Johannesburg - South African bullion producer Gold Fields said on Thursday its Damang mine in Ghana had swung back to profit and was now expected to make a significant contribution to the group's bottom line.
“This mine has now been restored to sustainable profitability and is expected to make a meaningful contribution to the group's strategy of generating cash flow for at least the next five years, and likely well beyond that,” Gold Fields said in its first quarter results.
Building on an increase in production in the previous quarter, output from the mine rose three percent to 46,700 ounces, while its costs fell 12 percent to $1,111 an ounce.
Spot gold is currently around $1,290 an ounce, down 12 percent since this time last year.
Looking at industry trends, Gold Fields chief executive Nick Holland forecast global output would fall 15 to 20 percent over the next five years from around 70 million ounces a year now, as projects were being ditched and exploration cut.
“Exploration budgets have been slashed, discoveries have become smaller and lower-quality and we think the production pipeline is going to be under pressure,” he said in an interview with Reuters.
Depressed prices have led to a pull back in investments in the industry.
Gold Fields' rival Harmony Gold has significantly reduced the scale of its project in Papua New Guinea in response to this environment.
Gold Fields' production for the quarter decreased by 7 percent to 557,000 ounces, in part because of lower output at its remaining South African operation, South Deep, stemming from an extended Christmas break and technical issues.
Gold Fields itself has cut marginal shafts from its portfolio and last year spun off the bulk of its South African operations - the labour-intensive ones - into a new company called Sibanye Gold.
This is part of Gold Fields' drive to mechanise all of its global operations.
Holland had said last year Damang could be put up for sale or closed and that nearly half of the gold production in Ghana was “under stress” because of falling prices.
The turnaround would be regarded favourably by investors and in Ghana's capital of Accra, as bullion remains a key export for the west African nation once known as “the Gold Coast.”
Holland said the company had worked with unions to restructure and bring the mine back to profit.
“It was about engaging the workforce and engaging the union. We brought the union into the discussion and said 'here are the numbers. We cannot continue putting cash into here'. And they agreed,” he said.
He said around 150 jobs, or 15 percent of the mine's labour force, had been shed as part of the move to rationalise the cost base while more senior staff worked on the technical side to get more gold out of the ground.
“The guys on the ground realised that they were on the brink, they realised that they had to do something different. We weren't getting the grade into the plant or the volume that we should have been getting,” Holland said.
“There is a lot of potential at Damang but we went through shock treatment to get to where we needed to get to.”
Holland said high taxes and royalties in Ghana remained a concern and the industry was in talks with the government about the issue.
Overall, South Africa's second-largest gold producer by market value reported a fall in its first quarter earnings because of lower prices, with its normalised earnings falling to $21 million in the three months to the end of March from $68 million in the same period last year. - Reuters