Gold Fields Limited (GFI) Earnings Call Transcript & Summary

Good afternoon and welcome to the Gold Fields Full Year 2022 Results Presentation. I am joined by Paul Schmidt, our CFO, and we'll be taking you through the pack. Maybe before we transition, something we're really proud in Gold Fields is the picture in front of you, and it's 101,000 reasons why to believe in renewable energy at our South Deep mine. Avishkar, if we could just progress. I just like to draw your attention to the forward-looking statements and ask you to take note of those. Thanks, Avishkar. The focus today, just the agenda, and I don't want to go through it point by point any of agenda. But we ended the year a bit of around safety and ESG, and we'll deal with the conclusions at the end. I think in terms of Gold Fields there is a value proposition. I think what's important is that we've got a very clear defined purpose and vision, and importantly a strategy that has been set us in place, supported by management, and the Board and we on track delivering that. Importantly, we've got a good track record of delivering and meeting production and cost guidance and we've done that again this year. In terms of capital, a strong balance sheet, and we've ended the year with a net debt to EBIT ratio of 0.29. And importantly this year going forward, we've committed to dividends of between 30% and 45% of normalized earnings. Of course, we continue to invest in our sustaining capital. We think that's an important part of our DNA. That helps us maintain this strong performance. And then, importantly, the question about the future. We've got a leading near term production growth, both with Salares Norte coming on track, which will give us close to a 0.5 million ounces in the short term, ramping up to 600,000 ounces per annum. And in South Deep on its continued growth trajectory up towards 380,000 ounces. In terms of opportunities going forward. We certainly -- we need to look at inorganic opportunities. And our focus going forward is going to be rather on incremental growth in our regions rather than big transformational transactions. Thank you. And we've lost the slides. So I think just some key salient features from our results. Unfortunately, we've had to report one fatality at our Hamlet mine at St Ives in Australia. And we are very saddened by the loss of our colleague, and we'll use this as an opportunity to learn from, but also to reinforce our safety activities. Positively the South Deep gold mine in South Africa, for the first time since Gold Fields has owned it, has gone through a full calendar year without a fatal incident. We've commissioned both these solar projects at Gruyere in South Deep this year, year-on-year 3% increase in attributable gold production and adjusted free cash flow of $431 million, albeit that are costs up 2% year-on-year. Our balance sheet stays in a very strong place with a net decrease of $265 million of net debt, despite paying dividends and the Salares Norte capital. Importantly, for all our shareholders, we are declaring a final dividend of ZAR 4.45 a share bringing our total ZAR 4.45 a share of -- my apologies -- taking a total dividend declared for the year to ZAR 7.45 a share. That's a payout of 47% of normalized earnings. And it's important to note that we felt it was only right to share some of the proceeds from the Yamana break fee with our shareholders and we've put $100 million of that fee into this -- into this dividend this year. Management changes, Kelly Carter is from our Australasia region, who was the group -- the Regional Head of Legal and Compliance, has been offered the position and accepted the position as Group Head of Legal and Compliance and the recruitment for the remaining executives is at an advanced stage. Some -- not so good news is that Salares Norte, we plan to commence initial production now in quarter 4 this year. The project has been impacted by some delays related to skills, weather and the lingering effects of COVID. I think the key message on this slide is that we've landed our full year production and cost guidance again. Just the company at a snapshot, and I'll just focus in the top right-hand block. But 9 producing mines, the 1 project in Salares Norte in Chile, operating in 5 countries. Our production for last year, just short of 2.4 million ounces, growth of 3% year-on-year. All-in cost at $1,320, just up 1%. Free cash flow from operations, a strong operational performance at $855 million, marginally down, impacted by inflation and a slightly softer gold price and then the adjusted figure, which I spoke about on the previous slide. If we go to the pie graph in the bottom left corner, it's important to note that Australia makes up over 50% of our revenue or cash -- mine cash flows and 44% of our production. So they are a really important part of our business, and we need to nurture and look after them. We can go to our ESG performance for the year. And I'm not going to talk about the targets. We know what those are. We've spoken about the one fatality that we've had, less undesirable for us. 5 serious injuries for the year. We're well on track with our gender representation now sitting at 23% and on track for the year. Stakeholder value creation, the team has done really well sitting at 27%. And then importantly, at the bottom left, with decarbonization. In terms of our net emissions increase, it's gone up 1%, in