| Mon 25 Feb 2008, 8:00 | | GFI - Gold Fields - Electricity Crisis Puts 6 900 |
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GFI
GOGOF
GFI - Gold Fields - Electricity Crisis Puts 6,900 Gold Fields Jobs At
Risk and further effects on production
Gold Fields Limited
(Registration Number 1968/004880/06)
("Gold Fields ")
Share Code: GFI
ISIN: ZAE000018123
MEDIA RELEASE
Electricity Crisis Puts 6,900 Gold Fields
Jobs At Risk and further effects on production
Gold Fields Limited gold production for the current quarter (Q3 F08) is
forecast to decline by between 20% and 25% against the December quarter
(Q2 F08), as a result of the total suspension of production for one full
week due to power constraints, continued power rationing, and the
seasonal impact of the Christmas break.
It is further confirmed that, as a consequence of the 10% power
reduction imposed by Eskom, sustainable production at Gold Fields` South
African operations is likely to decline by between 15 and 20 percent
from the June quarter (Q4 F08) onwards, as previously advised.
Eskom has indicated that the current quota of 90% of average historic
electricity consumption will remain in force for at least five years,
through to 2012.
To achieve the 10% reduction in electricity consumption imposed by Eskom
the following actions are proposed:
- The Number 6 and 7 shafts as well as the 9 shaft Depth Extension
Project at Driefontein, and the Number 3 and 8 shafts at Kloof Gold
Mine, are to be mothballed, closed or scaled back, potentially affecting
approximately 4,900 employees at these two mines.
- South Deep Gold Mine is to be restructured as a result of the
depletion of the Ventersdorp Contact Reef horizon above 95-level and a
new strategy implemented which focuses primarily on the completion of
the twin shaft infrastructure and development capital programmes. This
too is unfortunately compounded by the power rationing. The total
number of South Deep employees potentially affected is approximately
2,000.
- Production at Beatrix Gold Mine is unlikely to be affected by the
reduction in power supply.
The total number of employees and contractors potentially affected at
all of Gold Fields` South African mines is 6,900 out of a total employee
population of 53,000.
Engagement with all relevant stakeholders, including Unions and
Associations, have commenced with a view to ameliorating the impact on
affected employees. All alternatives will be considered to save jobs,
including options such as early retirement, voluntary retrenchments,
contractor replacement and redeployment elsewhere in the group. The
National Union of Mineworkers however asked management to hold back on
the issue of "section 189 letters" commencing formal retrenchment
discussions, until the Union had completed a series of meetings with
Government and the Chamber of Mines, scheduled for 26, 27 and 29
February 2008.
Terence Goodlace, Head of South African Operations for Gold Fields
Limited, said: "The inability of Eskom to supply the mines their full
power requirements, and to commit to additional electricity demand for
new mining projects currently in development, has caused a significant
crisis in the South African mining industry. It is paradoxical that we
have to consider downscaling in the current record-high gold price
environment. To ensure sustainability of production and the security of
the associated jobs, albeit at reduced levels, all available electrical
power will have to be directed to higher margin, revenue generating
shafts, at the expense of lower margin shafts and the Driefontein 9
shaft development project."
The above proposals were determined only after extensive and thorough
review, including the following:
- In order to optimise the use of available electricity, and to
ameliorate the impact on production, a number of electricity savings and
optimisation projects are at various stages of implementation on all
mines. All non-essential electricity use has been stopped;
- Gold Fields operations have implemented a number of demand-side
management projects, diverting approximately 50 MW of electricity
consumption to off-peak periods. Projects to divert a further 100 MW is
currently in progress or awaiting approval from Eskom;
- All operational plans and capital projects have been restated
within the constraints of available electricity, and to divert available
electricity to higher margin areas at the expense of lower margin areas
and non-essential capital projects.
Gold Fields is currently controlling its average power usage to 540 MW,
down from the historical average of 601 MW.
To provide some safeguard against future electricity cut-backs from the
current 90% level, a number of opportunities for self-generation of
electricity at the different mines are currently undergoing feasibility
studies. Gold Fields is to spend some R200 million on additional
emergency power to safeguard employees in the case of a total blackout.
The health and safety of our employees remains our top priority. This
programme is to be completed by calendar year end.
OPERATIONAL GUIDANCE
Driefontein Gold Mine: Nos. 6, 7 and 9 Shafts
At Driefontein it is proposed that a) Driefontein 6 shaft be placed in a
phased closure with only cleaning and reclamation activities taking
place until final closure by December 2008, and b) Driefontein 7 shaft
be mothballed with immediate effect.
It is also proposed that the Driefontein 9 Shaft Depth Extension Project
be suspended and deferred and the electrical power currently being
utilised at 9 shaft will be re-directed to the number 3 plant. The 9
shaft project is a life extension project and includes shaft sinking;
the construction of a sub vertical shaft complex; and the completion of
infrastructure required to access 8.5 million ounces of gold reserves
from depths of 3,500 metres to 4,120 metres below surface. This project
would extend the life of the Driefontein Gold Mine from approximately
2025 to 2035. The suspension of the 9 shaft project ensures that Gold
Fields can fund the capital programme at South Deep.
