Gold Fields Limited (GFI) Earnings Call Transcript & Summary

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

Thanks, Chris. Hi. Good afternoon and good morning to everyone who's on the call. Starting first with safety, we're really pleased again to report that we had no fatal incidents at our operations in the third quarter. However, we did report 3 serious injuries. If there's something positive to be taken about that is that the 3 serious injuries is actually quite low impact. They are 2 slips and fall and a dropped pipe on a foot. So it demonstrates that the severity of our injuries is decreasing, which is good to report. As we continue to strive for 0 harm, it's also pleasing to note that we have a number of operations, Tarkwa, Damang, Agnew, all of which have incurred no injuries during the whole year-to-date. We continued to feel the impact of COVID during the third quarter and regrettably lost 8 of our colleagues during the third wave at the very beginning of the third quarter. Our heartfelt condolences once again go out to the family, friends and colleagues of those that we've lost. We have accelerated our COVID-19 vaccinations amongst our workforce. We're collaborating closely with our host governments as we do so. In all of our regions except Ghana, where access to vaccinations have been limited, but also pleasingly, we're starting to see Ghana quite rapidly increasing its vaccination availability, all of our operations, other than as I mentioned Ghana, have now achieved a level of at least 80% first dosage. In the note, you would have seen that we showed that we were at 72%. Now we're over 80% of all the rest of the world operations with their first dose. On the production and cost fronts, Gold Fields had a solid September 2021 quarter, with attributable gold equivalent production for the third quarter of 606-kilo ounces, so that's 9% up year-on-year. Our all-in costs increased by 18% year-on-year to $1,263 an ounce, and that's largely due to the planned capital expenditure at Salares Norte, increasing from $23 -- $23 million in the third quarter of last year to $108 million in this quarter. Just to give you a sense that costs have been well managed the all-in cost has increased by 3% to $1,050 an ounce if the significant project CapEx at Salares and the strong exchange rates are -- if we exclude those. So on a like-for-like basis, you can see our all-in costs would have gone up by 3%. South Deep was a standout performer in this quarter. It's been a long time since we've been able to say that, with production at South Deep up 30% quarter-on-quarter and over 31% year-on-year to 88,000 kilo ounces at an all-in cost of ZAR 567,000 per kilogram or $1,208 an ounce. The group had a good financial performance in the third quarter, resulting in a further decrease in the net debt balance to $1,037 million, even after taking into account the interim dividend payment of $132 million in the third quarter. This resulted in a net debt-to-EBITDA of 0.44x. Turning now to our Salares Norte project. The critical path of the project remains on track, although the third quarter was again impacted by severe winter weather at the start of the quarter as well as ongoing COVID-19 constraints, both on and off site. Given these challenges, it's unlikely that the project will achieve what I previously guided of 65% completion milestone by the end of the year, but we should see completions of around about 62% by year-end. Very important to note and to reiterate that all of our critical path items are tracking to plan. In addition, more than 95% of our imported components have arrived in Chile, so the project is not expected to be delayed by shipping constraints that are currently being experienced globally. The project remains on track to deliver first gold by the end of the first quarter of 2023. So on our guidance, as we look ahead, we believe that we should still have a good fourth quarter, and our production and cost guidance remain unchanged. South Deep in particular is on track to meet its revised guidance, despite that we've planned critical maintenance on our shaft infrastructure and winders during the fourth quarter. I think is why we're highlighting this year [ capital ex ] the third quarter production into the fourth quarter is likely to overestimate our production guidance for the -- production for the year, just because we have about 28 days of work on the shaft infrastructure at winders that will impact our ability to hoist material out of South Deep. On the ESG front as we've previously highlighted, we're going to be coming back to the market in early December with our ESG priorities and targets. And hopefully, we'll have some of you on this call. And just to highlight some of on -- some of our ESG achievements, so progress we made during this last quarter: Construction of the solar plant at Gruyere is well underway. We are on track for completion in the first quarter of next year. We've also commenced construction of the solar plant at South Deep, and again, we should complete construction at the end of next year. We've had 2 important rating agency upgrades or updates. The rating agency MSCI upgraded our ESG rating or the ESG rating for Gold Fields from BBB to A for the first time. And we've also had rating agency, ISS, has assigned Gold Fields the top rating of E1 S1 G1. So some great progress being made on the ESG front. With that, I'll conclude my opening remarks. And both myself and Paul Schmidt, our CFO, and Avishkar Nagaser are on the line; and we're very happy to take any questions you may have. Thanks.

