Gold Fields Limited (GFI) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Gold Fields Q1 Operating Update. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Nick Holland. Please go ahead, sir.

Thank you very much, Claudia, and good afternoon or good morning to everyone wherever you might be in the world today. First of all, we hope that you're safe. Various countries around the world are experiencing lockdowns in one form or another, so we hope that we all go through this. As with most things in life, this will pass. The important thing is we want to be safe and healthy through it. I'm going to talk briefly about the high-level numbers. I'll talk briefly then about the pandemic and the impact so far on us. And then I'll just quickly run through each of the mines and give you some salient features. So high level for the quarter, we've done 537,000 ounces at all-in costs of $1,060, 1-0-6-0, per ounce. What I can say is we're pretty much bang on where we thought we would be relative to the guidance we've given you for the year. So that's the first important point is -- bearing in mind, too, you can never take 1 quarter times by 4 and expect that to be the year. And I'll explain to you, we'll not just talk briefly about the individual mines that, over the entire year, you can find that production can be higher or lower, depending on the quarter that you're in, so -- and I'll go through that as well. So we're pretty much on track. In terms of our liquidity, it's a question we've got from a lot of people. Are we in a strong financial position? What I can tell you is that our net debt, excluding these capitalized leases, most of which relate to power supply, was under $1 billion at the end of the quarter. And even including the leases, that dropped us down to below 1x in terms of net debt to EBITDA. So we're seeing a nice reduction in our debt. That's come from a combination of operating cash flow, strong operating cash flows in the mines. And, of course, let's not forget, we did the equity raise of $250 million to pre-fund the Salares Norte project or at least a portion thereof. We're sitting with $800 million of cash on hand, which puts us in a very strong position. We also have $1.5 billion of committed unutilized banking facilities across a range of different banks, which we can draw down very, very quickly if we need to. So we believe that we're in a strong financial position. Looking at the pandemic, we've taken a lot of precautions across the world in terms of this, starting with people working remotely. We've shut down most of our offices, including our office here in Johannesburg, working at home. In other regions, there are a few people in the office in certain places, no people in the office in other places, depending on, obviously, the local laws and the needs of the operation. In terms of production in Australia, pleased to say that we haven't really seen any impact on production yet. We all know that the borders are closed. So clearly, people can't get into the country. But more importantly, interstate borders are also closed. So what we've done with the bulk of our people who work on a fly-in-fly basis, who live outside of Western Australia, the bulk of them have actually moved into WA over this period of time, so we can avoid issues about trying to get people out of say Victoria, New South Wales, other places in Australia to Western Australia. So that's worked reasonably well. Our flights continue. That's been one of the things we were worried about as -- if you consider the flights. Happy to say that with the airlines we deal with, we've been able to keep flights going. We put on more flights to provide social distancing, so that will be a slightly incremental cost, but the right thing for us to do. So by and large, I think Australia is moving along reasonably okay, and I don't see a material change in that, unless, of course, the infection rates change. I mean that's the big caveat to all of what we're going to say today is if infection rates change, if we get infections on the mines, that will be a different story. Right now, we have no infections of any people across the globe, but that is of today. That could change in the future. Governments can change regulations in the future. They could make it more onerous. They could put additional restrictions in place. Ghana has had restrictions, mainly in the metropolitan areas, given that the bulk of the infections in Ghana have been in the metropolitan areas. Luckily, we've had very limited, 1 or 2 infections in the southwestern part of Ghana, where our mines are. So we've been quite fortunate. There are certain talk around Damang and Asanko's a little bit further up to the north, closer to Akwasiso, where I know that there has been a couple of infections, but Asanko hasn't had yet. Things are continuing recently okay. That lockdown was listed, in fact, on the 20th of April. The president felt that the country was not in sufficiently good position that it could lift that lockdown, but let's see how things go. Turning to Peru. There has been disruption in Peru. We've been subject to a lockdown for a period of time. Mines where employees did not live on the site were affected. So for example, Yanacocha, which is 40 kilometers down the road from Cerro Corona, was affected. Cerro Corona was not affected because we have a camp on the site that people live in, so we were able to keep people in the camp for longer, change the shifts up. But now with the new decrees that have been given, we've had to pull back our staff. So the normal operating staff in Peru is about 700. We've pulled that back now to just over 300, essentially to provide safety, security, environmental management to the site and also to keep the process plant going. We do have significant medium grade stocks that we can continue putting through the process plant. We believe that we'll be able to ramp up gradually back to 100% over the next 6 weeks to the end of June. So what that's meant is we've estimated that the impact on the year will be about 25,000 ounces. That will have to be the third that we won't be able to mine this year and we put that in our guidance for Cerro Corona and also factored that into revised guidance for the group. So with all being well, we'll get back to full complement gradually by the end of June. So we're talking roughly another 5, 6 weeks or so. Turning to South Africa, South Deep. I think everybody knows that the mines have been subject to a lockdown for 3 weeks. Pleased to say that we've started to ramp up back to at least 50% of production over the next few days. That would mean that we would mobilize close to 2,000 people, total complement including contractors being around 4,000 people. And as we sit today, we're probably around about halfway through that 50%. So I would expect us to get back to production towards the end of the week. Luckily, we have broken stocks on the ground in stopes. So one of the first things we can do is start loading a broken ore, get that trammed and get that hoisted up the mine and into the process plant. Thankfully, the Rand Refinery is available for us, so. If all goes well, we should have some doorway into the Rand Refinery sometime during the course of next week. So the consequence of that 50%, that means that we will only be able to operate, obviously, some of the activities. We're going to focus mainly on destress. Development is quite far ahead. Destress needs to get some more attention. So we're going to focus more of our activities on destress, obviously, stoping, loading those stopes, ground support, et cetera. And at the same time, that will give us some golds coming out. We believe that we should be able to ramp up to full production, if all goes well, towards the end of June -- sorry, towards the end of May, another 5, 6 weeks. But let me just qualify that by saying that's as we understand it today. If things change, if the government comes up with additional measures, we would have to relook at that. But on the basis of that, we believe that up to around about 32,000 ounces of production will be impacted at South Deep. Other than that, those are the only real changes. The price factor in Peru is another issue that impacts ounces. It doesn't impact the physical, so it's just when we