line with our plans as we're growing and getting deeper. We've seen an 18% absolute emission reduction of the 2016 base. And it would be important to note that last year, just shy of 14% of our electrical consumption across the globe was made up of renewables. We're well on track with compliance to tailings management standards, GISTM. And in water, we're well on track. The teams in the operations have done great work. Just to touch on our decarbonization journey. I've spoken about the South Deep and Gruyere solar plant being commissioned this year. Cerro Corona is on 100% of hydroelectrical power. And this year, we've commenced the work to develop the feasibility around the St Ives micro grid in Australia. Public consultations have been held, and it's planned for Board approval in the back end of this year. Concept study work is underway with our Salares Norte project. I think importantly, we don't rate ourselves without some third-party judgment of what we're doing. And so this is just some detail around the transparency of our disclosure and peer benchmarking, I think that helps us ensure that we remain on the right track and there's lots of positive recognition, and I think gives us assurance that we're doing the right things in this space. In terms of our operations. We've had strong operational performance across the group and importantly, met both production and cost guidance. We've seen that 3% growth in production. We've also seen some pressure come on to our all-in costs and largely as a result of inflation, which Paul will talk to a little bit later. But we've got attractive production growth going towards 2024. Thank you, Avi. In terms of Australia, as I said earlier, the mainstay of our business, they've again seen a 4% increase in production year-on-year. They've kept their costs flat, helped a little bit by exchange rate. And very importantly, from an Australia point of view, reserves that were mined in the year were replaced post depletion, which is a positive story for us and just reaffirms our belief in that asset. In South Africa, again, great performance from the team out at South Deep. They've seen a 12% year-on-year growth in production. The exchange rate has helped them with their cost in dollar terms, seeing a 2% decline. Very importantly, $129 million of free cash generated there. And that's the fourth year in a row that the South Deep team had generated positive cash flows. We're on track with the buildup to 380,000 ounces. Importantly, as we look at flexibility at South Deep, the South of Wrench study work is well underway, and initial development towards the South of Wrench will commence this year. The team at South Deep have also been fortunate that they've managed to conclude a 2-year extension to the current 3-year wage agreement, which will give us labor stability until 2026, which both looks after the employees' interests, but also after our interests. If we look at just some of the productivity trends which you've seen before, I'll go back to the longhole stoping drill rig performance at the end. But we continue to see positive trends in the right direction with gold produced with development and destress rig performance, which is what unlocks the stopes and generates the reserves for us. I've touched on the free cash flow generation, both depicted on this graph in dollars and in rands, and something the team at South Deep are really proud of. If we look at the longhole stoping tonnes per rig per month, there's been slight regression. That's just linked to mine layout. As we go on with the buildup plan, we've been forced to introduce an additional longhole stoping drill rig during the course of the year. That is not fully optimized yet. But as we increase stoping volumes in the coming years, that will come back as the drill rigs gets properly utilized. In Ghana, again, great -- team has performed really well there. We've seen a marginal decline in production as the main pit at Damang has reached the end of its life. We're now mining in the Huni pit, which is a satellite pit and treating dumps. The costs have gone up by 10% year-on-year, impacted quite severely by inflation and obviously, the reduced volume, but still have strong cash flow generation from the region. We remain in discussions with the government regarding tax issues. Tarkwa, we believe, remains a cornerstone asset for our business. And the team in Ghana are busy with studies, how we can further optimize that asset. During the course of this year, we plan to land a way forward with both Damang and Asanko, and we will update the market when we're ready. In the Americas, in Peru, we've seen a material improvement in production with a 5% increase in output linked to a decrease in all-in costs, which we're pleased about. Still strong cash flow generation of $76 million, and the team there are looking at how do we optimize -- further optimize the asset as it approaches it's getting a bit aged now. And I think very pleasingly, from a Peru perspective, the mine hasn't been affected by the social unrest in Peru, which is largely limited to the southern part of Peru. But I think also a testament to the great work that our teams on the ground do in terms of our social interactions and social responsibilities that we have a healthy and respectful relationship with our communities there. If I can hand over to Paul to deal with the financials. Just push up here.