The first question is from -- sorry, my apologies. [Operator Instructions] Our first question is from Jared Hoover of Morgan Stanley.

A couple of questions from my side, please. And I think maybe I'll start with South Deep. Obviously, the asset had one of the best quarters in Gold Fields since 2006, obviously driven by the stoping volumes increasing, the better underground surface mix and therefore grade. But I'm trying to get a feel for whether this is a one-off. Has there been some sort of underground sweeping taking place? Or has there really been some sort of step change in productivity in the third quarter compared to maybe the last 4 years? And I know productivity has been on an upward trend. But it has, like, been a step change now into the third quarter. And maybe if you could quote some of the metrics that you put up in your recent Denver presentation, like tonnes per rig per month, et cetera, that would be quite handy. I'll leave it there for now and follow up with a few more.

Okay, yes. I don't think we -- well, I certainly don't have it at hand, Jared, any of those metrics for the third quarter. So we can certainly -- we can get back to you on that. I think why we shared some of those at the Denver conference was actually to be able to do exactly what you -- to address the kind of question that you've asked is to demonstrate that we are making huge progress on the underlying productivity measures in South Deep. That's been a trend that's been happening over the last 2 years since the big restructuring. Clearly, it was not that evident last year when we had quite a big impact on COVID. But if you exclude the COVID impact, you can absolutely see that increase in productivity trends over the last 2 years since the restructuring, as I mentioned, in 2018. So we will update some of the -- update those kinds of metrics when we report our final year -- year-end results in Feb, just to underpin the productivity improvement. And that's why we were able to say that we would continue to see the growth in production between 20% and 30% over the next 4 to 5 years. So we're absolutely on track to do that. Had it not been for the COVID impact in the first quarter of this year, we would have been very nicely on track to meet the 9 tonnes of gold that we guided. And other than that very small loss in the first quarter around COVID, we've been able to manage the COVID impact at South Deep and continue to increase those productivity measures. But even on the quarterly performances throughout the course of this year, we've seen quite big increases in production. I mean in the first quarter, we were just around about 60,000 ounces. Then we were almost 70,000 ounces, and now we're over 80,000 ounces. So we won't have the same final quarter but -- because of the maintenance. But other than that, we would have had another very, very strong quarter. So Jared, underlying performance around development, destress, productivity improvements, all of those are giving us the sense that the production's increasing. And that, you can see from the numbers in our quarterly reports that it's not just sweeping that have taken place. All of the metrics, development, destress, secondary support, backfill, all of those metrics are demonstrating improvements, which show it wasn't just a whole lot of the guys running around cleaning up sweepings. Thanks, Jared. And we certainly will update those productivity metrics when we report at the end of the year.

Great. That was quite confident. I guess maybe just one more before I move on to the other. I mean if I just extrapolate -- obviously, you mentioned you can't exactly predict your or 4Q. But assuming this is a steady state type of quarter when we don't have any interruptions, it almost seems like you're hitting your 3-year guidance right now. I mean I don't want to get ahead of the game, but is that how I should be thinking about it? Or are there still sort of tweaks and bits and bobs to come? Obviously, you have to progress over the next 2 to 3 years to hit that plus 20% to 30% up on South Deep production.

Yes. I think you mustn't get ahead of the stuff. I mean it's a great discussion to be had. For many, many years now, we've been concerned that we are over-promising and under-delivering. And now what you've -- for the first time in a long time, we've had a comment that's saying, "Well, aren't you under-promising?" But no, we generally -- I mean so you're right. I mean 2.8 tonnes of gold in the third quarter would get us in a range over 11 tonnes of gold. But we do have a slower quarter in the first half and we -- in the first quarter. And we generally have a slightly slower final quarter as well as we come sort of towards the end of the year with maintenance. So second and third quarters are generally better. So I think it's a little bit ahead of perhaps expectation to expect we'll be at 11 tonnes. And we'll give guidance in the first -- when we do our final year results, but we absolutely will see to have a step-up in production again next year.