convert copper to gold ounces for reporting. The price of gold has gone up. The price of copper has gone down. So we need to get those ounces. So the net result of that is we've dropped our guidance for the year, the lower end, around about 3.5% to about 2.2 million ounces. We've kept our costs in the same range as what we had before, bearing in mind that Salares Norte has around about $110 million of capital, about $138 million of spend in our all-in cost figures this year. And luckily, that also continues to operate. What we found is that in Chile, most of the infections have been in the southern part of the country. In the northern part of the country where we are, in the Atacama Desert, there's been very, very limited infections. Also, it's a remote site. We have about 150 people there. We're able to continue the early works, principally focused on camp expansion, diversion channels for the footprint, preparation for bulk earthworks for the process plant and also all of the early vendor awards, et cetera, including mining contract, et cetera, so that they can get mobilized towards the end of the year. So at this stage, we're continuing those activities in Chile. So I think in terms of the overall pandemic, so far, I think we're okay. But like I say, in a month's time, it could all be different. We know that we're getting into winter in the Southern Hemisphere. All of our operations are in the Southern Hemisphere. Whether or not winter makes a difference, or not, to the spread of the pandemic remains to be seen. But we're going to have to keep a watchful eye on this. We're prepared for the worst. We have plans in place. If we do need to cut back, we've done fairly detailed plans, if we have to cut back, what it means for us operationally, what it means to us from a management perspective, what it means for our people, what it means for our balance sheet. So I think we're pretty comfortable that we can respond pretty quickly to changed circumstances. What I'll do very briefly then is just talk about the individual operations, just for a minute or 2. On South Deep, pleased to say that we've started the year very well. If you look at the fact that this is the quarter where we had the Christmas break, we've actually performed ahead of what I would have expected given the Christmas break. We're continuing to do well. Unfortunately, this shutdown has caused a little bit of loss of momentum, but I'm pretty sure that we'll get that back. Importantly, South Deep is making really nice cash for us now. And I'm sure that once we get back up to production, we'll continue to do well with costs. I'm quite happy with where we are, and I think this shows you getting this mine to below ZAR 600,000 a kilogram. Everybody knows what the spot price is, ZAR 1 million a kilogram or plus. It's setting up the mine to be making significant cash into the future as we continue to develop and open up the orebody. So nothing much more to be said on that. In terms of Ghana, Tarkwa's performing exceptionally well, continues to hit its numbers. So we'd expect another good year out of Tarkwa. I don't really have much else to say. The numbers, I think, you see in the book talk for themselves. If you look at Damang, I think it's fair to say that Damang is a tale of 2 halves. We're still mining through the very patchy and variable Huni sandstones that we knew we'd have to get through. So although this quarter, on the face, that doesn't look very good, it's actually pretty much in line with what we planned. And as we work through into the Tarkwa phyllites, which will be the predominant lithology that we'll be mining into the future, the grades will be a lot higher. And as you've seen in the book, we've indicated that the grades are going to be about 1.8 grams a tonne in the second half, and that's going to have a material impact on both ounces and on costs. So I'm not worried about Damang. I think we're in good shape with tonnes and grade control drilling as well. And we've also been mining around the perimeters of the phyllites. And when we're doing that, we're seeing it straightaway, the grade in the plant starts to spike. So there's good indication, not just from the grade control drilling, but also from the bulk mining around the area that it's coming through. So the first half will be a little bit patchy. The second half should be very good. And I think we'll be on plan for a good year. If we look at Asanko, Asanko have had a pretty good quarter, but -- well on their volumes, despite the fact they had the wall failure at Nkran, which has obviously impacted the flexibility. They've been able to pull ore out of other areas, other satellites that they're mining. They've been able to keep the process plant running well. And they've kept their costs to a level I'd like to see more of in the future. So I think this is an encouraging quarter we're seeing out of Asanko. Turning to Cerro Corona. I think the thing with Cerro Corona to bear in mind is we're starting to increase our volume this year, particularly as we start to move to a strategy of stockpiling. Bearing in mind, we're mining out the pits on a more accelerated basis. We want to mine out the pit in the next 5 years, stockpile. And then when the tails dam -- the existing tails dam is full, we'll switch our tails into the pit, and we'll start processing those stockpiles. So it's quite a delicate balance of issues, and the important thing is for us to increase the volume, so we can create those stockpiles. But at the same time, we always feed the best grade to the plant. So we're preferentially feeding the best grade, bring forward to value. But down the road, there's some pretty good stuff we've put in on the stockpile for the future, so that's why you've seen pick up in the volume. But as usual, Cerro Corona's performed well, in line with what we'd expect to see over the year. And subject, obviously, to this partial shutdown impact, I think we're in pretty good shape. If we look at Australia, St Ives has done well again. But bear in mind, production is a little bit lower than the previous quarter. But you have to remember that the previous quarter, we were finishing up with Invincible open pit, stage 6. That's now behind us. In addition to that, we're seeing that grades at Neptune is slightly lower. Although the grade for the year and beyond will be good, it's a short-term issue. And we'll see in the second half, as we open up the higher grades at Hamlet North Underground, pretty good grades there and then the south, we'd expect another really good year out of St Ives. Granny Smith is performing well. No issues on Granny Smith that concern us at this point in time. It's a very steady quarter. We're spending more efforts on ore reserve development to open up the orebody in the future. So tonnes are slightly down, but there's something behind it. There's increased focus on ore development, which will open up stoping tonnes into the future. A similar story in Agnew, where we're spending more time in the early part of the year opening up around the north, opening up Kath Lower, which are going to be really high-grade additions to the mine. And we'll see a lot of that coming through in the second half. We're on track to open up those areas of higher grade. Gruyere, processed volumes were down this last quarter, mainly because of a plant shut -- scheduled plant shut, that is. We have [ tried and finished ] in the mill, so that was scheduled. So obviously, we lost a number of days there that was planned. Good to see that the mine grade has actually gone up as we're moving into higher areas, but we've seen the yield conversely go down a little bit. And that's mainly because we preferentially fed high-grade stocks we built up over 2019. We fed those last quarter. This quarter, we haven't had that. So what you're seeing is experts is actually going through the plant now. So that's the reason for the anomaly on that. But again, I think that Gruyere is heading for a good year. There's nothing to suggest that we won't get all the numbers, as we've indicated in February. So I think we're in pretty good shape. So that's a quick run around the world for you and where we stand. Conscious I've been talking for a while. So I'll stop here, and we'll allow time for questions. Thank you.

