Johannesburg - Gold Fields’s South Deep mine, plagued by delays since it was bought for $3 billion (R31bn) in 2006, would underpin the company’s long-term growth and be ready for full output by 2017, chief executive Nick Holland said yesterday.
The company’s only South African asset, and the world’s second-biggest gold deposit, would produce 650 000 to 700 000 ounces a year at about $900 an ounce by the end of 2017 even with disruptions in the first quarter, he said. “The build-up in production is going to come with a commensurate reduction in the cost base. We’ve got all the infrastructure built.”
Gold Fields needs South Deep to help reverse a 54 percent slump in its stock since it spun off three South African mines to create Sibanye Gold last February. The mine has cost Gold Fields about $4bn, including the purchase price, and is seen producing 700 000 ounces a year until at least 2075.
South Deep “is going to fundamentally change the group’s margin delivery and performance”, Holland said.
Gold was fixed at $1 287 an ounce in London yesterday afternoon, down $9 from Wednesday’s second fix. The metal has gained 7.5 percent this year to after tumbling by 28 percent last year, the most since 1981.
“The real benefit of South Deep is that it’s a long-life asset … it will carry you through the cycles.”
South Deep’s output this year would be 10 percent lower than the 360 000 ounces targeted due to “temporary disruptions” during the ramp-up, the company said yesterday. Gold Fields brought in a team from Australia to improve development.
South Deep, set up as a mine in 1990, has an ore body that can be mined with large machines like those deployed in Australia rather than the hand-held drills typical in South Africa. Its depth, complex ore formation and the methods needed to extract the gold have led to delays in the life of the mine, which has been owned by JCI, Western Areas and Barrick Gold.
“We want to improve the mechanised mining culture and skills levels,” Holland said. “That’s necessitated some changes. This disruption in the short term has affected us. We’re through all of that now.”
Earnings excluding one-time items were $5m in the first quarter after a $23m loss the previous quarter, the company said. Average gold prices rose 1.4 percent to $1 283 an ounce.
It produced 557 000 ounces of gold in the quarter, 6.9 percent less than in the previous three months, partly on lower output at South Deep. All-in sustaining costs rose 1.1 percent to $1 066 an ounce. The shares dropped 3.05 percent to close at R42.56 yesterday. – Bloomberg