Great. Then just moving to Damang, I think in the last -- in your interim results, you did have lower grades, and you alluded to that potentially being consistent. It looks like it's even stepped down now into the third quarter. And I'm just trying to get a feel for how we should be thinking about this to sort of end of life of mine at Damang. I mean at 1.5 grams, should I be extrapolating that, and therefore there's downside in 2022, '23, '24, et cetera? And if that is the case, do you think you can offset it with the other [ mines ] in the group?

Yes. So look, I mean what we're not going to be doing now in the third quarter is giving guidance for next year. We'll be doing that at the final year -- at the results presentation, the final presentation -- sorry, the year-end results presentation in February. So I'm not going to be giving guidance around that. But what I did do at the half year was saying that this year would be -- so it would be a step down on last year. We'll still have a fairly high year next year, but thereafter we are going to start seeing a decline at Damang as we contemplate whether we've got to any further cutbacks or whether we've got any potential to go underground. All of that work is happening now. You will see this year will be slightly lower than last year. Next year will be slightly lower than that again. We'll update all of those guidance at the beginning of next year. But yes, I mean Damang is sort of in the peak period of the cutback, and we are starting to decline. We will have still a big year next year, but also a decline on this year. Jared, I'll update you more comprehensively at -- in February next year.

Great, perfect. And I was hoping I can just squeeze one more in. I'm sure there's quite a few questions.

I think I'm going to start abusing you in a moment. So I'll take this final question, and I think we must give others a gap.

Yes, sure, sure. So just on admin, obviously you flagged labor shortages impacting productivity. But I just wanted to find out if there are any other issues, like mine constraints, that's also troubling you with movement of material? Because it is something that's been flagged by a lot of the Aussie-centric producers. And if those labor shortages do persist, do you have any plans on how to mitigate that into 2022? Should we be thinking like another 6% increase in wages? I'll leave it there.

Yes, I mean look, our Aussie team overall have been able -- I mean how they've been able to keep the production going, in the way they have with the labor shortages that we've had, has been nothing short of a miracle. I mean this is absolutely in the face of the labor shortages difficulties in Australia. I think the team have really done a fantastic job. The area that we've been most impacted is Agnew. It has impacted some of the other areas in Australia on things like development. The reality is until they open the borders to international labor and into labor from, like, the East Coast of Australia, we are going to be challenged. I mean all we hear from all of our peers in Australia on the West Coast that in Western Australia, that everyone's struggling with labor. I think our expectation is that early on in the new year, we're going to start seeing some increases. Western Australia, because they've had such success in the sort of border closures that had much less COVID impact, but because of that, they've also had lower vaccination uptake. Now that they've introduced some of these mandatory vaccinations for fly-in, fly-out the site, we are seeing now quite rapid increases in the vaccinations in Western Australia. And so we think early on in next year, we should see the borders start opening. I think we're still going to face some difficulties next year with higher labor inflation than the inflation rate in Australia. I think it absolutely is going to impact us. Everyone's fighting to keep their labor. So yes, I think we're likely to see some increasing costs. But most importantly is can we keep all of our people and can we get back the shortages, in particular amongst the contractors? I think that's where our big challenge lies. And I think we should start seeing, during the course of the first half of next year, some of that normalizing. I think we could still have a tough first half of next year. I think for us, the fact that we've been able to keep our guidance and stay on track has just been remarkable from the Australian team.

[Operator Instructions] The next question is from Raj Ray of BMO Capital Markets.

Congrats on the quarter. Good to see the company continuing to delivering -- to deliver on their guidance. Just a couple of questions from me, first up on Damang I just want to follow up. So you mentioned in the Q3 there was -- you could not access the bottom of the pit. So should we expect a strong pickup in Gruyere then in Q4 at Damang?

No, we're not going to see a pickup in grades at Damang in the fourth quarter. No is the answer, Raj.

Okay. So that kind of moves over to the next year, is it?