[Operator Instructions] The first question comes from James Bell from RBC Capital Markets.

But I just wondered if you could talk about consumable supplies at your operations and if you're seeing any disruptions to supply chains. We've had some of your peers talk about disruptions around things like mill liners, et cetera. So I just wondered if you could talk about the situation there and if there's going to be any impact later in the year from disruptions on the back of COVID-19.

Yes. So 1 of the things we've done, James, early on in the piece is to relook at all of our stock levels of our critical consumables, reagents, et cetera. And we actually stocked up. We asked every operation to look at all of their supply chain, stock up, let's get more than what we need. And as obviously, there's an investment in working capital for that. The other thing we've done is we've looked at where we get our stuff, and whether we can actually transfer more of our exposure to in-country. That's another way to actually soften the impact if borders are closed and you can't get stuff in. Let's try and procure locally. So I think we're in good shape. I mean, the one area where you just physically can't have too much on hand is diesel. Just the sheer volume of storage can be an issue. So, so far, so good. I'm not too concerned about that. We don't see that as a risk. But having said that, James, if we end up with a significant increase in lockdown across the world in which we operate for an extended period of time, at some point, we will be impacted, for sure.

Okay. That's very clear. And then just maybe on the cost side. Obviously, slightly lower ounces this year, but you're keeping your cost guidance unchanged and the performance was pretty strong in the quarter. I'm just wondering if you could maybe dig into a little bit of detail on why that is. Is it mostly ForEx and oil price? Or are there other factors that are coming through that are getting you to be slightly ahead of kind of where you might have been in Q1?

Paul, do you want to deal with that?

James, a lot of it's got to do with the ForEx conversion, and we gave guidance early on in the year. And obviously, the rand and the Aussie dollar weakened substantially. So to a large degree, that has helped us. As Nick mentioned earlier, we picked up some small minor costs, extra cost for COVID, especially in Australia for extra flights to take care, but so far, so good. It looks like we'll be able to meet the cost guidance with a little bit of help from the exchange rates.

Okay. And then maybe just 1 more again for you, Paul. In terms of adding those additional facilities in South Africa, any sort of thinking as to -- was that just to replace existing facilities? Or was that just to give you flexibility in South Africa?

So we had 2 leases that were expiring. They were actually expired in March. We rolled them to May. And then we renewed the 2, the [ EPC ] and the R&D facility. So those were just replacement. So the total in South Africa is still $2.5 billion of committed in unutilized facilities.

The next question comes from Arnold Van Graan from Nedbank.

