Gold Fields Limited (GFI) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Gold Fields Q1 2025 Operating Update Market Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to hand you over to Mike Fraser, Gold Fields CEO. Please go ahead.

Good morning and good afternoon, everybody, and thank you for joining us today on our Quarter 1, 2025 operating results update call. I'm in Johannesburg, and joined in Johannesburg with me is Jongisa Magagula; Thomas Mengel, Alex Dall and Chris Gratias. And we have a really good turnout. So thank you all for joining. Just a couple of comments, and then we can jump straight into questions. Firstly, I just want to talk about safety performance. We have put in a huge amount of effort into our safety improvement plan over the past 12 months. And pleasingly, I can say that some of these benefits are starting to bear fruit, and we continue to see improvement in many of our safety metrics. In addition, pleasingly, I can report that we have now had 12 months without any fatalities across the business. And whilst this is a good statistic on its own right, it does demonstrate the benefits of the effort that we are putting in and meeting our goal of delivering safe, reliable, cost-effective production across our operations. In the quarter, we had a good start to the year with our operational momentum reported in H2 continuing into Q1 2025. Our gold equivalent production of 551,000 ounces is in line with our plan for the quarter and importantly, means that we remain on track to meet our guidance for the full year. From a cash flow point of view, we delivered strong cash flow during the quarter, obviously, supported by good supportive gold price environment despite paying out $346 million in dividends, we were able to reduce our net debt in the quarter. Our focus during the quarter apart from, say, our safe, reliable operations of our core assets was continuing the ramp-up at Salares Norte and preparing the plant for the upcoming winter. We were able to increase production by 13% in the quarter in line with our ramp-up plan. At the Windfall Project, the environmental permitting progressed during the quarter and we continue to advance detailed engineering and ramping up our project execution team ahead of a final investment decision planned for Q1 of 2026. Post the quarter end, you would have seen a lot of communication and media around our Damang mine in Ghana. And pleasingly, post quarter end, we reached an agreement with the Government of Ghana for a way forward with Damang, which includes an extension of the mining lease for 12 months to Gold Fields to continue to operate and mine stockpiles as well as recommence open pit mining. And during the 12 months, we will look to a transition of this asset to new ownership during that period. Underpinned by this support was a clear and open support for the life extension at Tarkwa Mine and the lease extension there, and we immediately commenced preparing for the application to extend those leases. Lastly, as you would have seen by the press yesterday, we also concluded a binding agreement to acquire 100% of Gold Road Resources, which was announced yesterday. We believe this transaction represents a low-risk opportunity to enhance our portfolio through the consolidation of the Gruyere Mine, which we already operate. Full ownership of Gruyere will likely take place in around October, and will immediately enhance our cash flow profile and enable us to streamline decision-making and increase flexibility with respect to the operation and future development opportunities. I'll now pause there and hand over to Q&A.

[Operator Instructions] We have a question from Tanya Jakusconek of Scotiabank.

Maybe I'm just going to start on this Damang agreement with the government and then the joint venture pause with AngloGold. Can we assume these are tied together in terms of Anglo's decision to pause or maybe you can shed some light on why the pause at the same time as Damang is negotiated.

Yes. Thanks for that question, Tanya. I hope you're well. Look, I think I wouldn't like to speculate that these are connected in any way. I do believe that these are separate issues that are being dealt with on their own merits. I think just a bit of color on Damang and probably during the course of last year, we've been talking about Damang as a transition asset and an asset that the most important objective for us was to find a pathway for a future life extension opportunity, given that there is a resource there, but it would require a considerable amount of capital that we didn't see passing our hurdles to invest in. What we had done, though, is applied for an extension of that lease so that we could at least continue the feasibility study with an idea of finding a pathway for a transition. As it turned out, I think the agreement that we got to was a reasonably elegant one, which allowed us to deliver on our plan for the year, which is what we've committed to the market, but also then work to an orderly transition of the asset to an owner who would then obviously need to find the capital to reinvest into the future mine life extension. So I think that kind of stands on its own. I think on the joint venture, I think the -- what has happened with the passage of time is clearly one of the biggest drivers that's changed the economics of this asset is gold price. And without reading too much into it, I think you can quite easily see that all of a sudden different parties had a slightly different view of what that gold price meant for their different options analysis on a combined basis or a stand-alone basis. I certainly believe that the industrial logic of the combination and the unlocked benefits that will be realized still is compelling. But this -- what this pause does do is at least allows us to get through the lease extension process in a fairly short order of time, which is what the Government of Ghana have committed to and equally allow both parties to focus on the things that are needed to be done within our own business. And then hopefully, that allows us to bring them -- bring these assets together to some point in the future.

