| Wed 26 Oct 2005, 8:00 | | Gold Fields Limited - Quarter ended 30 September 2 |
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Gold Fields Limited - Quarter ended 30 September 2005
Gold Fields Limited
Incorporated in the Republic of South Africa
Registration number 1968/004880/06
Share code: GFI
Issuer code: GOGOF
ISIN: ZAE000018123
Q1 F2006
Quarter ended 30 September 2005
News Release Q1 F2006 Results
-Unaudited-
Gold production declined in line with expectations
JOHANNESBURG. 26 October 2005 - Gold Fields Limited (NYSE & JSE: GFI) today
announced September 2005 quarter net earnings of R39 million compared with a
loss of R27 million in the June 2005 quarter and earnings of R89 million for the
September quarter of 2004. In US dollar terms net earnings for the September
2005 quarter equated to US$6 million compared with a loss of US$5 million in the
June 2005 quarter and earnings US$14 million for the September quarter of 2004.
Net earnings excluding gains and losses on financial instruments and foreign
debt net of cash and exceptional items were R44 million (US$7 million) for the
September 2005 quarter compared to R217 million (US$35 million) in the June
quarter.
September 2005 quarter salient features:
# Attributable gold production decreased 8 per cent to 993,000 ounces, half
of which is attributable to the strike in South Africa;
# Operating costs decline by 1 per cent to R2.46 billion despite the 6.5 per
cent wage increases at the South African operations;
# Total cash costs R72,768 per kilogram (US$347 per ounce), 7 per cent higher
than the previous quarter due to lower production;
# Operating profit R554 million (US$85 million).
Ian Cockerill, Chief Executive Officer of Gold Fields said:
"During the September quarter gold production declined by 8 per cent.
Approximately half of this was as a result of strike action, and the balance due
to operational issues that we flagged in the guidance provided with the results
for the June quarter. These issues have largely been resolved.
During the final month of the September quarter all operations showed positive
trends, which were carried over into the October month, indicating a stronger
December quarter.
Despite the challenges referred to above we retained a firm grip on costs with
operating costs improving by 1 per cent to R2.46 billion, this despite a 6.5 per
cent wage increase implemented in South Africa during the quarter.
The cost objective for the South African operations remains to reduce costs to
below R70,000 per kilogram."
Stock data
Number of shares in issue
- at end September 2005 491,627,907
- average for the quarter 491,515,569
Free Float 80%
ADR Ratio 1:1
Bloomberg / Reuters GFISJ / GFLJ.J
JSE Limited - (GFI)
Range - Quarter ZAR68.02 - ZAR95.91
Average Volume - Quarter 1,397,954 shares / day
NYSE - (GFI)
Range - Quarter US$10.60 - US$14.96
Average Volume - Quarter 1,350,092 shares / day
the complete gold company
Salient features
South African Rand
Quarter
Restated Restated
September
June September
2004
2005 2005
Gold produced* 31,317 33,523 30,892 kg
Total cash costs 66,516 67,773 72,768 R/kg
Tons milled 11,043 12,225 11,888 000
Revenue 81,815 88,076 91,669 R/kg
Operating costs 212 202 207 R/ton
Operating profit 456 656 554 Rm
Operating margin 17 21 18 %
89 (27) 39 Rm
Net earnings
18 (6) 8 SA c.p.s.
89 122 36 Rm
Headline earnings
18 24 7 SA c.p.s.
Net earnings excluding
gains
and losses on financial (19) 217 44 Rm
instruments and foreign
debt net of cash and (4) 44 9 SA c.p.s.
exceptional
items
United States Dollars
Quarter
Restated Restated
June September
September
2005 2004
2005
Gold produced* oz (000) 993 1,078 1,007
Total cash costs $/oz 347 330 325
Tons milled 000 11,888 12,225 11,043
Revenue $/oz 437 429 400
Operating costs $/ton 32 32 33
Operating profit $m 85 103 72
Operating margin % 18 21 17
$m 6 (5) 14
Net earnings
US c.p.s. 1 (1) 3
$m 6 19 14
Headline earnings
US c.p.s. 1 4 3
Net earnings excluding
gains and
losses on financial $m 7 35 (3)
instruments and foreign
debt
net of cash and US c.p.s.
exceptional 1 7 (1)
items
* Attributable - All companies wholly owned except for Ghana (71.1%).