Nick, just a couple of questions from my side. So the first one is on the dividend. So obviously, you haven't been impacted that much so far by COVID-19, but you make it very clear that it's a fluid situation. So what's your view on an interim dividend? Are you going to be on a conservative side and maybe pass that over? And I guess the question that goes over that, have you moved into any form of cash preservation? Or is it largely business as usual in terms of capital expenditure? That's the first question. And then the second one is, can you just remind us of how much of your diesel consumption, globally, I guess, has been locked in or hedged in? And how much of that remains exposed to oil prices? And maybe a third one, if I can. Do you have any idea of the direct impact on cost associated with social distancing at South Deep? In other words, if you're going to be running more buses to transport people, what's the impact in Australia? More flights? Have you tried to quantify that? And I'm not talking about the volume number. So the volume will also impact cost, I get that, but I'm just trying to get the additional real cost on top of just because of all these additional measures. That's it from my side.

Yes. I'll start at the back end, and then I'll ask Paul to deal with the first 2 questions you had. So in Australia, I alluded to it earlier in the narrative, that we are putting on additional flights. That's the main thing, obviously, distancing people in the nest facilities, et cetera. At this stage, it's not that material. I mean, it's probably somewhere around about AUD 10 to AUD 20 an ounce in Australia at this stage. If you want to press me for a number, in the scheme of things on guidance of $13.50, we're talking maybe 1%, 1.5%. So at this stage, it's not a massive issue. Now bear in mind, we're mining 1 million ounces in Australia with not a lot of people because of the very productive, but very mechanized as well, approach to mining there. So I think we're quite lucky that we're able to mitigate the impact. At South Deep, it's more difficult to say because we're getting back into it now and running the mine at 50% when we're actually paying the other 50% who are not working, that's the other point. We're actually paying people basic wages who are not working. We still got to figure out what that means. But my gut feel is we're probably looking at around about 5% increase in costs, given a, the lower production that I talked about, 32,000 ounces. The fact that we're building back up and the fact that it's going to take us more time to get people to the place. So how much are we going to lose on productivity on the place? That's a tough one. But that's the area we're watching carefully is we don't want to lose another couple of hours on the place because that would translate into a bigger cost. But so far, so good, but it's very early for us to give you a definitive steer on that, Arnold, but I would say maybe something around 5%. But as Paul says, or as I said earlier and Paul reiterated, we're operating within the envelope of the overall guidance for the group and exchange rates, obviously, are helping us when we look at the dollar cost. I'll hand over to Paul to talk about the diesel and the cash strategy.

Arnold, on the diesel hedges, it's just in Ghana and in Australia, and we'd hedged 50% at circa $60. So 50% is open to the market and 50% we've got locked in. On the dividend policy, I mean, current indications are we're obviously being based with higher gold prices. Our earnings are still looking strong through the year. We will stick to our dividend policy at the moment. We have had no discussions to pull it. It's obviously based on normalized earnings. And if the normalized earnings are there, we'll continue to pay our dividend. That's the way we're seeing it at the moment. As we said, obviously, if we go into major shutdowns and some change, we'd review it. But current indications are it's still going to be a good year for us, definitely a good cash-flow year because of the higher gold prices. So yes, at the moment, it looks like we will pay our interim dividend.

And then diesel, Paul? You talked about diesel.

I said -- diesel, I said, we were hedged 50% in Ghana and in Australia. Thus I think we're adequate.

Yes. So I mean we're not going to see that much benefit at the lower prices in oil. Because there's some offsets here. But obviously, going forward, once we're out of these hedges, which carry us through store for a while, and if we're still in this situation, then we'll see.

And not going into cash preservation more, basically pushing the business as normal until circumstances change?

Yes. I think...

I think the one -- sorry, I'll go, Nick. We're continuing to make money. I mean we've had a bit of a slowdown, as Nick mentioned, in Peru. But obviously, in Australia and Ghana, we continue to -- going at full capacity and with the higher prices. So as a group, we still believe, at the moment, we can fund our capital commitments and continue as we go. Again, obviously, if things change, we would have to review all of it. But at the moment, we're continuing to deliver. We're spending our money on Salares and we're spending our capital where necessary.

Yes. I would just, Arnold, that we've seen, in years gone by, the impact you're going to have when you deviate from the plan and you try and recover. You're always playing catch up, and it takes a while. So I would say one of the highest priorities for us is to retain the operational integrity of the business and make sure that we're doing all of the underground development, where we should be doing it in our underground mines. Making sure that we're stripping in the pits at Tarkwa and Damang where we should be stripping and when we should be stripping so that we can continue to consolidate existing production levels into the future. So we will go a long way before we change that philosophy, particularly with the strong financial position that we're in. So right now, that's a key focus for us.

The next question comes from Shilan Modi from UBS.

A couple of questions from my side. Given your hedges on the gold portfolio, you've hedged about half of your 2020 production. Can you give us an idea of when those hedges -- the payments for those hedges are due? What are you thinking about this portfolio? And what happens if you start losing more ounces? And then on the pandemic side, can you give us an idea of what percentage of your labor is migrant in each of your regions? And then also just an idea of what the morale is at the operations?

