, and we did some really deep reflection on where we were on safety following the 2 fatalities that we had in the first 4 months of the year. And we've taken a lot from that. And ultimately, if you think about safety as an outcome of the way that we work and a negative outcome on delivering predictable outcomes, then it's getting the whole organization, thinking about how we plan, work with the right people and execute work safely and reliably and then have the right verification processes, the right risk management systems around it. So that's certainly driving in my mind, us on a pathway for a much more reliable and predictable business as well. And I think all of it is also the leadership team coming together. And as you can appreciate, you called it out, there's been a number of changes. And with the changes brings opportunities, but certainly it takes time for the team to get to know each other. We've got probably 2 roles that we have to kind of close out. One is our CFO, who has announced will join in the new year. And then we probably do need to just close out the EVP people. Having said that, we've got a very capable executive running that portfolio is doing a great job. So we don't feel like we are significantly lacking at this point, and we're moving really fast on that journey. But I'm glad you asked that question because all of us believe that getting us moving on that journey will truly deliver the predictable performance that we aspire to.

Ladies and gentlemen, at this stage, there are no further questions on the conference. I will now hand back to Mike Fraser for closing comments. Please go ahead, sir.

Thank you very much, and thank you very much all for the considered questions. I think there have been some really great questions for us today. I think we are pleased just to close out that we have had a bit of a better quarter 3. We know that quarter 4 is going to be another big year for us. But as part of our planning for 2025, and we're also really doing a huge amount of work there, our real focus is delivering a relatively boring 2025, which is our biggest aspiration for '25. So with that, thank you very much, and I look forward to speaking to you in the New Year.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.