No, I think we are seeing just a generally a lower grade than we had anticipated at this time. I think if you -- one of the things I did say when we did the presentation at Denver is actually if you look at the overall volume of ounces that we produced from the cutback has actually been in line with what we said we would. We had some slightly higher grades in the beginning, and we are definitely seeing as to the bottom portion of the pit. We just -- generally, it was much more difficult to get the kind of precision that we would clearly would have liked. We are just seeing lower grades than anticipated in the bottom part of the pit.

Okay. And then just a follow-up -- quick follow-up on South Deep, can you guide us what the percentage of the ore you are starting to draw from -- or you're drawing from the North of Wrench versus the current line currently?

I don't have that number with me. Avi, do you have that number available? And if not, we can get back to them -- to you, Raj.

Yes, I'll come back to you.

Okay. Okay. And then -- okay, no worries. And then lastly on Salares, you mentioned that all the critical path items remains on track, still targeting Q1 '23 for first production. I know it's almost a year and a bit out. But is there any risks you foresee in terms of the ramp-up subsequently, whether it's having all the equipment and machinery in place, whether it's skill availability, or just stripping and the grade control drilling you have been doing, anything that is of concern to you at this point?

No, I think always one of the things here, Raj, is that there was some concern about whether we're going to have enough ore ahead of the plant and whether the stripping would be in place. I think one of the positives, even under these very, very difficult circumstances that the project team are facing, is the fact that the mining is ahead of plan. So our -- we're not concerned from a mining point of view. We are recruiting people and training them as we speak. That's currently not expected to be an issue. But I think in this coming year, I think we're going to get a much better feel for that. But at this point in time, we're not worried about the ramp-up. I mean we're currently scheduled to start production in April of next year, and currently that's still the case. But at the moment, I can say that with the major projects in South America, the majority of the project -- well, all the projects that I've seen, bar our project is way behind plan because of the impact of COVID. We are really struggling, everybody, to get the right level of people on to sites. And in particular with our construction, various construction subcontractors, that has certainly been the case. But what we have been able to do is make sure that -- and pretty much everyone is short of labor. What we've been able to do is direct our labor on to the critical path and move some of the noncritical path items past, which is why we've got less capital spend this year that we had anticipated and more into next year. Look, you can't do that forever. And eventually, some of those other items will be also on the critical path. So we've got all sorts of remedial action underway to try get more people, get more contractors; split up some of the work that we've given to some of the larger contractors, to contractors that are finishing off some of their smaller projects, so things like that. We're putting in place retention measures for our people to make sure they don't end up with someone who's paying a few dollars extra next door, but it is with the current impacts on projects in general across the world, but in particular in South America, has been massive. Again, I think our team have done really well. And at this point in time, mining is ahead of plan. Exploration is ahead of plan. We were ahead of plan, which I think have helped us in the second quarter and third quarter. But where we were ahead of plan, we lost in the second quarter. Now we're a little bit behind plan overall because of the third quarter. But it's in the summer months now, so we don't have the kind of winter effects. We are seeing less effect from COVID, but we are not at full complement anywhere, either in the production of items at off-site or even on-site. So we're having to manage it in very difficult circumstances. But at the moment, we're still positive. And we're not just hoping that, that will all get better. We put a whole lot of mitigation measures in place to be able to increase the tempo during the summer months, so that as we go into the winter months, having learned what we've learned now during this winter -- although next year, we will be in a very different phase of the construction. We won't be so exposed to the winter. We are still hoping to increase the tempo. And we have very pleasingly seen, in the last 2 months now, a change in the rate of construction. So I think that gives us some positive feeling. And I think overall, the team is doing well, and we're managing the difficult situation. And I think very, very importantly, the point I mentioned that the majority of the seaborne material is in Chile. So we're not getting impacted by the shipping constraints at the moment, which is -- I think puts our project very different -- in a very different league to many other projects that are being impacted, not only by COVID but now also by shipping. Ours is in a very different space. So quite a long answer because I wanted to just give a sense of the work that we're doing to be able to maintain this focus on the critical path and maintain the overall schedule. But at this point in time, we're still on track for the first quarter. And hopefully if it doesn't get too much worse from COVID -- the difficult thing about COVID is we don't know what happens in the following ways. But at this point in time, we're still in good shape, thanks.

