Gold Fields Limited (GFI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. And welcome to the Gold Fields Operating Update for March Q1 2021. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Chris Griffith. Please go ahead, sir.

Thanks. Hi. Good afternoon and good morning, depending, I guess, where you are in the world today. It's a great pleasure that I present my first operational update as the CEO of Gold Fields. However, it is deeply saddening that it's within my first month in office, we lost one of our colleagues at South Deep mine in a mining incident. Our heartfelt condolences once again go out to Vumile Mgcine's family, friends and colleagues at South Deep operation. Tragic events like this serve as a hard reminder of the risks involved in our business and reinvigorate our resolve to achieve 0 harm in the workplace. Notwithstanding the impact of COVID-19 during the first quarter particularly at our Cerro Corona and South Deep operations, group attributable gold equivalent production of 541,000 ounces was largely in line with Q1 last year. The Australian region produced 236,000 ounces, and our mines in Ghana produced 221,000 including our 45% stake in Asanko. Cerro Corona, which was also impacted by unusually high rainfall during the March quarter, produced 46,000 on gold equivalent, while the effect of a second wave of COVID-19 in South Africa meant that South Deep's production was slightly lower year-on-year at 60,000 ounces. Group all-in sustaining costs were up by 11% year-on-year in the first quarter at $1,078 per ounce. All-in costs were $1,349 per ounce. That was 18% higher year-on-year. As we forecasted and as we guided, the capital expenditure at Salares Norte begin to ramp up this year. The balance sheet remains in a strong position. Net debt was $1.224 billion at the end of the quarter compared to $1.069 billion 3 months prior, with the increase primarily driven by the payment of the final dividend of $190 million. Net debt to EBITDA at the end of the quarter was 0.59x, largely unchanged from the end of December 2020. Our key growth projects, Salares Norte, maintained its positive momentum and continue to track ahead of project scheduled during the first quarter. Encouragingly, the detailed engineering was complete in January. And pre-stripping of the Brecha Principal pit started on the sixth of January this year. The volumes of the pre-stripping continue to track ahead of schedule, with 8 million tonnes moved at the end of March compared to planned 1.35 million tonnes. All other key activities continue to advance largely in line with plan. As you will have seen from the announcement yesterday, the Board has given the green light for the construction of a 40-megawatt solar plant at South Deep in South Africa. This follows the granting of the license by [indiscernible] on the 25th of February. The plant will comprise 116,000 solar panels and generate over 20% of the average electricity consumption of the mine, saving around ZAR 120 million in electricity cost per year. Importantly, it will reduce our carbon footprint by around 100,000 tonnes of CO2 a year and contribute to Gold Fields' [indiscernible] to carbon neutral. Construction of the plant will begin during the second quarter, say, this quarter, with commissioning planned for Q2 2022. The estimated capital investment for the plant is ZAR 660 million, which will be funded from internal cash flows generated by South Deep. In addition to the South Deep solar project, development of the pit at Damang was approved post the quarter end at a total capital cost of $43 million, of which $15 million will be incurred during 2021. This will add incremental production to the project and provide flexibility on the mining front. Despite this additional CapEx, we maintain our guidance provided in February 2021. As a reminder, attributable gold equivalent production is expected to be between 2.3 million and 2.35 million ounces. All-in sustaining cost is expected to be between $1,020 an ounce and $1,060 an ounce, with all-in costs expected to be $1,310 an ounce to $1,350 per ounce. And then finally, just some of my initial observations from being in Gold Fields for the past 5 weeks. Firstly, the deliberate strategy of moving away from labor-intensive conventional mining to focus on mechanized open pit and underground operations with the majority international exposure has served the company well. The reinvestment program over the past 4 years has placed Gold Fields in a position where it can maintain and even grow its production profile over the next decade. Salares Norte is indeed a world-class project and delivering the project on time and on budget is one of the key focus areas in the coming years. Gold Fields work on ESG issues compares well in the mining space, and we remain on track to provide more definitive targets in our key ESG priorities by the year-end. So with that, I'll turn over the call to Q&A, and then both myself, Paul Schmidt, the CFO, and also Avishkar is on the line from Investor Relations. Thanks very much. Over to you.

[Operator Instructions] The first question we have is from Shilan Modi from UBS.

Chris, congrats on your appointment. A couple of questions from my side. What would you say is going to be your focus areas for the next 12 months? And then where would you like to see the portfolio in, say, 5 years' time? I've got another 2 questions after that.

Okay. Thanks, Shilan. Look, the focus here is for the next 12 months, I mean, firstly, in the next couple of months is really to get a very deep understanding of the business. There's always opportunities in the business to look for productivity and other value-enhancing opportunity, and I'll continue to do that. We clearly -- the safety journey at South Deep is not complete, and there's quite a bit of work to do there. And then I think a deeper understanding of the assets and the individual strategy, so how much further can we push each of these assets, what are the life of mines likely to be. Because there's one thing about the resource and reserve in the way that we declare it, but I mean, obviously, as we -- with the underground operations, as we keep drilling, we keep getting life. So which of those operations will have ongoing life to the 10-year period and beyond and which won't, and so understanding the strategies and looking about how we can optimize those strategies for each of the assets. I guess that's my priority for the first 12 months. But then at the same time, being a new CEO gives me an opportunity to take a look at the portfolio and have a look at the jurisdictions we're operating in, the assets we're operating in, and then also potentially look for other opportunities outside that. So it's really too early for me to say what I think will come out of that, but I guess that's going to be the work that myself and the executive team have to do. And then I guess that depends -- that's really going to give us an indication of what the next 5 years look like. So are we still going to be in the same jurisdiction we're going to be now or are we going to be in other jurisdictions or there other assets that we want to add to our portfolio, is there any merits in joining forces with any other companies, all of those things will come out in the wash. But the main focus that I guess Gold Fields have had over the last number of years, we're not going to radically change that. So for example, the focus on quality assets, the focus on highly productive first-class assets that are mechanized and safer, that be jurisdictions that are fairly easy to operate in, that kind of focus and the deliberate focus on value as opposed to just volume. Nothing is going to change. That was my mantra in Anglo Plats, and that will -- I think Nick and the management team in Gold Fields have done a good job of really making sure the company focuses on delivering value and not volume. And that will certainly be at the core of the things that I'm looking at.