Thanks, Martin. Good afternoon to everybody. I think the highlights page, normalized earnings $860 million for the year. The rest of the numbers all positive, good numbers, but they've got slides coming down. I suppose the only negative for the year was the impairments we had in Ghana and Peru, mainly driven by increase in the discount rates, again, due to increasing the risk free rate as well as country risk premiums. I just want to emphasize that the rates that we used for impairments, the circa 9% for Peru and 16% for Ghana do not reflect the investment rate. The investment hurdles we need -- we use in Gold Fields, they are the rates we have to use for accounting purposes. I suppose this page is one of the highlights for Gold Fields. I think we won a few gold mining companies who managed to meet our all-in cost guidance for the year, $1,320, 2% up year-on-year despite us facing circa 11% inflation during the year. Even if we normalize for exchange rate, we ended up at $1,381 million right at the bottom end of our all-in cost guidance. If we look at our cash flow, operations made $855 million. I just want to emphasize what Martin said, $129 million from South Deep. If we go back 4 or 5 years ago, who would have dreamed that this is the kind of money South Deep would be generating for the group. Adjusted free cash flow, $431 million. This excludes the net proceeds from Yamana of $127 million. At the back of this presentation, there is a recon slide explaining how we get to the $127 million. If we look at the balance sheet, net debt down to $704 million, over $200 million down year-on-year. My net debt to EBITDA, 0.29x, down from 0.4x at the end of last year. And I think this is really the highlight for us. It's ZAR 4.45 final dividend, giving us a total of ZAR 7.45 for the year. If we look at an average share price of just over ZAR 170 for 2022. This gives us a dividend yield of 4.3%, I think is one of the best in the industry.

Thanks, Paul. If we look at Salares, and I'd like to stay on the picture of our good. We have a mine built there. We have announced today that we envisage that first production will move into quarter 4 this year. It however, remains a great asset. It's a high-grade, low-cost producer. We've suffered some setbacks related to the skill shortage in the country. On the back -- during COVID, a lot of projects were put on suspension in that region, and they've ramped up making the battle for skills quite tight. We've had a fairly severe winter again. And for those of you who are interested, I was up there in December just before Christmas. One of the things I learned that the average temperature for the full year is 0 degrees up there. So the winters are particularly severe. And at the stage of construction where the teams were working outside before we've got all the buildings done and trying to do lifting operations in blizzards just makes it really difficult. We -- the mine is well designed, commissionings in progress in line -- in parallel with the remaining construction. And that, we believe, will go some way to mitigate commissioning challenges late in the year. So if we look at the total project, sitting at -- if you go back one, please Avi -- sitting at 87%. We've spent $758 million CapEx, of which $286 million was spent last year. I've touched on the weather and the skills. Overall construction progress at 86%. The plant at 77%. And I think importantly, and this is, to me a highlight, is that despite we're struggling with a little bit with the construction, there's a mine in place. We've already mined just shy of 51 million tonnes of waste, primarily from Brecha Principal and ahead of the mine plan. The first ore, we struck first ore in Brecha Principal in October 2022. And to date, we already have 422,000 tonnes of ore on stockpile containing just shy of 80,000 ounces of gold sitting on that stockpile. So as the plant comes on stream, we've got a lot of ore ready to go in. We continue to explore last year during just shy of 19 kilometers into the ground, spending $32 million. And that's certainly, in our mind, is a real opportunity if we can add on to the life of this great asset. Thanks, Avi. So these are the big numbers. And I think this just explains, and Paul will talk to the bottom half of the slide around what a good asset this is. But we envisage first production in quarter 4 this year. We're guiding between 15,000 and 35,000 ounces for this year, next year up to 500,000 ounces and then back to the original guidance of 600,000 ounces from 2025 onwards. Average production for the 6 years from '24 to '29, we envisage 500,000 ounces and then '24 to '33, so over the life of the mine, 355,000 ounces. That is not new. It's largely aligned with the original design and scheduling of the mine. Project capital is escalated to just over $1 billion. And Paul has got a recon in the pack which we'll talk to that. As I said earlier, we're still committed to this low-cost, high-grade asset. We look at our all-in cost for the first 6 years, still forecasting $660 per equivalent ounce. And then for the full life of project up to $745 per equivalent ounce. Paul, if you want to talk to the bottom of half?

