Gold Fields Limited (GFI) Q2 2024 Earnings Call Transcript

Gold Fields Limited (NYSE:GFI) Q2 2024 Earnings Call Transcript August 23, 2024 1:00 AM ET

Company Participants

Mike Fraser – CEO
Alex Dall – Interim CFO

Mike Fraser

Good day all and thank you for joining us today for the presentation of our operational and financial results for the six months ending 30th of June 2024. With me today is our Interim CFO, Alex Dall. I ask that you note our forward-looking statements.

As part of the presentation today, we will be sharing our safety, operational, financial and ESG performance for the six months, as well as providing an update and outlook for the balance of the year. It is with deep regret that we reported two fatalities in the half year. We would like to honor the lives of our colleagues that we lost at our operations and continue to keep their families and loved ones in our thoughts. I again extend our sincere condolences to the family, friends and colleagues of our colleagues that lost their lives. I absolutely believe that a fatality-free mining business is possible and that we can deliver on our promise that everyone who works at Gold Fields goes home safe and healthy every day. As part of improving the safety outcomes in our business, we commissioned DSS+ to conduct an independent review of our safety culture, processes, systems and practices. This review has been completed and I’ll discuss more of the safety journey with you shortly.

In terms of delivering value to our host communities, earlier this month, our St Ives mine signed a landmark native title agreement with the Ngadju People, who are the determined native title holders of the lands and waters surrounding Norseman, where the St Ives mine is located. It was indeed a privilege to have been part of the signing ceremony of this landmark agreement, which will see significant value delivered to the Ngadju People over the life of the mine. We continue to make strides in our decarbonization journey as we have commenced construction of renewable energy plants at St Ives and Granny Smith.

Moving on to our operational performance, we are very disappointed to be reporting a 20% decline in production, which has had a significant impact on our unit cost performance given the inherent operating leverage of our assets. I am however confident that we will deliver a significantly improved second half as the Salares Norte mine ramps up and the recovery plans are being implemented at South Deep, Gruyere, St Ives and Cerro Corona, bear fruit.

On the 12th of August we announced the acquisition of Osisko Mining, consolidating 100% ownership of the Windfall project. We are also continuing to engage with the Government of Ghana for the approval of the Tarkwa/Iduapriem joint venture. We are also pleased to be paying a dividend of [ZAR0.300] (ph), which is 40% of our normalised earnings for the half. Alex will speak more about our financial performance and position later on.

On this slide, we provide a high-level overview of the country-based performance of our operations. All of our operations delivered positive adjusted free operating cash flow despite the overall drop in production and this was significantly offset by the higher gold price. Our H1 snapshot shows that our Australian assets continue to contribute around half of our group production and cash flow with the Ghanaian operations contributing around a third.

We would like now to turn to our ESG performance. Just starting with our 2030 ESG targets. In 2021 we set these ESG targets at 2030. With the exception of safety, which I’ll talk about on the next slide, we have made good progress towards achieving these objectives. We have started also with our midterm review of our 2030 ESG targets, which will be published in 2025. In addition to addressing our performance against these targets, the review will consider potential changes to existing priorities and what is required to extend these targets out to 2035.

Moving on to safety and health. The safety and well-being of our people remains our number one value, and it is with deep regret that we lost two of our colleagues while working on our operations during the first half of 2024. As mentioned earlier, in February 2024 we commissioned DSS+ to conduct an independent review into our safety system of work and practices. This review found many good practices within the group. However, it also highlighted areas where improvement is clearly required. On the basis of these findings, we have developed and are implementing our multi-year safety improvement roadmap. We are also working with our business partners who employ more than two-thirds of our workforce to co-design our safety improvement plans. In addition, mental health is a critical part of this work and we continue to implement the recommendations arising from last year’s respectful workplace review.

Let’s now turn to our group and asset results for the first half. At a group level, I’ve already mentioned the circa 20% year-on-year decline in production in the first half. This was the major contributor to the sharp increase in both all-in cost and all-in sustaining cost, though there was also some contributing factors of higher cost of sales and rise in CapEx. The higher gold price though enabled us to achieve $320 million in adjusted free cash flow from operations. We are expecting a significant stronger performance in the second half of 2024. This is particularly true for South Deep, Tarkwa, Gruyere, St Ives and Cerro Corona where we are anticipating a step up in production in H2 2024. In addition, we will start to see production from Salares Norte, albeit below the initial guidance.