Okay. That's quite helpful. Just a follow-up to that, you mentioned productivity might be one of the things you'll be looking at. Would you implement something similar to the Anglo American P101 type of strategy there? And my second question that I was going to ask anyway was, in the last year, we've seen a lot of unit cost inflation come through in the business. So if you look at the quarter-on-quarter and year-on-year numbers, can you give us an idea of how much of that is from like external factors, so like FX and fuel, versus like inflationary factors, so equipment salaries and stuff like that? And how much do you think you can offset in the next few years from productivity?

Okay. Shilan, I'll comment, and then, Paul, feel free to jump in after me. So I think Gold Fields, while they haven't called their focus P101 or something like that, [indiscernible] an increasing focus over the last couple of years of technology, digitalization and developing the mine of the future. And certainly, as the portfolio, of course, has moved to a much more productive portfolio, that's where the kind of focus has been. So it's not as if I think I have to come into the group and start introducing themes like productivity improvements around technology and digital. And so I'll seek to build on whatever has been in place, and there's some fantastic work that's already underway right across our portfolio. But there's always opportunities for productivity improvements. And if you start with the fact that there's always opportunities and as you sort of put one set of initiatives in place, what they've done is open up new opportunities, and that's certainly -- that focus around looking for productivity improvements is certainly 1 of the things that I've always carried with me. Some of the things that is already in place, and I don't need to introduce that kind of thinking into the group. What I need to do is work with the group to see how we can really chase that kind of implementation or that kind of technology, new technologies in certain areas and around technology and digitalization to really make productivity improvements. So I think there's some of that. Whether we ultimately sort of call it something like what Anglo has been doing around P101, I guess time will tell. But the underlying essence of productivity improvements is already in place in Gold Fields, and I'll seek to build on that. I think one of the things that I'll just make upfront is the Gold Fields unit cost in the first quarter was well guided, that we're likely to see an increase in both all-in sustaining costs and [indiscernible] this year. But it's not just like it's a runaway inflation that's catching us, but there was actually deliberate -- number one, there was always planned to be an increase in sustaining capital. A number of our mines are moving away from sort of largely focused on open cost, more underground operations. So we expected to see a unit cost increase. And then some of the other things that we're having to do, including Phase 4 in some of our Australian operations. So I think it was well flagged and was well planned that there was going to be an increase in unit cost. But I think as we start seeing some of the volume coming through from that work, you're likely to see some of that unit cost being paid back. So it was more around a planned increase in the number of those areas than just runaway inflation. Paul, do you want to comment on that? And perhaps I mean you've got a much better feel on that. Yes.

Yes, Shilan, I think when we gave the guidance in February, we alluded that we're going deeper at Granny Smith, the need for more [indiscernible] Chris has spoken about that at Damang. Remember now a lot of the capital is moved out of capital waste stripping and operational waste stripping. And I think the one thing you did allude to is that the exchange rate has hurt us on conversion. When we guided and sort of the average [indiscernible] South Africa was [ 17.50]. The first quarter, we ended up an exchange rate of below 50. So that does have quite a significant impact when you convert into dollars. And we've also seen the strengthening of the Aussie dollar alone quarter-on-quarter in South Africa. We were probably seeing about ZAR 40 million to ZAR 50 million worth of just exchange rate increases converting at the stronger exchange rate. But yes, Chris is right. We guided a lot of it. It's not rampant inflation at all. It's to a large degree the changing of the mining mix. And as we go deeper and at some [indiscernible] as well, we're moving now away from the open pits to mainly underground. It is almost always more expensive mining. I hope that answers your question.

No, that's very helpful. Just the last question. In terms of your guidance, you haven't changed anything from [indiscernible] But you're already talking about higher CapEx for Damang and South Deep. You're also talking about production risks at South Deep and Cerro Corona because of COVID. And then in your guidance, you've got ZAR 15.50 and AUD 0.75 per U.S. dollar, both of which have gone against you. So how do you get -- how do we reconcile the numbers so that we can get back to your guidance for the rest of the year?

Do you want me to talk to it?

Yes, go for it, Paul. [indiscernible]

We always give a wide range when we give it for the group, Shilan. So we go a little bit lower on where we see the number a little bit higher. And we're tending to the top end of our guidance. As we alluded, there's some extra ounces potentially coming from Corona when we convert the copper into gold with copper running ramp and you're getting far more equivalent ounces. When we check the guidance, we used the new exchange rate, but we're still comfortable. Production, no issue. In terms of the all-in sustaining cost, we're still sitting probably just in the middle of the guidance. But in all-in costs, we're right at the top end of the range at the moment. It's just the way we guide. We do give ourselves a bit of headroom when we give guidance at the beginning of the year.