Nick, I'll talk to the hedges. The hedges, on a monthly, you can basically divide the numbers. The guidance we gave through the year, you can divide them by 12 and you'll get what we are hedged per month. And remember, it's 50% in Ghana, 50% in Australia and 75% in South Africa. At the moment, we are sticking with the hedges as we are. Obviously, you can do the math. We're severely underwater to try and roll them now. You almost get no -- you get no increase in the price, especially with a big uptick in credit risk at the moment in the market. I mean, we've been doing exercise a couple of days ago, looking at it, and it's just not viable at the moment. So -- and also our hedges are synthetic. So it makes no difference whether we produce or not. It's just the financial transaction. At the end of the month, we balance up and we pay them all their payers. In this case, at the moment, we're paying the banks.

Okay. So back to your question on the labor. Around about 2/3 of our labor in South Africa is around the mine. So obviously, with this lockdown, certain people have moved into KwaZulu-Natal, those areas, Eastern Cape. We're getting those back for this lift of the lockdown. We've had a SMS, WhatsApp system so we can stay in touch. The difficulty is we have about 300 people in static countries in South Africa and now the border is closed with those countries. So those people, we can't get back at the moment. So we'll have to wait for the borders to be lifted. In Australia, the bulk of your employees are fly-in, fly-out, except for St Ives, where we do have a high degree of residential, given the proximity to Kalgoorlie, so that's not impacted. The impact we have had in Australia is those employees on a $5 roster who live outside of WA. And those people aren't too many, and we've been able to relocate most of them in WA. If you look at Tarkwa and Damang, a high percentage of our employees, probably about 75% of our employees, are from the region, and so that's not a particular issue. And again, Cerro Corona, it's largely transport-in, transport-out. We have a camp at the site. Luckily, the bulk of our employees live around Cajamarca, which is about 80 kilometers down the road. So the other good thing is Cajamarca, so far, has been spared any significant infections. So that's helped us. We haven't had to have too many people flying in from Lima. Similarly, in Chile, the bulk of the people, and we've cut the people now. It's only 150 at the project at Salares Norte. The bulk of those people come from the nearest big city or town called Copiapó. So we don't have a lot of people coming from the south, and then the Copiapó is in that area. So the Atacama is, again, not being as impacted as elsewhere. So we can move that shift in and out. The other thing worth mentioning, we've also increased the rosters in Australia. We used to work a week on, a week off. Until this issue is behind us, we're going to be on 2 weeks on, 2 weeks off. And we'll do something similar in Peru actually. I hope that answers the question for you.

Yes, it does. Just on the morale at the operations. And then a follow-up question on the synthetic derivatives, but I'll ask it after.

Yes, sorry, I forgot to mention. Morale, I would say, is very good. The one thing I must just complement all of the regions and all of the HR people involved. Communication with our people has been first class, and it's been regular. It's been detailed. It's been honest, and we've had a lot of good feedback. And in particular, I think when you tell people, "We're going to look after you. We're going to make sure your wages are paid." That has a major impact on people's morale. It shows that we're standing by our people, and I think our people are going to stand by us. And I hear around the secular, that isn't something that's been universally applied. But certainly, it's something we feel pretty strongly about. So I would say morale, pretty good. And just the -- some photos I got with the South Deep shift coming back to work, everyone was geared up. They had all their face masks on. They had their gloves on. They were ready. They followed the social distancing rules. Very proud of what they're doing. I think it's a great achievement in a time of crisis.

Okay. That's very helpful. Just a follow-up on the synthetic derivatives. I mean, if your production had to fall, so say, in the worst-case scenario, that Australia was put on lockdown and you weren't allowed to produce, you'd still have to fund the payment for those hedges. Am I correct in thinking that?

It's correct. You just -- you fund the difference between the hedge price and the spot price, yes.

Okay. So if your production fell dramatically, then effectively, you're funding it out of your balance sheet?

Correct, yes.

The next question comes from Raj Ray from BMO.

Just a couple of quick questions from me. First one on Solares Norte, could you tell us what the timing for the sectoral permits are? And if the current lockdown is going to have an impact on potential regulatory authorities, do they need to visit the site for the sectoral permits? And if that's going to have an impact on the timing for the permit?

Yes. We should have most of the permits that we need, which are subsidiary to the main umbrella environmental authorization before the end of October. And in fact, I was having a look at that with the team the other day. We're in pretty good shape. And again, the regulator is doing what we're doing. I'm sitting at home here, having this call with you. They're also sitting at home doing stuff and making sure that we get what we need. I think the important thing to remember is the environmental authorization is the umbrella authority. Once we've got that, essentially, you've got tested approval for all of the underlying subsidiary permits. So it really is just a process, and we don't believe this will have an impact. But if it does, I mean, we have fairly meaningful contingency in terms of time factored into our schedule. So if we needed to add a little bit of extra capacity on time, it's there. But we're working very, very well with the authorities, and I don't think we're going to have a major issue there, even with the lockdown, Sorry, what was the second part of your question?

No, that's what I had. The other question that I have is more of a nuts-and-bolt question on Damang. You did talk about the fact that the grade sequencing is going to be high-grade in the second half of the year. Just wondering of what impacted the ore mined. I see that your waste mined went down, but your ore mined also went down by almost 25% quarter-over-quarter.