Given the operational headwinds experienced in H1 of 2024, as well as the delayed start-up of the ramp-up at Salares, we are downgrading 2024 gardens to between 2.05 million ounces to 2.15 million ounces. This is 150,000 ounces reduction from the previous guidance number. The financial year 2024 guidance downgrade has been driven by lower production expected from South Deep and Cerro Corona which has been impacted by the copper price factor as well as Salares Norte where the ramp up is taking longer to start up than has been previously anticipated. We are however confident of a strong recovery in H2, with production of just over 1.2 million ounces in the second half to achieve the required guidance.

Moving to our individual assets and starting with our Australian assets and in particular starting with Gruyere. The Gruyere mine experienced heavy rains in March and April, which damaged the main access roads to site, forcing us to close the mine for several weeks as supplies of diesel and other consumables were impacted. We were already under recovery plan with our contractors and had been ramping up to the planned 65 million tonne annual material movement to the mill. In July, we achieved this run rate and we are confident now that the mine will achieve its guided production levels of just over 300,000 ounces on a 100% basis for the year. Our all-in cost increased by 62% to AUD2,676 per ounce, mainly due to the lower gold sold and higher capital expenditure. CapEx was 106% higher to AUD55 million due to increased capital waste mined.

Moving on to Granny Smith. Granny Smith reported a steady operational performance with a slight and planned decline in production and as a result an 11% rise in all-in cost. However, the mine is performing well and is well on track to achieve its guided 270,000 ounces for the year as the production plan is weighted towards H2. Also noteworthy is the doubling of the mine’s adjusted free cash flow to AUD200 million during H1. Looking forward, the mine is conducting a study on underground material handling system as part of assessing its future optionality.

Moving to St Ives. St Ives gold production decreased by 25% to 139,000 ounces in H1 due to lower grades of ore mined and processing from underground mines as well as low grade surface stockpiles processed in the period. This was in line with our mine plan for the year and is also one of the main reasons for the increase in all-in cost during H1 of 2024. Open plan volumes and associated grades are expected to improve during H2 2024 as the Swiftsure and Invincible Footwall South open pits start contributing to mined ounces. As a result, St Ives is anticipated to increase materially during the second half of the year, and our 2024 guidance of 350,000 kilo ounces and all-in cost of AUD2,900 remains intact. Excluding the renewable microgrid project, the all-in cost for St Ives is guided at AUD2,330 per ounce. Construction of the microgrid has commenced and is on track for commissioning next year. The mine has also begun a study on materials handling for the invincible project.

Moving to Agnew. Agnew is another steady performer in the group with stable production of 110,000 ounces in H1. Costs have increased following higher underground ore production and increased capital expenditure. Total capital expenditure has increased by 5% to AUD7 million in H1 due to the commencement of the Barren Lands/Redeemer decline and associated capital works in establishing this new underground mine. Brownfield drilling is also underway at Waroonga. The 2024 guidance remains intact with production also weighted to the second half of the year.

Moving on to South Deep. At South Deep, gold produced decreased by 25% to 3,633 kilograms or 117,000 ounces in H1. This reduction is largely driven by increased off-reef development to access the new destress cuts. As foreshadowed, the lower grade mine also contributed to lower production, as this was negatively impacted by reduced stope access owing to increased backfill re-handling. Furthermore, slow drilling through crushed ground resulted in slower slope turnaround in current destress cusps. This has in turn impacted the stoping sequence. The miners developed and implemented a recovery plan to address this which has been closely monitored. The all-in cost at South Deep was 41% higher due to the lower gold sold and higher capital expenditure. CapEx increased by 25% to ZAR824 million due to the old return water dam upgrade, TM3 refurbishments and Collision Avoidance System level 9 rollout. Having thoroughly assessed the recovery trajectory for South Deep for the remainder of 2024, we are now revising 2024 productions guidance down from 9,500 kilograms to 9,700 kilograms or 305,000 ounces to 312,000 ounces down to 7,800 kilogram to 8,200 kilograms or 250,000 ounces to 264,000 ounces for the year. This has been a deliberate decision to allow a safe and reliable ramp-up of South Deep which remains a key asset for Gold Fields. These lower volumes will now impact unit costs, with all-in sustaining costs guidance for 2024 revised to a range of $1,890 to $1,980.

Just spending a little bit more time on South Deep, the following graphs show the progress we are making with some of the key leading indicators. These demonstrate that we are making steady progress on long-haul stoping meters drilled and are starting to see positive momentum in LHS tonnes broken. We are also making progress with backfill placed and backfill re-handling meters. And we can see the progress year on year from 2022 to 2023 to 2024. And this is all a good signal for the trajectory of ramp-up for South Deep.