The next question is from Tanya Jakusconek of Scotia.

Can you hear me?

We can hear you fine. Thanks, Tanya.

Okay, great. So Chris, I just wanted to come back, I appreciate that you're going to give guidance for 2022 next year. But can you talk a little bit about how directionally we should think about your cost and capital with inflationary pressures? So can we talk a little bit about what you're seeing inflation-wise, percentage-wise in your cost and capital?

Yes. And certainly, Paul, feel free to come in on the back of this. Look, we are -- we're doing our business plans as we speak, as you can imagine. We are absolutely seeing higher-than-normal inflation. So the mining inflation is higher in Australia, in South Africa, in Ghana, in South America. So I think you could expect above our basket of inflation, a few percentage points above that. And we will give further guidance. I don't want to do too much more than that because otherwise, the rest of the market won't have the same information. But I think what we've been seeing this year is a little -- a few percentage points above normal inflation is what we're likely to see for the group next year.

Okay. And given inflation, it just varies in different parts of the world, most mine operators are seeing between 3% and 6% cost increases. Would you be in that range overall for Gold Fields?

Yes.

Yes, we are except South Africa, which will be higher because we have Eskom, which should be kind of tracking a 15% increase. So yes, I think you're spot on with the rest of the group in between the 3% and 6%. South Africa closer to 10% because of the pool from Eskom. So yes, you're right.

Okay. Okay, so that's helpful. And is there anything beyond the normal labor you mentioned in Australia? Energy consumables, freight, is there anything else that you are seeing inflation-wise beyond those components that I should be aware of?

No, that sums it up. I mean obviously, fuel. Fuel, even backing around $8. But yes, it's the basket of consumables, your cyanide, your copper, your [ silver ]. Gas is linked too, unfortunately, it's also linked to fuel prices. But yes, you've summed it up. There's nothing else that's abnormal. It's our consumable basket, wages and then fuel that's got the big impact.

Okay. And then as I look at your reserves and resources for year-end 2021, maybe, Chris, you can talk a little bit about whether you think you're going to see reserve replacement at your operations this year? And your resources potentially, are they growing?

Too early for us to say that, Tanya. It's certainly too early to give an indication. Again, if I do that now, I will have to go back and advise the market, so we will be out in the normal time early next year. But I can say we're doing all the normal things that we have always done. We haven't cut, for example, exploration anywhere. So you're unlikely to see any big difference from what we normally do. Perhaps that's the best way I can explain. We haven't done anything that should materially change We haven't doubled the amount of exploration, but neither have we cut our exploration costs.

Okay. And maybe, Chris, like, you've had a chance, I think, now with South Africa opening up to visit some of the operations, some of your operations. Maybe you can talk a little bit about the ones you've actually got to and sort of your impressions. I mean looking at things on video and on paper is different than actually being at mine sites.

Yes. So actually, I haven't been able to get to any of the other sites. Chile is just starting to open up. Australia is firmly shut down. And at Ghana, we've just been able to get out there. But with very low vaccination rates, we decided to take a slightly more cautious approach. And yes, I'm hoping to get out to Ghana before the end of the year, but now, actually, things have are only recently starting to open up for travel. And they're not open in -- and they're not open yet in Australia. So yes, I haven't actually. And I've got plans to -- in the very near future, to start. But hopefully the next time we talk, we can start -- I can start giving you more than just the video view.

Yes, yes. And maybe when you come out with your guidance in, I guess, early 2022, are we thinking that it would just be a 1-year guidance for 2022? Or are you thinking of providing, like your peers, longer term? I know you've supported having a higher production level longer term. You've given us a base. But more details, let's say, in the first 3 years, how are you envisioning that? Because this will be your first time giving official guidance.

Yes. I mean we know that this is a particular bugbear of yours, Tanya, and we've been taking that to account. But let's see what we're able to do. I think it's a bit soon to expect us to go from sort of our 1-year guidance to a much longer guidance. In some areas, we may be able to give a little bit more guidance. But in other areas, I think the way the group is set up and the nature of our assets is that we're likely to probably to disappoint some of your expectation that we'll give much longer guidance. But let's see what we do in February next year.