Also, I think there's 1 or 2 areas -- perhaps just a final comment on that. There's 1 or 2 areas where we're doing a little bit better than we planned, is making up for some of the areas where we're doing a bit worse than planned. And the other thing is, Shilan, I think the important thing is that there are some areas that we've told you, okay, based on these assumptions. Of course, if some of those assumptions change materially, then that will have an impact on the guidance. So for example, at South Deep, we did have a fairly material impact in the first quarter for COVID. We have said that we haven't planned any further disruptions going forward. We still think that South Deep is going to have a much better year-on-year improvement, and that will be the case. But the fact is if there's a massive third wave in South Africa, then it's going to affect both operations in Peru, of course, as we go through a third wave. But if we have a massive third wave in South Africa, yes, it's going to affect South Deep's operations. So it's based on those sort of common assumptions, plus we're being a little bit better in some areas and making up a bit in addition to [indiscernible].

Have you seen any COVID impact in Peru -- sorry, in Chile by any chance, just in terms of the construction effort there for Salares?

The answer is yes, but we have -- I mean we got off to a really good start. So we had a little bit of cushion, so we're eating a little bit into some of that cushion. But the team have been able to really come up with some innovative ways to be able to manage. So for example, they very quickly built additional accommodation that cost us some money, but it meant that we could manage the COVID situation better. We've brought in some additional staff to be able to manage that. So we've done a couple of things that's cost us a bit of money. I think the team have really had a fantastic outcome. And then, of course, in Chile, but then, of course, the vaccination program in Chile is really fantastic. So whilst we have to see sort of third wave infection rates, but we're seeing much lower death rates in Chile as a result of the COVID vaccination program. So yes, some impact, it's eating a little bit into some of the fact we had, but at the moment, we're still ahead of schedule.

Shilan, can I just add one other thing. We're getting kind of a double positive in the group. Remember, when we account the all-in cost on an equivalent basis, we use the byproduct credit. So we're getting more ounces in terms of equivalent, but we're also getting that massive credit that's coming through on the copper sales. And that means that in terms of what we guided for Cerro Corona, we are way, way down on the all-in sustaining cost. And that runs through to the group numbers as well. So that's where you're seeing some of the offset coming -- offsetting higher costs at South Deep, et cetera.

The next question we have is from Jared Hoover from RMB Morgan Stanley.

Can you guys see me clearly?

I can hear you fine, Jared.

Perfect. So I have a few questions, and I think Shilan covered some of them to a certain degree. But maybe let me just ask my first one around strategy, and then I'll follow up with the other 2 or 3. And I think -- as I mentioned, I think you've answered this to a degree, Chris, but are you able to share any of your preliminary thoughts on where you see potentially underappreciated pockets of value in Gold Fields that you might want to bring to before in the future and that might help with the valuation discount that we see at Gold Fields relative to your international peers? And maybe aligned to that, whether you see any areas where that might require additional executive time going forward. Yes, I'll let you guys answer that, and I'll follow up with 1 or 2 more.

Okay. Yes. I mean I'll go, and then both Avi and Paul, feel free to add. But I mean, the one thing about being 5 months -- 5 weeks into a new organization is I think it's a pretty good position to start from that you still know very little. But there's 2 particular areas that I think that we are not yet getting value for in our valuation of the company, in our share price. The one is clearly around Salares Norte, and I think it's just an expectation that will flow through when the cash starts flowing. Yes, it isn't some of the valuation models. It really only starts delivering the kind of value to the share price once the project is delivered. There's always concern that projects will be late, that they'll overrun in costs and they won't deliver what management has set. And I think we just -- the only way we can deal with that is to deliver the project on time and within budget. And I think we've demonstrated to be nicely on track to do that. I think you'll really see some of that benefit coming through when we deliver the project. So that's the first one in my view. And the second one, in my view, is I still don't think that we get the value for the life that is actually in the Australian assets. So I mean, clearly, you've got to work with the resource and the reserves that we give you. But the reality is that we've had the same resource and reserve in the Australian assets for the 8 years or something. And we've probably got more resource and reserve now than when we bought them, and we have mined for 8 years. So I think those are the particular areas that I don't think is -- and perhaps the third one is South Deep. Clearly, there's been a lot of disappointment around South Deep, and I still myself need to really understand South Deep well. But where the direction of travel is going on South Deep and the potential that we have, if we can do what we say we're going to do, then I think there's still quite a bit of value in our share price that is not described to South Deep. I don't know. Avi and Paul, do you guys want to add anything to that? Or contradict me, if you like.

Nothing from me.

No. I think those 3 I would highlight it to, so no.

Thanks, guys. Okay. Yes. Thanks, Jared.

Okay. So I know it's still early days, so you wouldn't say there's any areas of the business that potentially might need beefing up then or potentially introduction of additional personnel or so?

No. I think generally, the -- from what I've seen, clearly, I haven't been able to visit the operations. So I've done sort of virtual site visits, and that's not such an easy thing to do to get a deep understanding of the quality of people. But I've done already a set of virtual site visits around -- myself, Paul Avi and the executives have done a round of quarterly production reviews. So I'm starting to get a feel for what people are -- and generally, I think we have got a good team in Gold Fields at pretty much all of the regions. Time will tell whether there's 1 or 2 small changes we want to make. But no, I don't think that there's a massive problem in any of the jurisdictions that we operate in. No, I suppose -- Rather, let me say that again. I think we've actually got good teams in place. And I think -- and generally, the operations are being normal.