Okay. Thank you so much for that explanation. Maybe I can move on if I can to just Windfall. Just wanted to try and understand a couple of things on Windfall. Number one, we've got the feasibility study that is coming out in the second half of the year. And with it, I guess, the updated reserves and resources. Just trying to get an understanding of why -- what do you need to still do on the reserves and resources to provide us with an estimate there, given that there was a lot of drilling done already on the property. So number one, what should I be thinking about on the reserve front? And two, how should I be thinking about the feasibility study from a costing side in the sense that we've come through inflation, should I be thinking that sort of normal inflation of -- from that period has been as high as like 15%, 20%. Should I be thinking those types of numbers in capital and operating costs?

Yes. Thanks, Tanya. Very good question. And maybe let me unpack it as follows. So the reason we did not declare and we do have obviously and overlayed our own internal operating assumptions and modifying factors on the reserve and resource statements that had previously been declared by Osisko. But what we didn't want to do is to go out and publicize that alongside of any changes to our development assumptions whilst we had the environmental permitting process underway. And so we wanted to allow that process to continue unfettered, which has actually been supported by the original feasibility study that was completed in 2022 by Osisko Mining. So we really didn't want to complicate that process. So that's why we've left that to run on its own feet. The feasibility study is really, in our view, an update. So the core parameters of Damang is not going to fundamentally change. We're still going to be constrained by the environmental permit application, which is essentially a 300,000 ounce mine, a 2 million tonne per annum processing plant and a 10-year mine life. But what we are doing is doing quite a number of trade-off studies in this update around what you would always appreciate is -- is there a trade-off between operating costs and upfront capital? Are there optionalities that we want to bring into our capital estimate now that gives us expansion and extension opportunities at a later stage. And obviously, the original feasibility study that was done in 2022 would be, I don't want to say promotional, but clearly done with a slightly different purpose than trying to build a mine and a plant that we want to continue to operate for multiple decades. So that's kind of how it plays out. We will provide an update on those capital estimates later in the year once we've got a bit of feel for those, and obviously, leading into our Board approval in ideally Q1 of 2025. I think as you think about the -- what is a way to model this, quite clearly, there is going to be a significant component of escalation and related to just core mining inflation. We are doing repricing on some of the key components now, and clearly, as tariffs move around, that could be a component of what we need to model. But equally, we are really minded to the fact that we're wanting to build a plant that is going to be here for multiple decades. It is going to be a cornerstone of our portfolio. And without being overly irrational and exuberant on the upfront capital, I would be more inclined to earn on the side of being conservative upfront than putting ourselves into a corner for an asset that is going to be a high-quality part of our business. So I think with those kind of cautions, I think you're kind of thinking of escalating with inflation and then maybe a little bit is not a bad way to think about it.

Okay. And so I should be thinking that the plant then could be designed potentially yes, you've got the permits that you're doing at the plant for that size of [indiscernible] you're saying that maybe it has the ability to factor and potential expansion in the future. Would you be thinking of it that way?

Yes. And I think what we'd have to do is it would have to go through probably another permitting process because I think we have the maximum of the provincial approval limit. But what we would design the plant is to ideally be have some kind of expansion potential to it. So that would be the idea.

Yes. Yes, you'd have to go for federal permit. Yes. Okay. And just my final question, if I can, just on Salares Norte. It's nice to see that the project is moving forward. Just wanted to ask about the commercial production, because it appeared to me that we slipped a quarter from Q2 into Q3. I know it had always been somewhere at the end of Q2 and now it's slipping into Q3. Can we just review what is it exactly that has moved us from Q2 to Q3? And what is your definition of commercial production? Is it 30 days or 60% capacity at the mill?