Yes. Look, we've had some change outs of contractors and we've had to put together some short-term initiatives to replace contractor that came out. So I think there's been a little bit of interruption and the change. But I think if you look at the volumes we were getting towards the end of the quarter, we were largely through that. The other thing is we were ahead of where we needed to be anyway up to the end of last year. So on a cumulative basis, we're in a good position to hit those high-grade Tarkwa phyllites, hopefully, by the middle of the year.

The next question comes from Dominic O'Kane from JP Morgan.

Nick, a few questions but pretty quick. So just on the hedging, can you confirm if you have done any additional hedging in 2020? Or whether you're thinking about doing additional hedging in 2020 given where the gold price -- the round gold price is? Second question, given the sort of the all-in cost guidance, but obviously, there's very large foreign exchange moves through the period. Can you just maybe help us maybe isolate some of the CapEx expenditure that you're expecting for 2020? And also exploration, given the COVID lockdown, should we expect a materially lower exploration spend in 2020? And then final question, if I may. With a 50% reduced workforce at South Deep, how many tonnes a month can you do?

Okay. So maybe I'll see if I can remember some of that. On hedging, I think the simple answer is we're done. We did say that previously, even though these prices have gone up, I don't think we're going to contemplate any additional hedging at this time. As Paul mentioned, we were looking at potentially rolling some of the hedging, but I think on balance, that probably doesn't make sense. We'll just get the hedges out of the way, then achieve what we wanted them to achieve. So that's the easy part.

Sorry, just we did -- sorry, just to interrupt, we did do some of out of the money puts in Australia. We did 300,000 ounces, but those, we paid for. So there's no downside protection, full exposure to the upside. We did that as part of the Salares Norte project. It just gave us some underpin for next year. That's all that we've done but we are now, as Nick says, we are finished for this year. And we don't see any hedging for next year as we stand at the moment.

Thank you, Paul. And then on exploration, most of the exploration is done in Australia. That's the bulk of it. And as we've said earlier, there's been no real change in what's been happening on activities in Australia. The whole suite of activities continue, so I wouldn't see a material impact. Now obviously, depending on what happens from here, if rigs are in short supply or operators are in short supply, because we outsource this stuff -- we don't do exploration drilling ourselves. We bring in people to do it for us. We could be impacted. But I'm not seeing it today, but that could change into the future. In terms of South Deep, I think the main impact is going to be over the 6 weeks or so. And I mean, we were doing roughly 100,000 tonnes a month. So if you want to factor in something over the next 6 weeks, divide it by 2, crudely. I think you could use that to underpin the ounce reduction that we've given you. Sorry, Dominic, what were the other questions?

The only other question is just on CapEx. Can you just help us try and maybe break down CapEx by, specifically Australia-originated [ cable ]?

Yes. Look, the overall CapEx is budgeted at about $620 million -- $630 million, including, obviously, Salares. I don't have that specific breakdown here. Maybe Avishkar does or Paul does. I know it's implicit in the all-in cost we've given you. Can you guys remember the numbers there, chaps?

No. I think, Nick, we just got in the core [ cable ] that we did in -- cable we gave, splits the mine, and we're still checking our capital for all the regions.

Yes. But the total is 6 -- about $620 million, $630 million...

Yes.

Including Salares. We're still good for that number.

Yes.

Presumably a slightly lower, slower pace of Salares, though.

I still think we're going ahead on Salares. I mean, the way things are moving along, we're looking to still get through that. We're not delaying the project. All the people on-site are there to actually advance the project. The -- as I've said earlier, the camp expansion Phase 1, Phase 2 will come later in the year. We've got the diversion channels that are being done now. We've got the bulk earthworks that will also start in the second half of the year. So I'm not saying, at this stage, unless we're going to pull things back, that, that is going to push out.

The next question comes from Patrick Mann from Merrill Lynch.

I think most of the questions have been asked. I just wanted to follow-up on one thing you said, Nick, around potentially being able to ramp up South Deep to 100% by the end of May. I mean, my understanding is that you can go back to 50% now, and thereafter, you need ministerial approval to go above that. I mean is that just what you guys are comfortable that you'll be able to do while complying with all the regulations? Or am I missing something around what's going to happen after the lockdown.

No, you're spot on. There's been no definitive indication as to when we can move to 100%. You're spot on. So we're making an assumption here. We're assuming that we can get back to full production by the end of May in our guidance. If we can't, then obviously, we're going to have to relook at the numbers. I think as you know, I mean, the mining industry in this country is in a situation where something like ZAR 7 billion to ZAR 10 billion a month being incurred in wages across the sector with little production to support it. And I think the mining industry has made strong representations to, on a very controlled basis, move back to full production over a period of time. Now whether or not the minister or the government allows that to happen is moot. So that's the assumption. So if we're stuck at 50% beyond the end of May, then we'll have to relook at all the numbers again, but that's our assumption for now.

And then maybe, sorry, a follow-up there. I mean, you said that you were paying all of the employees. Does that continue -- so if you're permitted to bring back 50%, are you still paying the basic wages of the other 50%? And then maybe how do you go about choosing who comes back to work without causing sort of unhappiness amongst your workforce? I suppose that goes to the morale question Shilan was asking earlier.