The next slide also illustrates the mining mix and how this impacts on volumes and how this progresses during 2024. As you can see, the tonnage and gold contribution from the high-grade corridors of the mine increased during H2. Furthermore, the development and destress have also advanced into ore-bearing material from waste rock during H1. As a result of this sequencing and the development of the mine sequence, there will be a material increase in the blended mine grade during H2, which will also contribute to an increase in gold produced.

Moving to demand, gold production decreased by 9% to 72,000 ounces, primarily due to the completion of mining of Huni pit in H2 2023, as well as the increase in low-grade material fed from surface stockpiles. As a consequence, all-in cost increased by 56% due to lower gold sold, higher capital expenditure and higher cost of sales. Despite the higher all-in cost, which was largely driven by non-cash GRP charge of treating these stockpiles, demand generated an adjusted free cash flow of $62 million in H1 of 2024. As we have stated before, we continue to assess our options for this asset. Whilst there is a sizeable resource below the current demand pit, a further cutback will entail material capital investment, and at this point we do not believe that this is the most optimal use of our capital. We are however continue to pursue options for this asset but will only do in a responsible and sustainable manner.

Moving to Tarkwa. Our focus for Tarkwa for the period was to enhance our waste stripping activities in order to expose high grade ore at the Akontansi and Kotraverchy pits to be mined. As a result, gold production at Tarkwa is expected to increase in H2 2024 as the high-grade material from Akontansi and Kotraverchy pits are added to the mining mix. Gold production decreased by 14% to 248,000 ounces in H1 due to the lower yield. And all-in cost increased by 54% to $1,822, primarily due to the low gold sold and the high cost of sales. Our 2024 production guidance for the mine however remains at 540,000 ounces and all-in cost of $1,480. Tarkwa continues to operate in a predictable and sustainable manner. Furthermore, we continue to pursue the completion of the Iduapriem joint venture. More details I’ll provide later on.

Moving on to Cerro Corona, gold production decreased by 48% to 37,000 ounces in H1 and copper production decreased by 29% to just over 10 tonnes. Gold equivalent production was there for 43% lower, just under 80,000 ounces gold equivalent. The impact of this was largely due to weather related challenges and a wall slippage in the North wall resulted in lower production and mining being rescheduled to lower grade areas. Consequently, our all-in cost per gold ounce increased by 197% to $911 per ounce in H1, mainly due to lower gold sold and lower byproduct credits for the period. Cerro Corona is also maturing, with 2025 being the last year of mining before the mine-only processes stockpiles from 2026. Whilst Cerro Corona will continue to produce gold and generate cash flow until 2031, we’ve also begun to consider options for Cerro Corona’s future.

I’d like now to turn to Salares Norte and our project in Northern Chile. As announced in June 2024, the ramp-up of Salares Norte was impacted by the early onset of severe winter weather conditions, which led to a freezing of materials in the process plant pipes, causing a temporary shutdown of the plant. At the time, our guarded volumes for 2024 were therefore revised down to 90,000 to 180,000 ounces, depending on when the plant restarted. Over the last few months, our Salares team has been working on progressing all activities required for the plant restart, including thawing, frozen material unblocking the plant piping. However, the Salares site has continued to experience low temperatures which has slowed down progress on these activities. As recently as two days ago the area had heavy snowfall with temperatures achieved of minus-30 on site. Our focus is now on a safe restart of the plant and ensuring that all is set up for a safe and sustainable ramp-up. We are now expecting to restart the plant on the 30th of September 2024 and complete all additional adverse weather mitigation activities, including full heat tracing, by the first quarter of next year. This will ensure safe and continuous operations through winter conditions, in line with the design criteria of the plan.

With respect to the chinchilla relocation program, we have not undertaken any capture and relocation activities during the winter months as originally planned and in addition due to the suspension of activities until the 3rd of October 2024 in accordance with the MUT issued by SMA. We are now working in close collaboration with our environmental experts and the regulator for a planned restart and recapture of the relocation program. Production guidance for 2025 at Salares will be provided following successful start-up of the plant as any delays merely shift the ramp-up curve further up.

Just moving on to the ramp up, based on the planned restart on the 30th of September, production for 2024 is now expected to be 40,000 to 50,000 ounces for 2024. This curve and the orange in the curve shows how any delays would impact production for 2024 where, for example, if the plant were to be further delayed to the 30th October, then production volumes 2024 would be approximately further 20,000 ounces lower than guidance.

Let me now hand over to Alex Dall to take us through the financials.