Perfect. And then just a follow-up, I had 1 or 2 questions just on the operations. Your release did mention that the [indiscernible] at Damang has been approved. So really 2 sort of sub questions in this regard. The first is whether this is [indiscernible] mine planning in the current coal price environment or is this intended to give Damang a greater life of mine runway that allows you time to optimize any cutback that might come through in the next year or 2 at this particular asset.

I'll comment, but happy that you follow, Paul. So my view is -- number one is, no, we don't -- we're not using high gold prices now to justify project because, actually, what that does is we start incentivizing higher-cost assets, and all you do is you chase yourself up the cost curve. So the one thing that I was very pleased to see was in place at Gold Fields is long-term gold prices are used to motivate projects. And if they can't fly the long-term prices, then they don't fly. So we're not chasing a project now that might be profitable for a year or 2 and thereafter if the gold price changes. So longer-term gold prices are used, and that makes sure that we are disciplined around how we spend capital and how we chase value. So that will be my first observation. And I was very pleased to see that discipline in place when I got to Gold Fields. And the second thing is that, of course, we're always looking at the assets as to what projects add value. So the big demand cutback, which is in execution now, was, I think, well executed. As that is being executed, this many cutback, that has been on the radar for quite a long time. But it was, in the greater scheme of things, not the project that we wanted to chase in the demand cutback. But there was also some work to do to make sure that it met the hurdle rates, the various internal hurdle rates that are placed. That work was done. And eventually, the team could come and convince management that it was a project worthwhile investing in. And so that's why it's been approved. Paul, I don't know if you want to add anything to that?

Yes. I think the other thing is we get economies of scale. So we make a fair amount of money. But once we start splitting the cost between Huni and the main pit -- Huni and the main pit together, you actually get a lot of value accretion in terms of NPV, et cetera. So that's what it made it attractive to us when we approved it earlier this week.

Okay. Great. And then just my last -- well, my second last question is now on South Deep. And maybe more of a clarification than a question, but like I know the productivity metrics have generally been trending in the right direction for a good few quarters now. But would it also be reasonable for me to assume that if that is the case, then we should be seeing a greater proportion of underground material coming from the North vent area versus the old mine? And in that case, the grade should be ticking up? Because at the moment, it looks like the grade has been coming back over the last 6 months or so, so just some color there, please, if you don't mind.

So I think -- so the answer is yes, and I'm very happy here to get help from my colleagues. But the answer is yes. I mean even in this quarter, we saw greater underground production. We actually saw less surface production. But what we did see is there was one particular higher-grade area that we couldn't mine in this quarter, which is why some of the grades fell. But under normal conditions, that's exactly what you should see. You should see us with many of these underlying metrics. So if you have a look at the destress meters were up, the development was up, underground mining was up. So all of those things are the right metrics to look at because they show that the right inputs are in place. And ultimately, that will flow through to increased underground production. So my view is that many of those underlying metrics are trending in the right direction. You saw the underground tonnes mined were up or [indiscernible] at areas that would have sort of balanced out the underground. Yes. So I think the underlying metrics are certainly pointing from what I can see in the right direction. Paul, Avi, you guys want to add anything to that?

Yes. I mean, you need to be looking at the underground grade. I mean, yes, last quarter, it was 6.3. This quarter, it was 5.6. And as Chris alluded, there was one stope that we weren't able to take out. But we've always said the underground, you see come in around 6 grams a tonne. So I don't think there's anything to be worried about. It's also depending on which stopes you've taken at any given time. But I don't think we've seen a general decrease in underground grade. We had a very good grade at the end of -- in the December quarter.

Okay. Great. And then just my last question on Cerro Corona. I think the commentary and the release alluded to the removal of the waste taking about 3 years now. And if I remember correctly, I think at the back end of last year, you guys guided to about 2 years. So should I be thinking of your guidance on the conservative end? Or should we be thinking that you probably are expecting ramp-up in COVID cases in the country, and that might impact the plan around waste stripping at Cerro Corona?

No. We did guide quite specifically last year that we were about 9 million tonnes behind and we would do 3 million tonnes a year for the next 3 years. So that was the guidance we gave in February. So nothing's changed. That's what we intend to still do.

Okay. Great. That's all for me.

The next question we have is from Tanya Jakusconek from Scotiabank.

Yes. Chris, congratulations on your new role. I have a couple of questions. I'm going to start with the easier one, which are just on the technical side. Just a little bit of clarity on -- just on demand on this new pit. I just want to understand how this fit in the new mine plan. Is this incremental ore or is this ore that's being moved forward? Is it already in the mine plan? Was it already in the mine plan?

Paul, I understand it is that's already in the mine plan, bring that material forward.

I think that's correct. It was to utilize the synergies on the cost, as I alluded to earlier. I think it was originally planned for 2023, if I'm correct. So yes, we brought it forward.

Okay. So this is going to then be processed. If it was in 2023, you're going to be assessing it 1 year earlier?

I think what it does -- yes, but I think what it does is it ensures continuity over the next few years so that you don't have sort of up and downs in the productivity as you're stripping. So that particular area, whilst it was in the mine plan, still needed to show financial viability. That's been done. We've now brought that forward. What it means is what we have ensured is greater consistency of mining at Damang for the next few years. So we're unlikely to see additional volume over the next few years, that you are likely to see less volatility in the production over those last few years of the life of mine.