Okay, no disappointment, Chris. My expectations have been low for most of the results. No worries.

Great. Thanks, Tanya.

Next question is from Catherine Joint of Columbia Threadneedle Investments.

My first question is on Salares Norte. You gave some very good insight into how it's been going and the various delays. And given the various mitigation measures that you mentioned, has there been an increase in costs, which has sort of led to an increase in CapEx overall? Or is CapEx still on track as originally planned?

Yes, it's a great question. Thanks, Catherine. The answer is we're not expecting any capital increase. I think up to now, we have been very disciplined around using any contingency. But I think the expectation is that we're going to be using more of our contingency to deal with some of these issues. And actually, fortunately, that's what contingency's for, not for big scope changes. And because of the amount of engineering design upfront, we've had very little scope change. And that has meant that contingency can be used for proper contingency management. And so the expectation is that, yes we will be using contingency, but not -- our project capital is not anticipated to change our forecast.

Chris, if I can just add, I just want to remind everybody. When we announced the project, we talked of a contingency of around 90 million. And I've also explained to the market, we put the hedge in place, which is used as a cost count. And to date, the hedge has paid out close to $40 million. So we as Chris said, we haven't really dipped big into the contingency. Plus I've got, to date, the $40 million that's actually aiding the bank account from the hedge. So I think -- the $860 million that we guided is still -- it's achievable definitely, and maybe a little bit less than that by the end of the project.

Okay. Great. And how much of that CapEx is left to come through? Is the $860 million left, or is that the total?

Did you get the question, Paul?

I think, Chris -- there's about -- yes, there's about $50 million left. I think Chris, I'm just trying to think what we got left in the plan. I think it's circa $350 million for next year and 2023 that's left to go, if I can give it to you in years.

Yes, perfect, okay. And then just one more question for me. In terms of the ESG progress, I understand, there will be a lot more detail in December. But you mentioned the construction of the solar plants at Gruyere and South Deep that are going to be finished. In terms of how much of a reduction in cost that's going to make eventually, is it -- particularly South Deep there to sort of reduce the impact of Eskom. And what sort of percentage of energy will the solar plants provide?

So yes, South Deep is absolutely going to reduce energy cost, so about 20% of the -- of our cost. About 20% of our electricity will be solar. And of that, about 1/3 -- it will be about 1/3 of the cost. So it's 1/3 of 20% of our power. So 2/3 of 20% of our power. And power is about just over I think 10% of our cost. Is that right, Paul? So you can work out what the cost reduction in the first year will be.

Yes, correct.

Great. And that's similar to Gruyere as well? Or is that...

No, so Gruyere -- No. Gruyere is not going to be -- we are not funding the capital. So in the -- so we have a service provider. So we have a power purchase agreement. So we have very little -- so we do have about a 10% reduction in the power cost overall, over the life that we the power purchase agreement in, which I think is about 10 years. We can just confirm that, but it's about 10 years. And then the power -- and then the cost reduces materially over that. And that's exactly the same principle that we've applied at both Agnew and Granny's. So we have a small reduction in cost because of the power purchase agreement. The one is a 10-year life, the one is a 15-year life. And once we've done that, then we have a massive reduction in the power cost because we own -- we then paid off the cost of the power purchase agreement. And then we own the infrastructure and the cost is only a little bit of operating cost. But that's different at South Deep, where we chose to invest rather all the capital ourselves. So we don't have capital at Gruyere, but we do have ZAR 616 million worth of capital that we are investing, and we'll have a 5-year payback on that capital.

Sorry, if I can just add to the capital. It's $350 million next year and circa $100 million in 2023 for Salares. So it's about $450 million that's left. Sorry, I just gave you the first year's numbers. It's about $450 million left.

The next question is from René Hochreiter of NOAH Capital Markets.

Chris and Paul, can you hear me?

We can hear you fine. Thanks, René.

Chris, well done on your first, 6 months is it, in Gold Fields? I see that 5-year projects are in the lowermost cost curve quartile. And then the other 4 are in the lower half, which is great going. My question is Asanko at $1,500 an ounce AISC. What is the chance of getting it into the lower half part of the curve, which is below $1,250 an ounce? And what's the chance of keeping South Deep at around about $1,200 an ounce?