Health and safety
We regret to report 10 fatalities during the September quarter, the majority at
Driefontein due to falls of ground and seismicity. The fatal injury frequency
rate was 0.28 similar to the previous quarter"s figure of 0.29. However, the
lost day injury frequency rate improved from 14.1 to 13.4, the serious injury
frequency rate improved from 7.0 to 6.3 and the days lost frequency rate also
improved from 384 to 369.The international operations remained fatality free
this quarter.
These rates are unacceptably high and management is actively reviewing all
current safety initiatives and seeking areas of improvement, so as to attain the
long-term objective of achieving the Ontario safety standards on all of our
mines.
Financial review
Quarter ended 30 September 2005 compared to quarter ended 30 June 2005
Revenue
Attributable gold production decreased by 8 per cent to 993,000 ounces in the
September 2005 quarter, compared with 1,078,000 ounces achieved in the June 2005
quarter.
Production at the South African operations was 647,000 ounces, compared with
687,000 in the June quarter, a 6 per cent decline. Attributable production at
the international operations decreased 12 per cent from 391,000 ounces to
346,000 ounces.
At the South African operations, Driefontein and Kloof performed largely as
expected with both operations impacted by the strike and Kloof experiencing
continuing grade problems. As indicated in the previous quarter Beatrix
experienced haulage constraints at 20 level, 4 shaft, due to smectite problems.
Production from the affected areas started returning to normal during the month
of September. In addition, the impact of the strike was exacerbated at both
Beatrix and Kloof due to a slower than expected start-up after the strike.
The main contributors to the decline at the international operations were Tarkwa
and St Ives. Tarkwa declined by 18,000 ounces to 124,000 ounces
(attributable).Approximately one third of the decline was as a result of a gold
in process (GIP) release in the June quarter, which did not reoccur in the
September quarter with the balance due to lower head grades. St Ives declined by
23,000 ounces to 120,000 ounces. The majority of this shortfall is attributable
to the inclusion of clean up from the old mill in the June quarter and a short-
term reduction in the volume of high- grade ores from the underground mines,
highlighted in the previous quarter.
The US dollar gold price increased 2 per cent from US$429 per ounce in the June
quarter to US$437 per ounce in the September quarter. This, together with the
weakening of the rand against the US dollar, from an average of R6.39 to R6.52,
resulted in the rand gold price increasing 4 per cent, from R88,076 per kilogram
in the June quarter to R91,669 per kilogram in the September quarter.
The decrease in production was only partially offset by the increase in the rand
gold price achieved resulting in revenue decreasing from R3,156 million (US$492
million) to R3,023 million (US$464 million) this quarter.
Operating costs
Operating costs for the September quarter, at R2,457 million (US$377 million),
decreased by 1 per cent when compared with the June quarter"s R2,474 million
(US$386 million).
Costs at the South African operations increased by R12 million to R1,672
million (US$256 million), which was less than 1 per cent higher than operating
costs in the previous quarter of R1,660 million (US$258 million). The nominal
increase in operating costs was achieved despite the 6.5 per cent wage increase
effective from 1 July 2005. This increase was mostly offset by continued strict
cost controls.
Costs at the international operations, including gold-in- process changes, were
R797 million (US$122 million), 5 per cent below the R840 million (US$132
million) incurred in the June quarter.This decrease in costs was mainly at St
Ives, reflecting not only the reduction in underground mining volumes but also
the continued focus on cost control. The 2 per cent weaker rand compared with
the US dollar as detailed above resulted in an increase in costs of about R8
million (US$1 million), while the rand against the Australian dollar, which
weakened marginally, from R4.91 to R4.96, accounted for a R3 million (US$1
million) increase in costs.
Operating margin
The net effect of the movements in revenue and costs, after taking into account
gold-in-process changes, was an operating profit of R554 million (US$85
million). This is 16 per cent below the R656 million (US$103 million) achieved
in the June quarter. The Group margin decreased from 21 per cent last quarter
to 18 per cent in the September quarter, while the margin at the South African
operations decreased from 12 per cent to 9 per cent. The margin at the
international operations was unchanged at 33 per cent.
Amortisation
Amortisation decreased from R391 million (US$61 million) in the June quarter to
R353 million (US$54 million) in the September quarter. This decrease was due to
the lower production experienced at most operations during the quarter.