Okay. And then just on Cerro Corona, I just wanted to understand. You've reduced your guidance by 20,000 ounces. I'm not quite sure what the impact for that reduction was. You mentioned COVID. I saw that there was also some metallurgy. your recovery was down. So what actually happened to reduce that guidance?

So a combination of COVID -- so COVID had a very material impact on Cerro Corona in the first 3 months. We also had unusually high rainfall in the first quarter. And then in the areas that we were mining, we had areas that had lower grade and higher metallurgy issues in the plot. So the combination of all of those meant that we were stripping perhaps not as fast as we would have liked to have stripped compared to the extra 3 million tonnes, but we were stripping on the other side of the mine as opposed to being able to get into the ore. That is still going to impact us for -- pretty much for the rest of the year as some of that impact means that we haven't opened up as much ore as we needed to. And if we want to continue for the long term making sure we're sustainable in the mine, we're going to have to continue doing the waste. So we won't be able to chase quickly and go get to ore. And also, we don't want to run the mine for sort of a 3- or 6-month window. So a combination of COVID, a combination of high rainfall in the areas that we're mining and the catch-up of the waste has meant that we sort of look through this year, we think that we're going to mine about 20,000 gold ounces less, but we're going to be overall square because we're still going to get the copper in the areas that we're mining. And the copper price is going to help out there. So what we are going to see is a slightly lower production than we had expected in Cerro Corona this year.

Okay. It was the waste portion of it that you have to move to another area that I didn't appreciate. So maybe then from an overall guidance for the year, is there anything quarterly that we should be looking at? Like you alluded to a higher capital in Q1. As we look at Q2, 3, 4, do you have -- are you expecting a stronger second half? Is there any variability in your mind and your capital that we should be aware of?

Paul, do you want to comment on that? I mean without doubt, we're going to have a catch-up in capital. So we've guided to the capital numbers. And if you see -- if you sort of spread that over the next 3 quarters, you're going to see that without doubt, we're going to a ramp up materially in capital spend.

Yes. I mean, the big thing, Tanya, you can work out, I mean we guided 500 million capital alone to Salares. We only spent about 50 million this quarter at Salares. So there's going to be a big ramp-up in Salares spend as we get into the real net ratio of everything. So yes, I mean we still [indiscernible] cash guidance, and you can work all-in costs. We were only 1,245 and we're guiding 1,310 to 1,350. So there will be a lot of growth capital coming through in second, third and fourth quarters of the year. And remember, we've always said, quarter 1, we never spend the capital. We think we do it in general and gets carried over to quarter 2, 3 and 4. This is in terms of [indiscernible], but you will see a pickup in the next week.

Yes. I was alluding more to production profile and sustaining capital.

Sorry. So perhaps just the other comment, I mean you see, to get to our production numbers, we will have to have better second, third and fourth quarter numbers. And that's actually traditionally what you see anyway. I mean our slowest quarter is always the first quarter, so you'll see a pickup as we generally gain momentum through the year. We have better second, third and fourth quarters in production. And -- but going with that, we are going to see a catch-up in the -- not a catch-up, I mean, according to the plan, we sort of spend less in the first quarter. And then as Paul said, as we get more places to work on, on the project, the spend ramps up accordingly. So I think all around, as we planned, we are going to increase our production in second, third and fourth quarters. And the only big thing that we can see on the horizon that could impact that is if we have big coronavirus waves in Peru and in South Africa. But other than that, it will be production ramp-up second, third, fourth quarter and CapEx ramp-up second, third and fourth quarter.

Okay. Just a couple of final ones. I just wanted to look at there is inflationary pressures going through cost structures. A lot of companies are seeing increases in copper, steel prices, concrete, freight, et cetera, et cetera. I'd like to understand, in your cost structure, what inflation pressures are you seeing and especially on your labor side and your wage negotiations in South Africa?

Paul, I'll talk about labor in both Australia and South Africa, and maybe you can come in behind me on other mining inflation-related pressure. So we are seeing 2 particular areas that are -- have got, I think, extra pressure on -- around labor. One is we're going into wage negotiations in South Africa at South Deep. So that's from halfway through the year, we need to have settled. We don't think that there's any undue pressure or any undue expectations, but in South Africa, wage just generally settle at 1% or 2% above inflation. And with 40% of our costs in South Africa being wages, you can see that, that will have an impact on the mining inflation being above inflation. But that's all been part factored into our all-in cost, and that's not anything unusual. And again, we will be seeking to try to get a longer-term settlement, the way we did the last time, to be able to give us stability at the operation for the next few years. So whilst that is happening, that's not unusual and it's been factored into our costs. I think the one particular area that is sort of ahead of our expectations on around pressure on costs is in Australia and particularly with just the sort of booming commodities all around iron ore, lithium, gold, coal. These -- it's putting massive pressure on labor. And being able to make sure we can have labor stability, we had to increase some allowances to keep our staff in Australia because we're seeing massive moves in the beginning of the year. And we've -- the Australian team, under Stuart's leadership, have been able to cut that back. We're seeing much lower labor turnover, but that is going to have some upward pressure on costs in Australia. Do you want to add anything to that, Paul?

Yes. Tanya, I mean, obviously, we're seeing a pickup in copper price. We're starting to see it, but it hasn't had a major impact. Obviously, a lot of it is going to be used in the construction of Salares Norte. Remember, we've got a lot of fixed contracts in place, and we've also got the hedge in place that has really been very positive at the moment to us. But that's offsetting a lot of the increases we are seeing. But at the moment, as Chris said, our guidance incorporates these increases, but we'll have to watch it. It depends on copper and how iron ore goes for the balance of this year.