Yes. I think these last 3 lines on this slide was just almost a reality check for us as to what is Salares still worth to Gold Fields. Going back to February '20, when we announced the project at a $1,300 gold price, 7.5% discount rate. We had an NPV of $620 million. We ran it again now in January. All capital sunk up until the end of last year. Same number, 7.5%, $1,300 gold price. We got to NPV of circa $1.1 billion. If we use spot prices of $1,850, we would have got to just over $2 billion NPV and saying this is still a solid asset and got a huge worth to Gold Fields. I still believe it's a 2-year payback from '24 onwards. So this is a world-class asset.

Thanks, Paul. And then we've just included some pictures, but this is the project taken a few weeks ago. I think you can see there's a process plant in place. You'll see water in those tanks. So they've started commissioning the water circuits. They're busy commissioning the crusher stockpile circuits. And hopefully, in the coming weeks, we'll start kicking into the mill. The bottom right-hand corner is the infrastructure in place for tailings deposition. So we're already at the back end of the plant. And then importantly, the 2 pictures in the diagonal top and bottom, you can see that we've got a mining place with that 51 million tonnes of waste mined and 400,000 tonnes of ore, which we will continue mining during the course of this year to build up that stockpile and allow us to be ready for when the mine comes on track. I think just lastly, in conclusion, just the full year guidance. We're guiding attributable ounces between 2.25 and 2.3 this year. Paul has put a pack in that talks about the cost and the CapEx guidance for the year and the exchange rate. The longer-term guidance, excluding Asanko is also listed there between 2.7 and 2.77 ounces, and '25 from -- just shy of 2.8 to just north of 2.82. And then lastly, focus areas for this year, right at the top of our list to deliver Salares on time in quarter 4, to deliver on our organizational culture initiatives, asset optimization to find a mine within the mine, continue on our great decarbonization drive, and then to continue looking and focusing on upgrading the quality and the value of our portfolio. If I can stop there and hand over to Avishkar.

Thank you, Martin. I think let's go to the conference call first for questions. Irene, can we start with you, please?

Our first question is from Catherine Cunningham of JPMorgan.

I just have 2 very quick questions. So the first one is on Damang. Just with the mining moving to the Huni pit and the stockpiles, would it be possible to get some guidance around where you expect the grades to be from here on out? And then also just a quick one on Salares, would it be possible to get some idea or color on what the sustaining CapEx intends to be is expected to look like beyond 2023?

So the question is about Damang, Huni and stockpiles where we see the grade going?

I have to get back to you, because it's a mix at the moment. Sorry, we'll have to get back to you on the mix. But I think it's about 0.7, if I think I'm correct, the grade going forward, Catherine. And then, I mean, on the sustaining capital going forward, we have provided a recon at the back of the pack on the sustaining capital for why the all-in costs -- all-in sustaining costs are up and a lot of it relates to the sustaining capital. There's an anomaly with Salares Norte as a lot of capital is being attributable to sustaining in terms of the build-out and the dropout for accounting purposes. And as Martin spoke very little ounces. But going forward, I think you can look at taking the account inflation that we've experienced in '22. It's probably between $350 and $400 an ounce of sustaining capital going forward for Gold Fields, it's probably 2,500 onwards. It's elevated next -- this year because of the Salares anomaly, but going forward, those are the numbers you can use.

I'm sorry, just to be clear, that's at the group level, that's not like Salares level?

That's the group level we're talking about $350 per ounce to $400 an ounce.

The next question is from Adrian Hammond of SBG Securities.

So Martin, I have a question for you and perhaps for the -- for your team and the Board, about the group strategy. So since the attempt to acquire the amount of stocks from '23 again relative to peers. And you've made it very clear today in the commentary that M&A is still a pillar in our strategy. So could you perhaps explain to us a bit about the lessons you've learned over the last couple of months and how you intend to rerate this risk share because given that your costs are the growth profile, you should certainly be better rated. And then secondly, you furnished us with some nice long-term production. Could you perhaps give us the associated costs and CapEx for that, because I think the expectation was that last year was your peak CapEx year? It seems like there is still quite heavy. What should we be expecting going forward?