Other
Net interest and investment income after taking into account interest paid
decreased from R15 million (US$2 million) in the June quarter to R1 million
(US$- million) for the September quarter. This decrease in net interest is due
to realised gains on the Mvela interest rate swap included in earnings in the
previous quarter.
The loss on financial instruments of R9 million (US$1 million) compares with a
gain of R100 million (US$16 million) in the June quarter. This quarter includes
a loss on the Tarkwa rand/US dollar forward cover of R16 million (US$3 million)
and a R3 million (US$1 million) loss on the Australian dollar/US dollar call
options partially offset by a gain on diesel call options in Ghana of R10
million (US$2 million). The majority of the gain in the June quarter was from
the closure of the Mvela interest rate swap, which accounted for R91 million
(US$16 million).
More details on these financial instruments are given on page 15 of this
report.
Exploration and expenditure
Exploration expenditure increased from R61 million (US$10 million) to R66
million (US$10 million) in the June quarter - please refer to the Exploration
and Corporate Development section for more detail.
Exceptional items
The exceptional gain of R3 million (US$1 million) from the sale of sundry
assets and investments, compares with the loss in the June quarter of R359
million (US$58 million).Last quarter included impairments at Beatrix,
Driefontein, Kloof, St Ives and Living Gold, together with the cost of
defending the Harmony bid, partially offset by the sale of investments.
Taxation
Taxation for the quarter amounted to R45 million (US$7 million) compared with a
credit of R62 million (US$10 million) in the June quarter. The tax provision
includes normal and deferred taxation on all operations together with royalties
at the international operations.
The main reason for the credit last quarter was a deferred tax credit of A$36
million (R167 million) in Australia, due to a gross up in tax values of assets
resulting from the consolidation of the Australian operations for tax purposes
as from 1 July 2003. Added to this was the tax credit on the Beatrix
impairment, which amounted to R24 million (US$4 million). This was partially
offset by normal taxation.
Earnings
After accounting for minority interests, net earnings amounted to R39 million
(US$6 million) or 8 SA cents per share (US$0.01 per share), compared with a
restated loss of R27 million (US$5 million) or negative 6 SA cents per share
(negative US$0.01 per share) in the previous quarter.
Headline earnings i.e. earnings less the after tax effect of asset sales,
impairments and the sale of investments, was R36 million (US$6 million) or 7 SA
cents per share (US$0.01 per share), compared with restated earnings of R122
million (US$19 million) or 24 SA cents per share (US$0.04 per share) last
quarter.
Earnings excluding exceptional items as well as net gains and losses on
financial instruments and foreign debt net of cash amounted to R44 million
(US$7 million) or 9 SA cents per share (US$0.01 per share), compared with
restated earnings of R217 million (US$35 million) or 44 SA cents per share
(US$0.07 per share) reported last quarter. As reported above under taxation,
the R217 million earnings reported last quarter included a deferred tax credit
of R167 million (A$36 million) in Australia.
Cash flow
Cash flow from operating activities for the quarter was R303 million (US$47
million), which was less than half of the operating cash flow generated in the
June quarter of R708 million (US$110 million). This was due to the lower
production and resultant decrease in operating profit and the negative change
in working capital of R188 million (US$30 million) quarter on quarter. This
decrease was mainly due to the timing of creditors payments and interest
payments on the Mvela loan.
During the quarter R197 million (US$29 million) was paid in dividends. No
dividends other than those paid to Ghanaian minorities of R48 million (US$7
million) were paid during the June quarter.
Capital expenditure amounted to R325 million (US$50 million) compared with R442
million (US$68 million) in the June quarter. Expenditure at the South African
operations decreased R41 million to R133 million (US$20 million). A significant
portion of this expenditure was directed at the major projects, with R23
million (US$4 million) at 1 tertiary and 5 shaft at Driefontein, R9 million
(US$1 million) at Kloof 4 shaft, R4 million (US$1 million) at Kloof 1 shaft
pillar extraction and R29 million (US$4 million) at Beatrix 3 shaft.
The Australian operations incurred capital expenditure of R111 million (A$22
million) compared with R122 million (A$24 million) in the June quarter.