So I think there's two elements. I think it's two components. So it's 30 days of 60% and then 85% of metallurgical gold recovery on a 30-day average basis.

Yes. And then it would be -- and forecast to continue operating to...

Full cost to continue...

It would be the month after that 30 days is achieved. So that's actually just flipped from May to June for the current modeling. That's what happens in July comes in July becomes the first month.

Got it. So it's just really the definition on the metallurgy part for 30 days after that, that we get that commercial production. .

Yes.

Okay. And that's just from perspective an accounting definition, it doesn't materially change, the profile for the year hasn't changed.

Yes.

Yes. Got it. No, I really appreciate it. I'll leave to someone else to ask questions. I really appreciate you taking all my questions.

The next question we have is from Shilan Modi of HSBC.

Just a couple of questions from my side. How are you thinking about your debt levels post the conclusion of the acquisition of Gold Road. Does this affect the sequencing for Windfall CapEx? And how does the ramp-up of Salares and the cash generation from that? Also feed into your thinking around debt and CapEx sequencing.

Yes. Thanks, I'll have first attempt it, and then I'll ask Alex to touch on it. I think the first thing I will just say is that clearly, we are in a very fortunate position that we foresee a strong cash generation across the portfolio and a very strong deleveraging impact. Obviously, Salares is a component of that support. But in the modeling that we've done, obviously, we see that money going out in quarter 4 for the acquisition of Gold Road. But with the cash generation and the buildup over the next while we feel quite confident with where debt levels go. But Alex, I don't know if you want to comment about the modeling and the work you do.

Yes. So obviously, we -- as we say, we want to target a net debt-to-EBITDA ratio of 1x through the cycle. So we run various modeling scenarios. And the base case being we run it at consensus and then we do on that basis, sales being comfortably below the 1. And then obviously, even at conservative prices, we might push there slightly, but then we see the deleveraging rapidly as Salares Norte comes down. So we do run multiple scenarios and all of that and we're quite comfortable that the balance sheet is the ability to hold the debt level.

Yes. And just on the timing, we don't see any of this impacting the timing of Windfall. That capital will largely be spread between '26 and '27. And even with that, we don't see any impact on our current dividend policy and any of our future return programs. So we feel quite confident that we're going to be in good shape from that point of view. And our current modeling shows us, as I say, rapidly deleveraging even with that Windfall capital.

And then perhaps another one or two. How are you guys thinking on hold or buy going forward? I mean, to be fair, you guys are doing both. But -- and I know it's a moving target. But like do you think -- the market is still -- do you think there's still good deals to be made in the market? Or do you think it's moving -- shifting more towards the builders market?

Look, I think that's a difficult question, and I'm sure Chris can jump in on this one. But I will say that our strategy is not one or the other. Our strategy is continuously that we will trying to add reserves and ounces through additional brownfield drilling, we'll look through incremental enhancement of our existing portfolio, because we've got some incremental improvement within our existing operating assets. We also are revitalizing our greenfield program and are increasing the number of options that we have in our greenfield program. Although those are longer-dated assets -- longer-dated opportunities. And then obviously, we do the bolt-on acquisitions like you've seen with the acquisition of the other half of the Osisko and Gruyere, which are really low-risk additions, if you think about it. Because we're already in those assets for half of the value. But I do think there are opportunities to be had. But I think over the next while, our focus is very much going to be on delivering what's currently in our portfolio. And I think for certainly for the next while we're quite comfortable with the balls that we've got to deal with. Chris, I don't know if you want to add anything?

Maybe the only other thing I would add, Mike, is I think the -- you can never time, M&A perfectly and a lot of times, it is opportunistic. But I think the Gold Road acquisition was really a unique opportunity to invest in an existing asset that we already controlled and operate it, and there was an ability to get full control of our land package that we view as very prospective. So it's the same approach we take to all of our assets about looking for opportunities to invest and enhance value within the existing portfolio. This just happened to be one that was through a public transaction.

Okay. No, that makes sense. I appreciate that. I have given feedback to the team that I also agree acquiring assets that you already operate makes a lot of sense. I appreciate the time.