Specialist shaft sinking contractors were awarded the mining contract to
develop the Depth Extension project and 930 people currently employed on
the project would be affected by the suspension of work on the project.
Capital expenditure of approximately R 5.4 billion over the next ten
years was planned on the development of this project. This new mine
would require an energy demand of approximately 110 MW and a guarantee
from Eskom of their ability to supply this future energy to meet the
planned production requirements.
In the March 2008 quarter production from Driefontein Gold Mine is
expected to decline by 1,500kg to approximately 5,900kg and total cash
costs is likely to increase from R94,390/kg to R116,250/kg. The bulk of
this impact is attributable to the week long power shut down during the
quarter, followed by lower production with the constraint of only 90% of
power, with some contribution from the seasonal decline due to the
Christmas break.
Steady state sustainable production from the June 2008 quarter and
onwards should decline by approximately 608kg to approximately 6,800kg
per quarter at cash costs of approximately R102,150/kg compared to the
December 2007 quarter.
In total approximately 2,600 of Driefontein`s 18,500 employees
(including contractors) may be affected.
Kloof Gold Mine: Nos.3 and 8 Shafts
At Kloof it is proposed that Kloof 8 shaft be mothballed and production
terminated with a loss of approximately 300 kg of gold per quarter.
Pumping infrastructure in the shaft would be maintained. Kloof 3 shaft
would be scaled back and production reduced by approximately 510 kg per
quarter to 840 kg per quarter.
In the March 2008 quarter production from Kloof Gold Mine is likely to
decline by 1,700kg to 5,450kg and total cash costs is likely to increase
from R91,029/kg to R115,200/kg. The bulk of this impact is attributable
to the week long power shut down during the quarter, followed by lower
production with the constraint of only 90% of power with some
contribution from the seasonal decline due to the Christmas break.
Steady state sustainable production from the June 2008 Quarter and
onwards should decline by approximately 1,270kg to approximately 5,910kg
per quarter at cash costs of approximately R104,061/kg compared to the
December 2007 Quarter.
The mine has formally requested an additional 8MW from Eskom due to
difficulties experienced in re-establishing safe production levels.
Additional electricity is required to operate a recently commissioned
refrigeration plant, a recently commissioned underground booster fan,
and pumping requirements.
In total approximately 2,300 of Kloof`s 17,200 employees (including
contractors) may be affected.
South Deep Gold Mine
Since acquiring South Deep in January 2007 the mine has not achieved the
planned increased ore production as proposed in the feasibility study
compiled by the previous joint venture owners (the Joint Venture
Feasibility Study). The mine has produced on average 108,000 tons per
month of ore from underground, which is 71% of planned production,
whilst incurring 105% of the full planned production costs.
A full strategic review of the existing mine plan has concluded that the
current installed shaft infrastructure will not support the feasibility
scope of mining activity which includes ore reserve development and the
build-up of production to the envisaged 330,000 tonnes of ore per month.
The South Deep Twin Shaft infrastructure is still under construction and
has inadequate installed refrigeration, ventilation, water pumping and
ore handling facilities.
The inability to reach previously planned levels of production has been
compounded by recent structural geological changes, specifically in the
conventional mining areas of the Ventersdorp Contact Reef (VCR). The
conventional mining of the Ventersdorp Contact Reef (VCR) above 95-level
intersected the Waterpan fault some 12 months earlier than predicted and
this loss of mining face, in addition to the stopping of the two other
VCR mining areas, which encountered poor ground and unsafe conditions,
has resulted in no conventionally mineable areas being available to
mine. As a consequence, all conventional VCR mining has been stopped.
To ensure that South Deep is optimally developed for the long-term
benefit of all stakeholders, and to correct the constraints imposed by
the incomplete shaft infrastructure and inadequate ore reserve
development on the future viability of the mine, it is proposed to
restructure the mine to address these constraints. The delivery of the
capital infrastructure and the development of the ore body have to be
the primary focus for the next 18 months.
During this period ore production will be constrained to between 80,000
and 100,000 tons per month (200,000 ounces of gold annualised) from only
the mechanised trackless sections of the mine and, to a lesser extent,
from the mechanised mining of the "de-stress cut".
The proposed restructuring is likely to affect 2,000 of the 6,000 people
(including contractors) employed at the South Deep Gold Mine.
Earlier indications were that it may have been possible to redeploy up
to 1,530 of the affected South Deep employees to other operations in the
Gold Fields Group. However, the imposition of the power rationing to
90%, and the affect that this is having on employment levels at, in
particular Driefontein and Kloof, mitigates against this as an option.
The national power crisis would have required South Deep, at 90% of
average power usage, to have reduced from 66MW to 59MW. South Deep
could not have sustained the conventional mining section in the VCR at
59MW. It is likely that this area would have been stopped on the basis
of inadequate power, had the structural geological change not
intervened.