Tough -- those are tough questions, René, thanks. Look, we are very focused on the costs. We know that Asanko, in its current format, is not delivering on expectations from either Gold Fields or our partners, Galiano. Actually, incidentally, this morning, Paul and myself and a big team from all over the world were reviewing some of the future of Asanko and we are thinking about what the opportunities are. And again clearly, we're going to be discussing all those opportunities with our partner. But for now, I think it's likely that, that's going to be still a high-cost asset. That's just a fact. And whether or not in the long term, we can materially change that, I think that's work in progress. But for now that -- we're not going to, in a very short term, see a big change around on that. So that's just unfortunately is the case. There is much more longer-term potential there. And so we have to think, René, about how can we get to the longer-term potential, and what's the pathway to get there. And that is absolutely work in progress and something that I know our partners are very focused on and us as well. And hopefully, we can bring some of our expertise to bear because we -- as you know, we're not the operator there. Yes, so that's, I think, a long answer to say it's high cost now. We know it. We're not happy with it. There is a potential pathway to make it a much better operation. And how can we execute that pathway over the next few years, it's not going to be quick. And it's still going to be a high-cost asset. South Deep, we've had a fantastic quarter. And I think some of the questions from Jared saying, look, are we -- is that sustainable, that run rate yet? I think it's not yet an annualized sustainable run rate. There's still a pathway to get there. I think a sustainable $1,200 is probably where we're going to be at the end of the full 5-year journey. So I think we've had a fantastic quarter, but it's not sustainable yet to $1,200. But that's certainly our plan. I mean our plan is to get South Deep into that region of above $1,200. And if we can do that, it's 4, 5 years' time with the kind of volumes that we're expecting. And that 20% to 30% up from where we'll be this year, I think then, South Deep is going to make some -- is going to make good money. And it'll compete with -- certainly anyone in our portfolio, and it will compete with global mechanized mining assets and it's going to make some good money for us, not quite yet sustainable at $1,200, René. And that'll get us when we get the end of our 20% to 30% volume uplift on the 9 tonnes of gold. That would have been normalized for this year had it not been for COVID. So that's how we sort of explained it to say, look, we said 8.7. And we hope that, but we've maintained our guidance at 8.7. We're hoping to be a bit better than that. Normalized for COVID, we would have been 9 tonnes for this year, 20% to 30% up on that over the next 4 to 5 years. I think it's a fairly conservative sort of appropriate way of thinking about South Deep. But we're pushing hard and are not giving up on doing better than that. When we get there, then we'll be at about $1,200 which is the way we think about the opening costs for South Deep.

René, can I just add one caveat there? You've got to make assumptions on the rand. If the rand at ZAR 14, ZAR 15, I think Chris is right. If the rand went to ZAR 17, then $1,200 becomes easier. But the converse applies as well. If the rand strengthens, it goes. 1.5 years ago, we were ZAR 18, and we weren't far off from $1,200. We're actually dipping. I mean, all of a sudden, we scream out when the rand went from ZAR 13 to ZAR 15. But you've got to also look at the rand costs and make your assumptions on the dollar exchange rate because I can't control that so -- and I can go look great because of the exchange rate, and I can look terrible. We've got to try and control the rand costs at around ZAR 700 approximately. That's what we've got to focus on because that's all we can control. I can't control the exchange rate.

Sure. No, understood. But don't you think that where you are now at with South Deep is like a really nice optimum production level? And trying to push it higher might actually be counterproductive?

No. I think that because what we're not doing is what we're not doing, Rene, is throwing money and labor to try to get extra volume. We are focusing on efficiency improvements. There will be some labor increases, but we definitely not -- we don't have a number in mind that we then screw up the value by chasing a number. But we do think that getting close to sort of 350,000, 360,000 ounces with product -- with big focus on productivity improvements is not out of the ordinary and something that we think we can do. I think some of the earlier numbers of trying to get to 15 kilos -- 15 tonnes of gold, I think some of that was doing what you're afraid that we might do. So no, I think we're not -- at the expense of value, we are not chasing volume.

The next question is from Dominic O'Kane of JPMorgan.