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

Yes, Mike, tough Q1, when you look at the costs, but certainly, I think it's still early days. Just looking at the dollar per tonne cost. That's where I'm coming from. Is it -- I'm trying to understand if it's still the change in the mining mix with your -- the dollar per tonne costs up about 8%, but your mill tonnes are up 8%. So is it just high inflation, a bit of ore mix underground surface that's still playing out? Or is it just the sort of maturity of the operations playing out into those numbers.

Adrian. Look, I think there's a couple of things that are playing out in our costs. I think one is, as you're quite right, there is a bit of an ore mix coming through on -- and also we've seen slightly higher mill tonnes. But what we also expect to see during 2025 is there's a slightly higher strip across a couple of our material assets. So [indiscernible] Tarkwa. In Tarkwa as well, what you're also seeing is lower grade feed. So some of that cost is playing out of Tarkwa for instance. And then you've got some higher strip and some higher capital coming through. So we're not yet going to see the full benefit of lower cost probably until 2027 when you're going to start seeing some of those -- that high strip coming out, and we should then see a higher ore mix going in.

All right. That's understood. There was a question on Salares that sort of covers mine, but I mean, just to be devil's advocate, and I appreciate that no ramp-up is ever perfect, but you achieved 50,000 gold equivalents in Q1, the ramp-up did say, 60. The miss, is it -- is it -- are there issues there that are temporary or things that you're comfortable with leading into the winter period? Or is there anything new that you need to resolve there that to give us comfort for the full year guidance.

Yes, Adrian, I think as you rightly identify, I mean, there's always challenges in a ramp-up. And yes, we would have had one or two issues. We had some issues on filter pumps that we had to change out. We've realized that we also need a bigger furnace capacity. So we've got a new furnace -- additional furnace on order, which is going to give us greater throughput. But there's nothing that is a process-wise of concern to us. So I think the area that I have always been consistent to say that given our experience of last year, the bigger risk to guidance is just getting through winter reliably and safely. So from a plant performance and an operating performance, I don't think you should read much into Q1. Yes, we probably could have added a few extra thousand ounces based on more uptime, but there's nothing that's carried over from the first quarter.

Got you. And then lastly, on the JV that you've put on ice now, I mean, this is quite disappointing, I would say, after 27 months. Certainly, AngloGold has plans of their own with opportunities with their existing assets. Where does this put Tarkwa in respect of a stand-alone option? And what why -- what is the reason to step back? And I have to ask, given the, the issue around the mine life extension at Damang, and I think market got a bit concerned around Tarkwa, was there any of that factored in?

No, Adrian. And look, I mean I have a -- obviously, we have had the conversation with our counterparties. But I'd start with saying that it takes three parties to make this stance work at the JV. I think the industrial logic and the long-term strategic intent about the combination still makes perfect sense, and I don't think it changes certainly my view that this makes the combination makes sense. But I think there's always going to be times where one party may not be ready. And I think that's the challenge and the risk on this thing. We got really close last year with the previous government and the previous administration. And then once that changed, we had a new government and the new administration who've obviously create a little bit of uncertainty with what -- how the Damang issue played out. But certainly, they've been very strong in support of Tarkwa and they've actually asked us to very quickly get the mine lease extension in place, so they can take that uncertainty out of the market. So I think we feel quite confident with that. But I think without talking too much into how this played out, I mean, you can quite conceivably see a world where, as gold prices have run in the way they have since the first deal was inked, the economics on both sides would have changed. And I think that's played a part in it. But the way I look at this is quite philosophically, I think it does actually just make both of us focused on making our stand-alone assets the best that can be in. We're certainly not afraid of that challenge, and it presents an opportunity for our teams to stop focusing for a minute on the integration of these assets to how do we make them the best on a stand-alone basis, which makes the combined business even better.

Sure. Certainly, the gold price today is -- can change your planning. Thanks so much.

[Operator Instructions] The next question we have is from Rene Hochreiter of NOAH Capital.