In the March 2008 Quarter production from South Deep Gold Mine is likely
to decline by 700kg to approximately 1,400kg and total cash costs is
expected to increase from R147,719/kg to R237,200/kg. The bulk of this
impact is attributable to the week long power shut down during the
quarter, followed by lower production with the constraint of only 90% of
power with some contribution from the seasonal decline due to the
Christmas break. In addition the mine is still fully staffed for the
now depleted conventional VCR mining section.
The production for the June 2008 quarter should decline by 860kg to
approximately 1,200kg at cash costs of approximately R250,000/kg
compared to the December 2007 quarter. Once restructuring is completed
it is planned to operate the mine at unit costs of R160,000/kg with
production at between 1,400kg and 1,500kg a quarter. Capital spend is
planned at R1 billion for F2009.
Beatrix Gold Mine
Production at Beatrix Gold Mine will be unaffected by the electricity
rationing as it is in a position to absorb the 10% reduction in
electricity through a number of power savings and generation projects
presently being implemented. This mine is less energy intensive than
the deeper Driefontein and Kloof operations.
In the March 2008 Quarter, production from Beatrix Gold Mine is expected
to decline by 1,004kg to approximately 2,644kg and total cash costs may
increase from R108,058/kg to R150,908/kg. The bulk of this impact is
attributable to the week long power shut down during the quarter,
followed by lower production with the constraint of only 90% of power
with some contribution from the seasonal decline due to the Christmas
break.
Steady state sustainable production from the June 2008 quarter and
onwards should increase by 35kg to approximately 3,733kg per quarter at
cash costs of approximately R108,210/kg compared to the December 2007
Quarter.
The forecast information has not been reviewed and reported on by the
Gold Fields auditors.
ends
Enquiries
Reidwaan Wookay Andrew Davidson
Tel: 011-644-2665 Tel: 011-644-2638
Mobile: 084 878 4566 Mobile: 082 667 7203
Sponsor: JP Morgan Equities
About Gold Fields
Gold Fields Limited is one of the world`s largest unhedged producers of
gold with attributable production of more than four million ounces per
annum from eight operating mines in South Africa, Ghana and Australia.
A ninth mine, the Cerro Corona Gold/Copper mine in Peru, is expected to
commence production by mid 2008 at an initial rate of approximately
400,000 gold equivalent ounces per annum.
The company has total attributable ore reserves of 92 million ounces and
mineral resources of 252 million ounces.
Gold Fields employs some 53,000 permanent employees across its
operations and is listed on the JSE Limited South Africa (primary
listing), the New York Stock Exchange (NYSE) and the Dubai International
Financial Exchange (DIFX).
All of Gold Fields` operations are ISO14001 certified. For more
information please visit the Gold Fields website at www.goldfields.co.za
1 The "de-stress cut" will, as part of the restructuring, be converted
from a conventional approach to a mechanised approach The constraint of
the current method of conventionally mining the "de-stress cut" is one
of the major factors that will retard production build up in the future.
Mechanisation of this critical activity is therefore an imperative
structural change. The "de-stress" cut is the method of extracting a
narrow band of ore, then backfilling the excavations. This allows the
rock stresses at 3,000 metres to be reduced and delivers acceptable rock
stresses to the immediate surrounding areas for safe and economic mining
of the massive ore body. Only through the introduction of a mechanised
mining method will sufficient mining areas be de-stressed ahead of time
and thus allow South Deep to reach the economic production volumes of
330,000 tons per month.
Teleconference
Monday February 25, 2008
For Johannesburg: 16:30
For United Kingdom: 14:30 hours GMT
For Europe: 15:30 hours, European time
For North America: 09:30 a.m., Eastern time
Gold Fields Limited will be hosting a teleconference to discuss the
impact of the power rationing on its South African operations on Monday,
February 25 at the times listed above. A set of slides for the
teleconference will be available on the Gold Fields website
www.goldfields.co.za, two hours before the start of the teleconference.
DIAL IN NUMBERS
South Africa Toll: 011 535 3600 Toll-free 0800 200 648
USA Toll: 1 412 858 4600 Toll-free 1800 860 2442
Australia Toll-free 1800 350 100
United Kingdom Toll-free 0800 917 7042
Canada Toll-free 1 866 519 5086
Europe and other Toll: + 41 916 105 600 Toll-free + 800 246 78 700
Ask for Gold Fields call
SIMULTANEOUS AUDIO WEBCAST
Available at our website, www.goldfields.co.za
DIGITAL REPLAY AVAILABLE ONE-HOUR AFTER CALL
Playback code: 2541#
(Available for seven days)
South Africa & Other: + 27 11 305 2030
USA: 1 412 317 0088
United Kingdom: 0808 234 6771
Europe: + 41 91 612 4330 (Switzerland)
Australia: 1 800 091 250
Enquiries:
Francie Whitley
Phone: 27 11 644 2505
Fax: 27 11 484 0639
Franciew@goldfields.co.za
Date: 25/02/2008 08:00:07 Produced by the JSE SENS Department.
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