Expenditure at St Ives included development costs at Argo and Leviathan
underground. At Agnew, the majority of the expenditure was spent on
development. Included in capital expenditure was ongoing exploration
expenditure at both operations of R34 million (A$7 million). At the Ghanaian
operations, capital expenditure amounted to R72 million (US$11 million) mainly
on the new heap leach pads projects at Tarkwa and the Damang main pit cutback.
This compares with R117 million (US$18 million) in the previous quarter. Major
projects are still forecast to be in line with approved votes.
Proceeds on disposal of various Group wide mining assets amounted to R4 million
(US$1 million) for the quarter.
Financing activities include the half yearly payment of the debt portion of
the Mvela loan of R140 million (US$22 million).
Net cash outflow for the quarter was R431 million (US$65 million).After
accounting for a negative translation adjustment of R144 million (US$4 million
positive), the funding of capital expenditure and the dividend as detailed
above, the cash balance at the end of September was R2,800 million (US$442
million). The balance at the end of June was R3,375 million (US$504 million).
Detailed and operational review
Group overview
Attributable gold production for the September 2005 quarter decreased 8 per
cent to 993,000 ounces when compared with the June quarter. Production from the
South African operations at 647,000 ounces accounted for 65 per cent of the
Group"s total attributable production, compared with 687,000 ounces or 64 per
cent last quarter.
At the South African operations, gold production decreased 6 per cent compared
with the previous quarter. The decrease of 7,100 ounces and 8,100 ounces at
Kloof and Driefontein respectively was mainly due to the strike during the
quarter, while Kloof continued to experience lower grades than reserve grades
in the earlier part of the quarter.At Beatrix the 24,600 ounce reduction was
due to the strike and slow start-up after the strike, together with the
smectite problems detailed earlier.Operating profit at the South African
operations decreased from R224 million (US$35 million) to R170 million (US$26
million), mainly as a consequence of the lower gold production.
Production from the Australian operations was 13 per cent lower quarter on
quarter at 181,800 ounces. The decrease in production at Agnew of 3,100 ounces
was due to the lower grades as forecast last quarter. At St Ives the decrease
of 23,300 ounces was due to the mill shut down, and lower underground volumes
during the quarter together with an additional 12,000 ounces from mill clean up
in the June quarter.
Despite the lower production, operating profit from the Australian operations
increased from R159 million (A$33 million, US$25 million) to R177 million (A$36
million, US$27 million), primarily as a result of the higher gold price which
increased from an average of A$551 per ounce to A$578 per ounce for the
September quarter, allied with lower costs.The Ghanaian operations showed a 10
per cent decrease in attributable gold production to 164,600 ounces. Damang was
slightly lower, as forecast. At Tarkwa the decrease was due to movements in GIP
and lower grades. Ghana contributed operating profit of R207 million (US$32
million), a 24 per cent decrease when compared with the June quarter due to
the lower production.
The international operations contributed R384 million (US$59 million) or 69 per
cent of the total operating profit of R554 million (US$85 million). This
compares with R433 million (US$68 million) or 66 per cent of the total
operating profit of R656 million (US$103 million) last quarter.
South African Operations
Project 500 was initiated in September 2003 to increase revenue and reduce
costs through two sub-projects i.e. Project 400 and Project 100. These
projects have proved successful and led to additional projects - Project
100+ and Project Beyond as detailed below.
Project 400
Project 400 was aimed at improving revenue such that an additional R400 million
(US$60 million) per annum could be generated on a sustainable basis. This was
to be achieved through a basket of productivity initiatives; by eliminating
non-contributing production and replacing low-grade surface material with
higher margin underground material - all aimed at improved quality volumes. In
F2005 this has resulted in improved yields, in line with the life of mine
grades for each of the South African operations, as reflected in the table
below.
Sep
Quarter ended F2004 F2005 2005
Driefontein:
Life of mine head grade as per the 2003,2004
and 2005 annual report 8.7 8.1 8.0
Life of mine head grade adjusted for
estimated metallurgical recoveries 8.4 7.8 7.8
Driefontein (underground yields achieved) 8.1 8.3 8.1
Kloof:
Life of mine head grade as per the 2003,2004
and 2005 annual report 9.8 10.5 9.7
Life of mine head grade adjusted for
estimated metallurgical recoveries 9.5 10.2 9.4
Kloof (underground yields achieved) 9.0 9.1 8.7
Beatrix:
Life of mine head grade as per the 2003,2004
and 2005 annual report 5.1 5.5 5.4
Life of mine head grade adjusted for
estimated metallurgical recoveries 4.9 5.3 5.2
Beatrix (underground yields achieved) 4.6 5.0 5.2
Project 100+ and Project Beyond
At the end of September 2005, Project 100+ had twelve projects under
management, with projected benefits of R200 million (US$30 million) per annum.