Okay. Great. And then finally, Chris, I wanted to ask for your view on South Deep. I'm just interested because that mine, as you've mentioned, has had a challenging path, and productivity is well below world standards for this type of an asset. Could you maybe share your thoughts on how you're optimistic in terms of unlocking value at this asset? Can you share your thoughts on what you need to do to unlock the value? Is it productivity? Is it getting to the larger portion of the ore body to implement the mechanized mining? What is it that you need to see to unlock its value?

So Tanya, look, I say this all with a big health warning because I've only been in the office for 5 weeks. I have already had, I don't know, 3 presentations from the mine. First of all was just to understand the history and how the mining method has evolved with from the very first time they got into the ore body. And sort of as I've gone through that, one thing that I just generally get a feel is that we've got a much better handle on how to mine the ore body. I certainly -- the warning I give is that I don't think we -- and I don't want to say yet there will never be amendments to the ore body or to the mining method. Sorry, I just had a dog sit on top of my computer. Sorry about that. When a 65 kg mountain dog sits on your computer, then you've got to stop and fix that first. Sorry about that. So Tanya, I think the first observation that I have is the evolution of the mining method looks to me to be constructed. And I think the team have got a much better handle on sort of mining direction, how do you take the mining direction to get a better feel -- to have better management of seismicity, the way that they mine the destress, the cuts that they're taking in the destress, all of those actually look -- from a mining engineer's point of view, look like a lot of evolution from blood, sweat and tears has gone into that mining method. And it looks to that they've got a bit of handle on it. The mine is starting to look like a mine to me. It's got structure. It's got -- you can see where people are mining. I sort of went back to some of the old plans and you see. And that was just -- we were all over the place. And then I think we're moving away from some of the older mining areas into having much more of our mining in the new roads. So -- and I think some of the underlying metrics are now starting to show some positive direction. So if I look at the -- sort of just the team are much more focused on just having a sequence and not chasing today's production. Because when you do that, you just get yourself into a muddle everywhere. So what they're doing is having the sequences mined property. And that's why you're seeing the increase in square meters. You've seen the increase in development. You've also seen the productivity. I mean I went back just a year ago, we were getting 35 meters per rig. Some of those are up now at 80 meters a rig. So they still got [indiscernible] to go. But generally, I haven't formed an opinion yet, so I'm listening and looking. I've only been underground once. And of course, this is a very difficult time to go there and kick the tires with the guys and get a feel for are the right things happening. But overall, I'm more positive than I expected to be. And also, some of the direction of travel of the underlying -- my philosophy around mining is that if you do the right things long enough, you absolutely must be successful. And it seems to me that they're doing the right things and they're sticking to their guns. So I think they've evolved into a better mining method, doesn't help doing like the wrong things long enough. But I've seen a long answer that I'm generally more positive than I expected to be. I think it's too early to make a final commitments to what I think of the asset. But overall, I think the guys are doing a great job. And I think Martin and the leadership team got in place, they have stabilized the leadership team. I think we've got good quality people. Even the way they rate the hires. And every time they rate the hires, like the new recruits, they're comparing them on quality to what has left. And I think in about, I think, 17 or 18 of the recruits that were telling me yesterday, they can absolutely positively say that all that, I think, 16 of the 18 recruits are all improvement in quality on what they had before. So there's lots of different sort of touch points, Tanya, that give me a feel for actually there's some positive momentum. But again, there's a health warning there, a bit early for me to have a firm opinion yet.

Okay. I really look forward to seeing how South Deep develops. It's been a long time, and it would be great to see this mine work.

Thanks very much.

The next question we have is from Nina Dergunova from Goldman Sachs.

Congratulations to Chris for the new role. Most of my questions have been answered already, but I have several remaining and will ask one by one. So the first one, Chris, you outlined 3 areas which don't get value in the company's share price. And you spoke already about the past on value on Salares Norte, on South Deep. And what are your plans to crystallize value to the market on the remaining one, the Australian reserves expansion?

Yes. So this is something that we're thinking about. Avi, myself and Paul have been thinking about how we try to give a sense of the potential of those assets so that when you're putting in your model, you're not putting in 3 or 4 years in your model and thereafter because it looks like the resource and reserve run out. We've got to find a way to try and help people see what the long-term value for those assets are. So I think it's a little bit too soon, and it's a question on our mines. And we're trying to come up with how we think we can sell that story better to the market. Avi, do you want to add anything to that?

I think precisely, it needs to -- we had [indiscernible] and largely happened. So I think at the appropriate time, we'll do that again and try and demonstrate what we're doing in the region to further unlock reserve and as will convert resource to reserve and grow both of those as well. But it only happens in time. But yes, there's the plan that we need to work on and then articulate to the market.

I think it's also fair to say that Nick's been trying to do that for a long time when he was showing the fact that we've grown the resource base over the last 8 years or so, 8 to 10 years. And the fact is we still got the same resource base not sustaining all the mining. So I think -- but we've just got to find -- I know Nick has been trying, and we've got to see how else we can try to get that value -- people to see the longer-term value of what is in the ground there. So I think the answer is we're working on it.

Very great. That is clear. And the second question is on the solar plant. Can you discuss if you can understate another project of this kind and say to increase self generated power further from the 20% that you guide by current project? The second part of this question is what are the operations, similar projects can be undertaken and when we could hear on the new [indiscernible].