So I think let Paul start with the CapEx or I can start with the -- let's start with the transformation of projects. So I think the lessons that we learned through the transaction is that, clearly, the market doesn't like a significant premium being paid on a transaction. They weren't favorable to the large transformational transaction. We still -- I think the CIBC valuation, I think, confirmed what we believed. And I think the other important lesson for us is that we maintained our discipline and didn't get into a bidding war. What are we going to do for it? I think we've stated it in the book Adrian and is that we're going to continue doing analysis. We're going to continue looking at opportunities. But when it involves M&A, we're certainly going to be a little bit more circumspect. I think look at more incremental growth, focusing on our regions rather than big large transformational projects. That's something I think Gold Fields has done over many years, very successfully. It's something we know and understand, and that certainly would be in the immediate term, what we are going to be -- immediate and medium term, what our focus is going to be is. How do we look for the right opportunities at the right price, maintain discipline. And as I'd said this morning, we're not looking for ounces. We're looking for profitable ounces and ounces that are going to upgrade our portfolio, not chasing ounces for the sake of chasing ounces.

Adrian, in terms of long-term cost guidance, we don't give it. We give long-term production. We've done it. I have on the earlier question from Catherine said, you can work on $350 to $400 an ounce on sustaining capital. However, we must understand from 2024, we do have Salares coming in, which is coming at the guidance of around $600 million. In that year it's going to be very -- a lot lower. That will obviously have a major effect on decreasing the cost as that comes in. That's what I can give in terms of the long-term guidance on costs.

And CapEx?

It is between $350 to $400 an ounce sustaining. Remember, Salares is the only 2 growth projects we have. So there would be minimal non-sustaining capital coming over and above. So in '24, there should be almost no growth capital bar couple of smaller projects, but they are a small amount in the regions. But Salares is the last of the true non-sustaining big capital numbers.

The next question is from Jared Hoover of Morgan Stanley.

A few questions from my side, please. I just wanted to start with the dividend. And I know you did talk to it at the beginning of the call. We know that you paid out about half of the break fee that you have already received. But I'm really trying to understand what's changed, because at the back end of last year, you guys were guiding to almost keeping the break fee on your balance sheet, potentially ahead of future M&A. So from my perspective, I'm trying to understand, have you paid this out merely as a goodwill token to shareholders? Or is it a case of you have better line of sight around what your plans are for reinvestment or divestment of some of your Ghanaian assets or potentially, you've got better line of sight to some of your M&A targets, which you already know aren't going to cost you that much. So just a little bit more clarity on what's driving the payout of that break fee? And then my second question is just a point of clarification on Salares Norte. I know you talked to $660 per equivalent ounce between '24 and '29, are those nominal numbers? Or are those real numbers? Because it does look like inflation is coming down actually. So I'm just trying to get an understanding of how much of that is built into those cost numbers? And then very lastly, on South Deep. I know you -- it's still early days, you're talking to this South of Wrench feasibility study. But can you give us any early indications of what you might potentially be concerned about with regards to the South of Wrench, because the way I look at it, South of Wrench is a bit deeper in the mine. Potentially, that would mean more stresses and therefore, more seismicity and it could mean another period of experimentation to get the orientation of the mine right. I'll leave it that for now.

Jared, let me talk to the dividend, first of all. I've always said to shareholders, we've got a couple or all to everybody. We've got a couple of stakeholders that we need to keep comfortable in terms of our capital allocation policy. One is our debt providers. One is our shareholders. One is also reinvesting in the business. When we completed the year-end results, we thought it's fair to kind of share the proceeds from the Yamana one. So some of the money has been kept back for investment into the business. We decided to give half of it to the shareholders. So it's not a change. At the end of the last year, we got it. We just said at that stage, we hadn't got a commitment on what we're going to do with it. But early in January, when we saw our results, we look forward to the year. We decided to almost split equally amongst [ everyone ]. I mean our debt has come down substantially, so no need to pay more there. So we allocated it basically between half between dividends and the rest reinvested in the business, bearing in mind, as Adrian included earlier, we do have a heavy capital year this year. What is the second question, Avi, sorry. What was your second question, Jared, sorry, I'm getting old and forgetful.