A couple of questions on Gold Road and Gruyere. I looked at the website, they say they have an open pit life to about 2032. And then about 2 years underground, about 760,000 ounces underground reserves and resources. That sort of makes it a 10-year life. What was the -- your AUS 3.2 billion payment that you deal value that you're making -- what was the internal rate of return of that deal? And is there any -- well, basically on the exploration assets, is there anything that could be quite like brought into production quite early because to me, they look like they're deep out of the money.

Rene, thanks for that question, and I'll ask Chris again can add some color to this. But I think just a couple of things, first and foremost. The 2 years of underground that they declared was certainly based on Gold Road assumptions. We would not have declared any resource or reserves on the basis that we are at very early stages in studying the underground. We've only really started drilling out that opportunity. We know there is gold there, and it looks pretty consistent, but it's going to come down to us determining the most effective way of mining that underground before we would even be prepared to put a resource or reserve declaration out on that asset. The other thing that complicates the future development pathway for Gruyere is that if gold price consensus prices continue to hold where they are, then, in fact, you may delay the underground development potentially doing another further cutback, which extends your open pit life by a few years before you have to then go underground. And then the last item, which is what we've acquired with Gold Road is that fairly extensive land package that sits outside of the current joint venture that we wouldn't have otherwise had access to, which we also know contains gold. So whilst you're right, based on the declared numbers, you can quite easily come to a point and say, well, what have we paid this USD 2.4 billion, well, $1.6 billion when you struck out at the Northern Star stake. We're quite comfortable that this is now going to transition into a multistage or multi-decade asset, it's just about what is the pathway for development of that. And as that evolves over the next few years, that study evolves, you'll start seeing us declaring resource, which will add to the life of that asset. And then just on your question on IRRs. Clearly, we don't always declare those and publicize them because there are a number of different scenarios you need to assume. But what I can say is based on consensus prices, which we know is reasonably conservative right now. We'd be quite comfortable that is nearing mid-teens kind of IRRs. And then when you overlay near-term spot, that certainly goes up a lot higher.

Maybe the other thing I'd add, Mike, you touched on the exploration ground. For example, they have come out with a PFS on the [indiscernible] Gilmore. There's [indiscernible]. There's other opportunities. That also looks to be potentially higher grade. So as that you could potentially resequence it in the mine to extend life even before you get to the underground. I think the other pockets of additional value that you get is Gold Road did have a royalty that would kick in at a certain point in time, which would get eliminated. . You obviously have the Gold Road corporate costs. Obviously, there are clearly some valuable employees, especially on the exploration side that we'll want to maintain, but there's some savings there. And I think quite importantly to us, which was quite unique to us there are significant tax synergies for us in Australia with the ability to write the value of the assets up. So you get a big pickup in depreciation, which has meaningful, meaningful tax synergies to us, which will benefit across our entire portfolio in Australia.

Yes. Just one more question on the deeper extension of Gruyere. Has the Scoping study been done? I heard some to the Scoping study had been done on that.

Yes, correct. So we have completed a Scoping study. Literally, it was received around 3 weeks ago, and that was immediately disclosed by Gold Road as part of their defense. I mean clearly, from our point of view, we would never have disclosed it at this stage, because it still requires quite a bit of work and interrogation. And that's why we always said, yes, it's absolutely an auction. It is going to add life to the asset, but trying to attribute value to that right now given the long life dating on it is quite hard. And we're quite comfortable when we did the assessment on the asset that the additional 50% even on the current known life and reserve we believe is accretive.

At this stage, we have no further questions. And I would like to hand back to Mike for any closing remarks.

Well, thank you very much for the questions. They were really very good questions that we received today. So I appreciate the thought that went into those. I think from our point of view, the quarter 1 was largely on track to what we expected. Clearly, there's a few things that have emerged post quarter that we are now dealing with, including Damang, Tarkwa and the integration of Gold Road. But the real focus for us is just to keep delivering safe, reliable production and delivering on our, our guidance and our plans for the year, both across production and costs. And if we can do that, we will see continued significant cash generation in the business, which will be good for everybody. So very comfortable with how we started the year, and we are all very much focused on delivering to our plan for the remainder of the year. And I look forward to chatting to you again in -- at the half year. But thank you very much for your interest.

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