Approximately half of these projects are in the concept or design phases. The
greater part of the benefit realisation for these projects is expected during
the 2006 and 2007 financial years.
Project Beyond, initiated in 2004, is a procurement and supply chain initiative
targeting savings of between R200 and R300 million (US$30 and US$45 million)
per annum over three years, i.e. around 10 per cent of the amount expended on
materials, services and capital expenditure at the South African operations.
The project delivered R103 million (US$16 million) of contractual savings (12.3
per cent) on historic baseline expenditure during the 2005 financial year
through addressing commodities such as grinding media, foodstuffs, mill liners,
ore transport, roof and timber support, bearings, engineering repairs and
lubricants. These savings are realised as the new contracts are utilised by the
mining operations and, as a consequence, will largely be realised during the
2006 financial year. R14 million (US$2 million) of cash flow savings for the
first quarter of F2006 has been achieved.
Project Beyond is targeting a further R75 to R100 million (US$12 to US$15
million) savings per annum at the local operations during the 2006 financial
period. Commodities such as diesel engine repairs, explosives, lime, lifting
equipment, valve spares, steel wire ropes, scrapers & chutes, labour hire,
hoppers and ventilation pipes will be subjected to scrutiny and analysis in
order to achieve the local savings target.
Furthermore, as Gold Fields" strategic sourcing capability matures, focus is
moving to Total Cost of Ownership (TCO) models (which would include not only
the purchase price but the total cost over the life of the equipment including
maintenance, spares and operating costs) and working in partnering
relationships with suppliers on performance based contracts.
Sourcing benefits have also been identified at the international operations of
Australia, Ghana and the Peruvian Cerro Corona project. Preliminary indications
are that savings of around US$20 million (R130 million) per annum may be
achieved.
In addition, Gold Fields will be embarking on targeting further benefits
through the introduction of a globally integrated supply chain
structure.Initial studies of identifying opportunities across the entire supply
chain (forecasting and planning, sourcing, inventory, maintenance, production,
accounts payable, disposal and distribution) are underway.
Driefontein
September June
2005 2005
Gold produced - 000"ozs 289.8 297.9
Yield - underground - g/t 8.1 8.3
- combined - g/t 5.6 5.3
Total cash costs - R/kg 69,872 64,548
- US$/oz 333 314
Gold production at Driefontein decreased by 3 per cent from 297,900 ounces
in the June quarter to 289,800 ounces in the September quarter, which was in
line with the forecast. The underground grade decreased from 8.3 grams to 8.1
grams per ton during the quarter. This was partially offset by an increase in
the underground tonnage from 978,000 tons to 989,000 tons despite a four day
work `stoppage" caused by industry wide wage negotiation industrial action.
Surface tonnage was managed lower to accommodate the anticipated higher
underground volume. This switch from surface to underground tonnage resulted in
an increase in cost per ton from R359 to R406 in the September quarter.
This blending adjustment improved the combined yield from 5.3 grams per ton in
the June quarter to 5.6 grams per ton in the September quarter. The yield was
bolstered by plant clean-up which accounted for 3,000 ounces for the quarter.
Operating costs increased by 5 per cent from R625 million (US$97 million) in
the June quarter to R656 million (US$101 million) in the September quarter as a
result of the 6.5 per cent annual wage increase and the increased underground
tonnage. Total cash costs increased 8 per cent in rand terms to R69,872 per
kilogram. In US dollar terms, total cash costs increased by 6 per cent from
US$314 per ounce to US$333 per ounce. Operating profit decreased by 11 per cent
from R188 million (US$30 million) in the June quarter to R168 million (US$26
million) in the September quarter.
Capital expenditure decreased from R75 million (US$12 million) in the June
quarter to R47 million (US$7 million) for the September quarter. It is
anticipated that capital expenditure will return to the former level for the
remaining quarters of F2006.