No worries. Just on Salares Norte. I just wanted to confirm whether that $660 per equivalent ounce is a nominal or real number? And how much in fact has actually built into that given inflation seems to be coming down in Chile?

That is a real number. As I said to you this morning, when I spoke to you, from the original guidance in '20 when we came out this number basically almost to the dollar, if you take inflation in Chile, we got to the revised number, but that is a real number. It's in today's money.

And then, Jared, just on South Deep and South of Wrench. Fortunately, the fault -- the Wrench fault actually throws up. So net-net will be about 250 meters closer to the surface when we go other side the fault where we start. So it's certainly an opportunity for us. So that answers hopefully your stress condition that we should be marginally better off. I think the other important sort of aspect of South of Wrench, it was only envisaged to start guiding in the 2030s. We believe that we're not manufacturing motorcars. We're mining and suggesting time principles maybe aren't appropriate. So we want to slowly start going towards South of Wrench. Now what it does do, it allows us to understand the ground conditions earlier and particularly the ground conditions as we navigate that fault, but it also allows us to put drilling platforms closer to the ore body there, which allows us to get our definition drilling done a whole lot cheaper and a whole lot faster. I think lastly, and I think most importantly, we want to be a learning organization. And the school fees that we paid in North of Wrench, we are taking those and investing the learnings there into how we design and will operate South of Wrench. So I think that would summarize what our intention is slowly going towards South of Wrench over the coming years.

Okay. And just one quick follow-up on dividend. If you do get that cash back from the Canadian tax authorities, should we be expecting that you would share that half-half with the shareholders?

What we said here it was half -- the $100 million that we included in the dividend was half of the $202 million that is assuming we get the $75 million back from the Canadian Revenue Authority.

The next question is from Leroy Mnguni of HSBC.

I've got 3 questions, please. The one -- the first one is; do you have a sense of what the closure and rehab costs would be for Damang if you are unable to sell it? The second question is, given the generous provisions in yesterday's budget speech for renewable energy, would that have any bearing on whether or not you're going to look to expand your renewable power capacity at South Deep? And then lastly, I know we spoke about Asanko quite a bit earlier this morning. But we don't talk a lot about Gruyere and some of your options with maybe buying out your JV partner there. If you could please just share some of your views around that as a potential option to as a bolt-on acquisition.

On the Damang rehab provision, when we bring out the [ glossy ] the end of March, we did the base case rehab for all our mines and you were able to see it there. I don't have it on hand at the moment. But obviously, we have a base covered. Its approximately $20 million, okay. thanks.

Its $20 million approximately, Leroy. I think the second question on the renewables. Leroy, as we discussed this morning, we're doing renewables to be part of the solution and not part of the problem. We see a very strong sort of value accretive proposition about doing it. Are the incentives going to help that in South Africa, we'll certainly evaluate that. But I think the much bigger imperative with renewables in South Africa is reliability of feed. When you operate in a country with an unreliable feed you're putting your business at risk, you're putting your employees' livelihoods at risk that they can't continue earning a good wage. So, we see it as value accretive. We see it as an opportunity to ensure business continuity. And if there's further opportunities through incentives, we'll evaluate that. But that wouldn't be the primary driver for us, continue our investment in renewables.

Just the last question, potentially buying out your JV partner at Gruyere.

We always explore alternatives. As we discussed this morning, when people asked about. We're always looking at alternatives. If we come to a decision, we'll announce it to the market. We've got nothing on the table at the moment. But we always explore alternatives as with Asanko as with all our other JV partners that we have as to how we progress.

Maybe just a follow-up on that. So when you talk about bolt-on acquisitions instead of big M&A, are you able to share with us some of the criteria that you apply in assessing alternatives?

Well, ideally, it would be in the countries where we operate, where we have a presence. It would be life of mine, it would be the ESG footprint, and it would obviously be the all-in costs. We're not going to buy something that's got a higher all-in cost. If we would do something, we would have to improve our all-in costs. But I suppose the main -- 2 main criteria, lower all-in costs and at least circa 10-year life of mine.

And I think Leroy talks to the point, I think, I made earlier. We want to upgrade the quality of our portfolio. So we need better quality ounces into our portfolio. That's the sort of strategic intent in Pillar 3. How do we upgrade the portfolio over a period of time?