Alex Dall

Thanks Mike. On the back of the 20% decrease in production, we have seen a commensurate decrease in normalized earnings down by 22% to $355 million. Adjusted free cash flow has also been significantly impacted, resulting in an outflow of $58 million, which I’ll unpack further on the next slide. All-in cost is up at $2,060 per ounce. This has been significantly impacted by the lower production, increase in a gold inventory charge compared to a credit in the prior period, and higher sustaining and non-sustaining capital. We have announced a dividend of ZAR0.300, representing a payout ratio of 40%, which is in line with the full year 2023 payout ratio. Net debt is sitting at $1.2 billion, with a healthy ratio of 0.53 times net debt to EBITDA.

During the first half of 2024, we paid our existing $500 million bond out of the RCF. We can report positive cash generation from all our operations which resulted in $321 million. After spend on our two projects of $256 million on Salares Norte and $42 million on Windfall, we had a positive cash flow of $23 million left to fund our interest and other corporate costs and after these we had a negative adjusted free cash flow of $58 million. Our gross debt is sitting at $1.2 billion with available facilities of $1.2 billion at 30 June 2024. The bond repayment was out of existing RCF availability and cash resources. During H1, we also refinanced the Peru RCF. Our debt has a very solid maturity profile, with the majority being due in 2029. Post 30 June, Gold Fields has commitments for a $500 million liquidity facility. Gold Fields will look at options to further optimize its debt structure and maintain balance sheet flexibility.

And with that, I hand back to Mike.

Mike Fraser

Thank you, Alex. We’ve — over the last seven months, we’ve also been progressing work to align our strategic priorities to our strategy. What I’d like to do now is provide a high-level overview of this work, but come back with more details later this year. Our aim at Gold Fields is to become a safe, reliable and cost-effective producer. We want to bring predictability back into our business. We have a portfolio of high-quality assets, four of which we expect will anchor our portfolio in the long term. These long-term assets include St Ives, South Deep, the Tarkwa/Iduapriem JV and now Windfall. And despite some of the disappointments experienced recently, we are also confident that Salares once ramped up is going to contribute significantly to our cash flows in the next few years.

Much has been said about a decline in our production volumes over the next decade, and this being a concern. For us, it is about growing value by growing cash flow per share. However, we continue to assess growing our portfolio through bolt-on M&A as well as exploration, both Brownfields and Greenfields opportunities, whilst balancing returns to our shareholders.

I now want to talk about some of the catalysts that we are looking to that will unlock some of the value in the near term. We’ve discussed Salares Norte which again will contribute significantly as we ramp this up. Furthermore, since the announcement of the Tarkwa/Iduapriem JV in March of 2023, Gold Fields and AngloGold Ashanti have had extensive engagements with the government of Ghana with respect to the proposed transaction. Significant progress has been made. We are still awaiting final approval from Parliament. However, we continue to pursue completion of this joint venture. We continue to engage with the government of Ghana and will continue to keep the market updated with any developments.

As for Windfall, we announced the acquisition of Osisko mining earlier this month with closing expected later this year. This transaction consolidates our ownership of Windfall and the massive surrounding exploration camps in Quebec, one of the top mining jurisdictions in the world. I’ll talk more on Osisko in the next few slides.

In terms of the internal work at Gold Fields, over the past seven months, we have also implemented a new two-tier functional operating model, we have made further appointments to our executive committee and our Board, and we are also making good progress in our other business improvement areas such as asset optimization and waste elimination across our business.

Let me now turn to the acquisition of Osisko which we announced earlier this month and which gives us full control of the Windfall project, a truly worldclass asset. It is rare to have an opportunity to acquire an asset of this caliber, even more rare to have the opportunity to buy the other half and consolidate a strategic asset that we already own and know intimately. When we consider our initial joint venture and today’s acquisition combined and the fundamental value that we can deliver with full operational control, we view this as a highly strategic and accretive transaction. This project also has an enormous exploration potential. This is twice as big as Val D’Or and nearly 40% larger than our St Ives land package. We believe that Windfall is on track to become our next high quality, low cost underground gold mine. Our technical and project development work over the last year has progressed our understanding of this asset and we have a strong skill set in developing and operating underground mines that we can leverage in this situation. We also see real synergies that we can see from applying our experience and expertise into this project. And our ability to consolidate ownership of this deposit, which no other buyer could, is a game changer. Windfall today includes over 2 million meters of drilling, a submitted EIA permitting application in progress, significant studies and significant underground development, as well as major surface infrastructure in place. The environmental permitting for full-scale construction of the project is underway, with the round of questions recently received from the Quebec Ministry of the Environment and final approval expected in 2025.

In parallel, discussions have continued towards the execution of an impact and benefit agreement with the Cree First Nation of Waswanipi and the Cree Nation Government in due course as part of the project development process. Furthermore, in January 2024, the 85 kilometer long 69 kilowatt hydroelectric power line, built, owned and operated by the Waswanipi Cree First Nation, was completed on schedule and grid power was successfully connected to the project. This will significantly reduce both power costs and greenhouse gas emissions at the site as well as ensuring good contribution to the Cree First Nation of Waswanipi as partners in this project.