Yes. Well, I think if you're paying everyone, it's easier. The other thing is the people with immune-compromised systems and those people inside the countries, obviously, we need to look after them first. And then it's a question of what are the activities? What are the main activities that we need to get going with? And then on that basis, pulling people back. But I mean the commitment is that we want to bring everybody back as soon as we can. People understand they are getting paid. I think if this lockdown goes on for months, we're going to have to relook at whether or not we can continue paying everybody, but I'm hoping that we don't get to that point. There are things we can do, and we can send people on leaves for a period of time. That can buy in more time. But I think realistically, if we go into months and months of lockdown, we'd have to relook at all of the financial implications for that.

The next question comes from Tanya Jakusconek from Scotiabank.

I wanted to come back, Nick, on the additional cost for COVID-19. You mentioned, thank you for the South Africa impact, and obviously, Australia with the additional charter flights. Are there any other additional costs that you're seeing at any of your operations with this COVID-19?

Nothing material yet. I mean if I look at Ghana, I'm not seeing significant impact of the social distancing at this stage. Peru, I think we've talked about. I mean we have reduced the people anyway in Peru. We've reduced the people in South Africa. So there's obviously a knock-on effect there. Australia, we've talked about additional flights, et cetera, around $10 to $20 an ounce. At this stage, not really. And we've probed into this in quite some detail across the group, and that might change. It's as we sit today. I mean if things get tougher, then it will have an impact. For example, we're told in Ghana, "You've got to restrict the number of people on the mine." Obviously, we may not have enough people to drive trucks, to drive loaders, et cetera, diggers, that might change. But right now, we're not seeing that. And in Australia and Ghana, in particular, which makes up 80% of our production, the governments of those countries are quite keen to find ways to keep mining going. Those 2 sectors have received particular focus in those countries, but obviously, with the right restrictions and the right protocols. And as things evolve, Tanya, maybe some costs will emerge that we're not aware of today. But I don't think we're seeing -- we're not talking $50, $100 an ounce type of stuff here, even if something comes up. Supply chain is a working capital issue. That's more we stock up, so there's a cash flow impact. We're settling some additional stores for a while, but it's not really a cost issue in the scheme of things. We'll use that stuff over time. Paul, I don't know if you want to add anything to Tanya's question.

Nick, no. I think you summed it up well.

Okay. And then, what about the productivity? I know you mentioned the social distancing. I have to believe it takes longer to get people to the face. I'm assuming that's going to be the case in South Africa. I don't know how many people you can get down the shaft at the same time with the 2-meter of social distancing, maybe it's not 2 meters in South Africa, I'm not sure. But how does all of this impact the productivity if this keeps going?

Look, I think if we stay as we are, I mean, the indications are we're coping right now. Let's just park South Africa for now and Peru for now because they have been scaled back. But in Ghana and Australia, we're coping. We're not seeing a major issue. We have employed a few additional people, maybe I should have mentioned. Just now, we've employed a few additional people to take into account that rosters have changed. Productivity, I think if you go to a mine like Agnew, bear in mind, at any point in time, we're probably running half a dozen ends. We're running maybe 8 or 9 stopes. They are all, in any event, spread over a strike. They're not all bunched up together, as you would know, because of geotechnical issues, et cetera. So I'm not saying that this is a massive ecclesial for us at this point. Like I say, if we start getting infections on the mines, it's a different ball game. Social distancing, isolating people will obviously become more acute. The regulators may shut us down. So that's an ongoing risk, Tanya. Though we're not seeing it today, but in a month's time, we could be having a different discussion.

Okay. So for now, even with this, the new health and safety measures that have been implemented, you're not seeing any impact on productivity?

Nothing material. Nothing material.

And -- okay, so no other cost besides the ones that you've mentioned. And then maybe for Paul, you said you put in 300,000 ounces of put for Salares Norte at floor. What bull price is that floor at?

I can give you that if he is not on the line.

Sorry. I'm sorry, maybe I was on mute. Some were $2,100, and some were $2,200.

Yes.

Sorry, can you repeat those numbers again? You faded out.

Some were at AUD 2,100 and some were at AUD 2,200 an ounce.

The final question comes from Martin Creamer from Mining Weekly.

Congratulations and thanks to you guys for sacrificing like 1/3 of your pay in the next 3 months. I think that's a very generous thing to do. Now I'd just like to swing to South Deep. You're sharing these wonderful production and productivity coming out of Australia and other places. Is there any strategy that is in place that is -- that's directing South Deep towards a productivity benchmark that can start comparing with some of the benchmarks that you have elsewhere in your group, getting South Deep closer to what you are used to in Australia and other places?