Sorry, Nina, I missed your first part of the question. Could you repeat that for me, please?

Yes, sure. So the first part was on the solar plant in [indiscernible], can you discuss if you can undertake another project of the same kind in South Africa to increase self-generated power further? So you guided for 20% self sufficiency in the current project. Can you make more projects of that kind in SA?

So the first question is I think we first got to go, oh, this is going to be the biggest solar plant as far as my knowledge goes, certainly anywhere in the mining industry in South Africa. There's 120,000 solar panels that we're going to put in -- this is a massive plant. So it's certainly bigger than anything. I'll come to your second part of your question, I tell you where else we build plants. But it's certainly much, much bigger than anything we've done before. But once we've built the plant and once we're starting to save all of this money and we've proved that it -- I mean it's quite a simple concept, so we don't have a doubt that we'll get the savings. But I think we must first go and build that, develop the project and get the savings. And then I think we can look at going back, first of all, to -- the management team will have to come back to the executive to show that that's still the best place for the company to spend capital. But I think once you develop that, there's no stopping us. I mean, clearly, there will be regulatory approvals that we'll have to go through again. But I think once you've demonstrated the principle, there's no reason to believe why we couldn't do more. But at this point in time, we'd also have to couple that with probably some storage capacity, some batteries because then we'll be going over our baseload power. And that means anything that we generate at a particular point in time could be excess. And so we have to be able to store it and make it much more expensive. So there's some thoughts about that. But at the moment, I mean, we're just incredibly pleased that we've been able to get through the regulatory hurdles, being able to get the approvals and now get Board approval to go and build this. This is going to be a big game changer for Gold Fields, a big game changer -- a big game changer for South Deep. When we save 100,000 tonnes per year of CO2, that's going to be a positive story on so many fronts. But then at the same time, it's not Gold Fields first foray into renewables. So as you probably know, we've already built at Granny Smith and at Agnew in Australia, we have built a combination of renewable plants there. So for example, at Granny Smith, we have converted 24 megs of diesel to gas power, much, much lower carbon intensity. We've got 8 megawatt solar plant there and also some batteries. So there we're saving, that's about 10% of our electricity is coming from solar. But I think the really positive story comes from Agnew in Australia because the combination of 18 megawatts of gas, 4 megawatts of solar and 18 megawatts of wind, the combination meant that 67% of electricity of that mine is now coming from renewables. So it's a fantastic story. So we've already got 2. We've got 1 mine in Australia that's under construction, will be complete by the end of the year [indiscernible]. And that's for a 12-megawatt solar plant and then also an additional 4.4 megs of gas generation. So you can see that this is a journey that the company is on, a very successful journey, some fantastic runs on the board, so fantastic mines that have already been converted -- or not converted, but a substantial portion of the power generated by renewables. Now it's going to come South Deep. And the next question is for us that we've got studies underway is what happens at St Yves in Australia. And then also as low as Norte in Chile. So all across the group, ultimately, every operation will have renewables to some extent, and the extent to that we can push those renewables as a total percentage of the mine's power, that will be determined, of course, by both the success of the project and the funding of future projects.

And the last question is very detailed from my side. Can you speak a bit more about Granny Smith's performance in the first Q? Production was down about 15% from the previous quarter. What's the platform here? Can you discuss what happened in the first Q and how production can recover in the next quarters?

Okay. Paul, do you want to have a crack at that first, and then I'll follow if there's anything else there? Okay. I'm not sure if Paul is still on or if he's on mute.

Sorry, I think they had some mining issues in the first quarter, but they anticipate to make it up by the rest of the year. That's why the production was down.

No, guidance, [indiscernible] guidance was confirmed. Okay, that's helpful. That's it from side and pass the words to other analysts.

The next question we have is from [indiscernible] from [ Business Network ].

Chris, can you hear me?

I can hear you, Ed.

Great. Great. Yes. Congratulations also on your new position. I'm glad that you're settling in. Look, I just have a question badly related to South Deep. If South Deep is your only asset here now, but the Mining Charter, of course, the judicial review of the Mining Charter took place this week. And I'm just wondering, how much of issue is getting this stuff resolved from an investor perspective? Again, I know South Africa is a small part of your global production base now. But are there concerns around South Deep and these kind of charger issues?

I'll comment, and then I'll let Avishkar just -- you can -- feel free to add some to that, Avi. So look, until this issue is resolved in South Africa, it's still going to have some overhang over South Africa for sure. It's always going to look like regulatory certainty is a concern. But I think as we have said for many, many years, many different companies, that actually many of us have got 30 years' worth of rights and many of the companies have still got 20 or 25 years of those rights to go. So this is not -- the fact that Gold Fields has a 35% empowerment, that's been acknowledged by the regulator. So this is not an immediate concern issue or not -- for the next 20 years or so is not a concern for Gold Fields. I think it's more the overhang for South African mining in general, that is a concern. There is, of course, where there's still a lot of concern around this particular ones in powered ores and powered matter. It's not so much about the current life because the ministers already acknowledged that once empowered, always empowered applies for your current duration of your license. I think it's if there's change of control or the asset gets sold to someone else, I think it's under those conditions that having to re-empower operations or re-empower the company is a major concern to everyone. And there's a couple of other niggling issues, but I think generally that's it. So I think overall, still a negative overhang for us for as long as the thing is not resolved, it has a negative impact on just the mining industry in South Africa. Generally, actually the mine -- the Minerals Council and the mining companies in general have made good progress with the Minister over -- and the Department of Minerals and Energy over the last couple of years, 3, 4 years or so, so we have very much progress. And the thing is, actually, this is -- it sort of feels much more negative than the general regulatory environment in South Africa actually is. So I guess those would be my comments. The quicker this gets resolved, the better. But it's not an immediate threat to Gold Fields at all. Avishkar, do you want to add to that?