I had 2 quick questions. The first is on Chile. In the past, you very advantageously hedged the currency, as you mentioned. Given the recent weakness, are you likely to potentially hedge more of the pay zone? And then my second question, again back to South Deep. So South Deep evidently has been beneficiary in Q3 of your lack of international travel and has had a very, very good quarter. In the past you -- well, in the past Gold Fields have mentioned you would kind of reexamine the ownership structure once South Deep becomes foreseen. Could you just maybe comment on how you're thinking about the value opportunity of South Deep? What's the best way to realize value in South Deep?

Can I ask a Salares question? No, because it actually works the other way around. We hedged because we had to curb the cost of stuff coming in. Once we go into production, if the peso is weaker, it's to our advantage. Because remember, we will be realizing the price in the pesos. So no, this was to offset the capital cost that we didn't get caught on that side. So now, once this hedge is completed, and we expect the Chilean peso to weaken and we've seen it going from -- it was probably the 730s to over CLP 800 where we are now. Once you go into production, if it goes to CLP 1,000, it's to our benefit. It's the same as I said earlier. A weaker rand helps us, technically, to realize gold price in the country we operate. Same in Chile, a weaker peso will help us on the realized because our capital will be spent by there.

Thanks. And Dominic, I have -- at the interim results, I did give my view on the ownership of South Deep. Our view is that we can turn around South Deep. Our view is that we can deliver and make a lot more money for our shareholders, us being the owners, than if we try to sell it. And our view is that we should retain South Deep. And our view is that it can absolutely be a franchise asset within Gold Fields. So we have decided that we would retain South Deep. Our focus is on not distracting the team with are we going to sell you? Are we going to do this? And let's just get the team to feel that they belong in Gold Fields and that they must deliver. But then they're like any other asset. They're like any mine. If they don't make money and they don't deliver, then they'll be on the chopping block. So I think what we want to try and do with South Deep is let them perform as a normal mine. The expectations are if you deliver, if you make money, then you've got a home in the company. If you don't, then you don't have a home. So -- and at the moment, the team are really coming to the party. I can't tell you that it's certainly -- you flatter me, Dominic, by saying that because I'm not traveling, that I made a big difference. It hasn't been me at all. It's been the team under Martin's leadership, under Ben's leadership. The team are really focused. They're focused on all the right things about -- and not chasing today's volume, but by putting in place all the practices that'll deliver sustainable volume growth going forward. So I thank Martin and Ben for -- and the team at South Deep. We have, over the last number of years, materially improved the bench strength of the leadership there. I think the capability that we've got there has built on the work that's gone before. I think we've got a mining method that's in good shape. It may not be the final mining method as we learn. Each time we learn and we make some changes, we're in a better shape than we were before. And we learn and memory makes -- the changes that we're making are much smaller tweaks. I think we're learning how to mine and mechanized mining layout at depth. We still got lots to go. The productivity of the labor force there is certainly not where we expected, but certainly it hasn't been my work, Dominic. It's been the team at South Deep, and they've done a great job. And our view is that we will retain that asset. It forms part of our portfolio. But like any asset, it's never forever. But for now we will own South Deep, and we'll make money for our shareholders by being the owner and operator.

Does that answer all your questions, Dominic?

All good.

Thank you very much. Sir, then so we have no further questions in the queue. Would you like to make some closing comments?

Yes, I think for closing comments, we've had a very good quarter. I think it's been a solid quarter. We know that traditionally it's our strongest quarter. We still should have a good quarter. Things are looking good so far this quarter. And I think very importantly, we can say is that our -- that we are absolutely focused on the cost. Our current cost is not out of control. And it's because we're spending on one of the best mining projects in the world at the moment, which absolutely is going to be to the benefit of Gold Fields and its shareholders. We have -- our guidance remains intact. Safety, ESG, all making good progress. So I think overall, we remain very nicely focused on delivering value, And that should start coming through into our share price. So we're working very hard on that as well, and our existing shareholders should get the benefit of that. So yes, those are my closing comments. I think all things are pointing in the direction that we said they would. Thanks.

Thank you very much, sir. Ladies and gentlemen, that then concludes this conference call, and you may now disconnect your lines.