Moving on to the Osisko acquisition cost. This was a multi-step process to gain 100% control of what will be our next anchor asset. We recognize that we have had to pay more for this piece than the original 50% of the JV. In addition to paying for control, this increase is also supported by the fact that the project has advanced considerably over the last 15 months. Furthermore, gold prices increased by $400 per ounce. Furthermore, a year of diligence and work on our side has validated our views on the project and as well as the permitting path and the overall potential, including the exploration in the broader land package. Our view of fundamental value has improved, along with the confidence of these developments. We see significant value in owning and controlling an asset that will be core to our portfolio for decades. We also have the ability to optimize the mine plan and exploration to meet these objectives. We see that the value is reflective in the fact that this is highly desired asset, which garnered significant interest from third parties. And we see this as a strong validation of our initial investment thesis. In this competitive situation, we were in a unique position to generate synergies from consolidating control. And based on our view on value and mine plan, we believe that the return profile remains highly compelling when benchmarked against other global high quality opportunities of scale.

I now want to turn to capital allocation, which is a key element of our strategic decision-making progress. In this regard, recently we have also refined our thinking in terms of our capital allocation framework and wanted to take the opportunity to reiterate how we see our prioritization of capital. And our capital allocation priorities are as follows. Firstly, we will spend the necessary capital to ensure safe and reliable production of our current assets. Secondly, we will maintain our investment-grade credit rating. Thirdly, we will pay a base dividend of currently between 30% to 45% of normalized earnings. And after satisfying these first three capital allocation priorities, discretionary growth investments will need to compete with additional returns to shareholders. These discretionary growth investments could include exploration, life extension of existing assets, organic growth opportunities and inorganic M&A opportunities. But again, when we turn back to our strategic objective of growth through growing cash flow per share, these need to compete and be accretive against the alternative opportunity of returning cash to shareholders.

Moving to our group guidance and outlook for the remainder of the year. Given the operational headwinds experienced in H1, we are now reducing our 2024 guidance. Our group attributable gold equivalent production for 2024 is now expected to be between 2.05 million ounces and 2.15 million ounces, with the decrease primarily driven by South Deep and the delayed restart of ramp-up at Salares Norte. In order to achieve what we are looking at the following projections for H2, attributable gold production is expected to be 1.13 million ounces to 1.23 million ounces for the six-month period. Consequently in H2, unit cost will be much lower than reported in H1, with all-in sustaining cost forecasted to be between $1,440 to $1,560 per ounce, and all-in costs forecasted to be $1,600 to $1,720 per ounce for the second half. Given the relatively slow progress with the Salares Norte ramp-up during the winter months, we expect the mine to produce between 40,000 to 50,000 ounces which has also contributed to the reduced group guidance. Group all-in sustaining cost is expected to be between $1,560 to $1,650 per ounce, while all-in cost is guided to be between $1,790 to $1,880 per ounce for the full year. These costs also include an approximately $30 per ounce for the 2024 capital expenditure at the St Ives renewable energy project.

In summary, our immediate priorities for the remainder of 2024 is firstly to focus on improving our safety for performance. We will do this by implementing the findings of the DSS+ review as well as the implementation of our own improvement roadmap, ramping up of Salares Norte and continue to deliver the recovery programs at Gruyere and South Deep. In addition to deliver on our critical projects, Salares Norte, the Tarkwa/Iduapriem JV and the integration of Windfall, as well as continue to make progress on our 2030 ESG targets and reviewing them to align to our long-term strategy.

Just moving on to our final slide. This photo shows the kind of contributions that we make with the contributions of the people at Gold Fields. This shows the recently renovated TNA Stadium in Tarkwa, which was officially handed over to the Ghana’s National Sports Association last weekend. The Gold Fields Ghana Foundation has spent $16 million on the construction of the stadium over the past period and this is now capable of hosting international matches and is home to the Medeama SC, a Ghana Premier League club based in Tarkwa. This investment, one of our largest infrastructure investments to date, followed after the Tarkwa community stressed that an upgraded stadium was one of its key priorities as football promotes social cohesion and facilitates the development of sports in the area. This is a great example of Gold Field’s purpose in action, delivering enduring value beyond mining.

With that we have reached the end of our presentation. I would like to thank you for your time today for listening to our presentation and look forward to engaging you on this presentation as well as our contributions over the next six months. Thank you.

Question-and-Answer Session

End of Q&A