No, that's fine.

Yes. No, that's great to answer my question, Chris.

The next question we have is from Adrian Hammond from SBG Securities.

Chris, you have a couple of questions from me. First, on South Deep, I appreciate you just only looking at this asset now. But is this one of the something you would prepare to cash out to get it right? And it is 60% of group reserves. That's the risk to the business.

Adrian, I don't -- I haven't got a sense that we need to throw cash at it. I think over the years, the company has invested in South Deep and particularly invested through a number of iterations of mining methods. So it doesn't feel to me like it requires any material cash. I mean it does need ongoing sustaining capital, but it doesn't feel like we just took a big pot of money and throw it at South Deep, and that's going to change things overnight. So I don't get a sense that it needs material cash flow. That's my first impression. And is the reserve life a threat to Gold Fields? I wouldn't say so because our focus is not on just dividing the production by the total reserve, and they're coming up with a 20-year life of mine for the group. I think what we do is we look at each of the assets and we look at the regions. And if we, for example, let's say, we sold South Deep, that's not going to change anything in Ghana. It's not going to change anything in South America. It's not going to change anything in Australia. So no, I don't think that that's a threat to the company at all. Optically, it might look a bit different, but it's not a threat to the company now.

And then perhaps a cheeky question, if I may, around M&A. And I just like to hear if you prepared to comment on what was said about from Sabani Gold regarding potential consolidation with you and AngloGold. Is -- are you prepared to comment on that? And is that something the Board would ever consider? And have you been approached at all?

Yes. So Adrian, I mean we've seen the comments in the media that as has long been the discipline in the company, so we don't comment on speculation because it could mean anything. So we don't. I think we look at our current investment case. So if we don't comment on speculation, we say, well, actually, what is there for our own shareholders. And actually, we think that we've got a really fantastic investment case. It's compelling for our shareholders and also for any investor that's looking for exposure to high-quality and cash-generative gold businesses. There's a number of really good things that are in Gold Fields. I mean it is simple. It is pure-play gold. It's got, I think, fantastic geographical diversification in actually really good jurisdictions. It's got high-quality, low-cost operations. If you think about the strategy of the company over a number of years of moving away from labor-intensive conventional mining to focus on more mechanized open pit, mechanized underground operations that are safer and more productive, that has to the company very well over the last number of years. And then we've got great projects that are in the pipeline. And we've got a world-class project that's in the pipeline of Salares Norte. It's consuming quite a bit of cash for this year and next year. But after that, it's going to start pumping out cash. So I think that's a combination. So I think the question is, if any tie-ups I thought about, our shareholders will say, does this -- is that value accretive? And is that strategy accretive? So I'm not going to comment on those speculations. But I think we've got a great story for our own shareholders. And if we think -- I mean one of the very earlier questions is, if there's some negative issues about that, can we do something about it so our shareholders get the full value of Gold Fields. And as you've heard from us, those are the things that we're looking at. And then from our own strategy perspective, we're looking at what next is out there for us internally. Of course, it's always going to be the best value for shareholders is if you're driving value out of the existing business. And we'll be looking at what opportunities they're available. But we will be looking as to whether they are strategy and value accretive to us as we look at our own opportunity. So yes, I'm going to leave it like that, Adrian.

The last question we have is from Raj Ray from BMO Capital Markets.

Just 1 quick question from me. With respect to Peru and the [indiscernible] around the elections currently. We'll see who wins on June 6, but just wanted to get your thoughts on what you're hearing from the ground in terms of if the risk is related to future investments.

Avishkar, do want to comment on this one? I mean I've got some thoughts and happy to do that. Why don't you go ahead?

Yes, sure. I mean from team on the ground, there's still lots of uncertainty to who will win the election. But I think one of the important things that they're saying is for him to change or if the leftist [indiscernible] win, I think there is -- if you want to change the competition or change laws, I think it takes a lot of effort and a lot of times. I don't think it's something that we're immediately concerned about. I think the regulation -- to change the regulation will require a lot of efforts from their side. So it's not something we're particularly concerned about now. And although you need to go to Congress before you make any of those big changes. So yes, nothing sort of imminent, but it's something we're watching closely, of course.

And just one comment, Avi, to add to that. I mean our team on the ground say that he doesn't have that support in the Congress. So whilst you may be saying this in publicly to get elected, it will be much, much more difficult for him to be able to do this practically because he doesn't have that support in the Congress. Our team are watching it, as Avi says, but not overly concerned at the moment.

Okay. And then also at Cerro Corona, are there any licenses or permits that are up for renewal immediately? Or are they good for the life of the mine?

I don't know the answer to that question. Avi or Paul, have you guys got any more insights into that?

I'm not aware of any material permits that are required at the moment.

No. I think it's just the permits that are sort of required for the raising of the dam, [indiscernible] of the TFF. But those are more like admin related than major approvals.

That is our final question.

Okay. Well, then, well, thanks very much to all of you for your time and for your questions and look forward to engaging with you in future opportunities like this. Thanks very much. Thanks, guys. Cheers.

And if there are any follow-up questions, please get in touch with myself or Thomas, and we will get back to you as soon as possible. Thank you

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