Yes. It's a great question, Martin. It's one I ask myself on a regular basis. So we do have a strategy of looking at the whole value chain. And improving the productivity itself, it is not just one issue because you have to open up the orebody. You have to mine it. You have to support it. You have to backfill it. And it's looking at how do we improve that whole mining cycle. And so we're looking at every element, and at the same time, you want to make sure that you're maximizing your quality. It's all real well moving more tonnes, but you've got to get the right tonnes in the right area. So there's a lot of initiatives underway here. I think we're making good progress. I think as you've seen over the last year, over last year, despite the fact that we took 1/3 of the people out, now towards the end of the year, we were getting the same kind of output we were getting before we took 1/3 of those people out. So already last year, we saw around about a 30% improvement in productivity. I think with all of the work we're doing now on innovation technology, we have a control room on surface that is giving us real-time information. We have sensors on vehicles underground, which we've rolled out in 1 of the corridors, which probably makes up around about 20% of our production. That's giving us real time information. We're getting the same on people. That's going to give us a lot of information which we're going to use to improve the overall cycle time and how we get people to the face quicker. The other exciting thing is as we move more of our mining into the new mine areas that we've developed under our ownership over the last 10 years, they've been properly set up where we can do bulk nonselective mining, where we have infrastructure right there. We have a base that we can park equipment and check them quickly. We have ore parsers in close proximity, and we have a much better setup than what we inherited, where currently around about half the mining is taking place. So as we gradually move into the new mine area, we'll find that productivity will improve as well. So it's getting people to the workplace quicker. We've got initiatives on that. It's making the face time more effective, and it's making sure that the equipment and everything behaves good. I'm pleased to say as well, we've seen an improvement in availability of equipment, particularly drill rigs, where meantime before failure has improved, so we're getting the rigs for a longer period of time. It's taking less time to repair. We're now rolling that out onto our trucks and our loaders. Very excited to see that we're trialing now remote loading from surface, where we had a chap sitting in the control room that's operating a loader 3 kilometers under the ground beneath him. Very exciting to see that kind of technology being rolled out. So all of those things will mean you don't need to change somebody on the loader. You can have a chat in the control room, just continuing to operate that loader. We don't lose a couple of hours while we change people out on the shift, for example. So multiple areas the team are working on. I'm very excited about the developments and I'm sure it's going to have an impact on productivity and costs going forward.

Skills and then skills moving out of the business faster than they're coming in and you being unable to train enough people?

Yes. I think skills are an issue in our business, particularly as mechanized mining is the future of mining in South Africa. And our conventional mining, I think, is dying. Handheld conventional mining, I think, has got, really, 5, 7 years tops. I wouldn't be too bold going beyond 5 to 7 years. The youngsters just don't want to do that stuff. And mechanized mining obviously means that there's going to be a huge amount of demand for the right skills. We realize we have to train up. We've realized there aren't enough skills in the industry. And so one of the key strategies we've been working on is to have our own bespoke training facility where we can actually roll out mechanized miners. We continue to sponsor Wits University and make sure that we're pushing out at least 100 mining graduates a year. I'm involved in that directly. And that's the kind of strategy, but it takes time, Martin. It's not a 1-year story.

The final question comes from Jared Hoover from RMB Morgan Stanley.

Just 2 questions for me, please. The first relates to COVID-19. So we know that there's been 2 extensions to the lockdown in Peru and that you'd be ramping up stuff to about the end of June. But do you anticipate having any logistical challenges being able to get your concentrate from the mine site to the port and then shipping it off and effectively being able to monetize production over that ramp-up period? And my second is just on the hedges as well. Given that they are not zero-cost collars, they are put options, is there any cost that's associated with that? And would you be able to share with us?

Okay. Paul, do you want to deal with the second one first, and I'll come back to the first?

Sorry, which ones are you talking about? The cost out of the money? Puts that we bought?

Yes. Is there cost associated to -- given that they aren't zero-cost collars?

Yes. Well, we did have to pay for the puts, yes. We bought the puts, yes. And was about $2 million to buy those puts for the 300,000 ounces.

Yes. I think in terms of Cerro Corona, it's a very good question, again, and it's one that is a risk to the business in that if we can't get our concentrate trucks down to the coast to the Pacific Ocean, we can't get them onto the vessels. We can't get them to the smelters in the East and to Europe, and then we can't get paid. So twin strategy on that one. One is we've got additional storage on the site, which means we don't have to stop the operation. We could probably go for another month to 6 weeks before we start hitting capacity issue. Number 2 is we're obviously liaising with governors of the different provinces we have to drive through. It's probably around about a 400-kilometer drive from Cerro Corona to the Pacific Ocean port of Salaverry where the vessels dock. And we've been talking to the different regional governments about making sure that we can get through. And we're not the only ones. Bear in mind, there's quite a lot of concentrate that goes out of different ports along the Pacific Coast. So we're talking, as an industry, to the various regional governments, and we've got a lot of strong support from the central government in Lima, so hoping that we'll have a solution. Right now, it is a risk, but I'm hopeful we'll have a solution within the next few weeks.

Nick, I'd like to hand back to you for closing comments.

I just want to thank everybody for phoning in today for this quarter 1 results update. I think as you've seen, we've been able to withstand the early onslaught of this pandemic reasonably well. I think the teams across the globe have reacted putting people first in terms of health and safety, and we'll continue to do that. At the same time, we're very focused on ensuring that the business is sustained, that we can make sure that once we come through this, we don't have to spend '21 or beyond trying to get back to where we should have been. We've got the liquidity to do it. We got the balance sheet to do it. And bear in mind, as we sit today, around about 80% of our production is continuing with minimal interruption. So that puts us in a very strong position. So we look forward to giving you an update. And let's hope the next time we talk that the world is in a better position to deal with this pandemic. Last message to everyone, be safe. Look after yourselves. Talk to you soon.

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