Grade estimate modelling forecasts a slightly lower grade during the December
quarter, with improved underground ore volumes. Gold production for the
December quarter should therefore be similar to the September quarter. The cost
profile for the December quarter will increase slightly due to the planned
increase in underground volumes hoisted, substituting the mineralised waste
from surface.
Kloof
September June
2005 2005
Gold produced - 000"ozs 218.4 225.5
Yield - underground - g/t 8.7 8.3
- combined - g/t 7.8 7.8
Total cash costs - R/kg 88,295 85,445
- US$/oz 421 416
Gold production at Kloof decreased by 3 per cent from 225,500 ounces in the
June quarter to 218,400 ounces in the September quarter. This decrease was due
to fewer shifts worked as a result of the wage related strike action during
August, exacerbated by a slow start-up after the strike and continued lower
grades than reserve grades as highlighted in the June quarter. Underground
grades improved by 5 per cent quarter on quarter and management intervention is
ongoing to return these grades to more historic levels above 9 grams per ton
during the next quarter.
Tons milled from underground decreased by 8 per cent from 832,000 to 767,000
quarter on quarter due to the strike and a further reduction in marginal area
mined. Underground yields improved from 8.3 grams to 8.7 grams per ton. A
proportion of the lost underground tonnage due to the strike was made up from
surface stockpile material. Surface tons increased from 70,000 in the June
quarter to 108,000 in the September quarter, albeit at a much lower grade. The
change in mining mix resulted in a combined yield for the quarter of 7.8 grams
per ton, the same as the June quarter.The net lower tons milled resulted in an
increase from R692 per ton to R714 per ton, quarter on quarter.
Operating costs at R625 million (US$96 million) for the quarter were virtually
unchanged compared with the June quarter. The impact of annual wage increases
was offset by lower costs as a result of reduced volumes during the industrial
action. However, total cash costs increased by 3 per cent to R88,295 per
kilogram compared with the June quarter of R85,445 per kilogram as a result of
the lower gold production. Total cash costs in US dollar terms increased by 1
per cent to US$421 per ounce for the quarter.
The operating loss of R4 million (US$1 million) for the September quarter was
similar to the previous quarter.Capital expenditure decreased by 11 per cent to
R43 million (US$7 million) for the quarter mainly due to lower expenditure at 4
sub-vertical shaft.
Initiatives implemented to improve the mining grade are progressing well and
the December quarter"s volume and grade are expected to improve, which would
result in an increase in gold produced by between 5 and 10 per cent.
Cash costs will reduce accordingly.
Beatrix
September June
2005 2005
Gold produced - 000"ozs 138.6 163.2
Yield - underground - g/t 5.2 5.6
Total cash costs - R/kg 87,152 78,010
- US$/oz 416 380
Gold production at Beatrix decreased by 15 per cent from 163,200 ounces in the
June quarter to 138,600 ounces in the September quarter. Underground ore
volumes decreased from 910,000 tons in the June quarter to 831,000 tons in the
September quarter. This decrease was due to the industrial action which took
place during August and the slow start-up after this strike, together with the
haulage constraints at West shaft due to continuation of the smectite problems
reported last quarter. The logistics project at West shaft to alleviate the
smectite problems made further progress during the September quarter, with the
last level and some critical development nearing completion.
The overall yield decreased from 5.6 grams to 5.2 grams per ton. This decrease
in yield was due to slightly lower mining values, mainly due to reduced volumes
at Beatrix West, which is a higher grade shaft than the rest of the property.
Surface material is no longer processed at Beatrix due to uneconomic grades at
current price levels.
Operating costs decreased by 5 per cent from R411 million (US$64 million) to
R391 million (US$60 million) mainly due to the lower production, which offset
the 6.5 per cent increase in wages effective from 1 July 2005. However, the
decrease in gold production resulted in an increase in total cash costs per
kilogram by 12 per cent from R78,010 per kilogram (US$380 per ounce) in the
June quarter to R87,152 per kilogram (US$416 per ounce) in the September
quarter.
Beatrix posted an operating profit of R6 million (US$1 million) in the
September quarter despite the negative effect of the strike on production,
compared with R39 million (US$6 million) in the June quarter. Capital
expenditure at R44 million decreased 15 per cent compared to the June quarter.
This decrease was mainly due to lower development meters at 3 shaft as a result
of the industrial action.
Gold production for the December quarter is forecast to increase to historic
levels of above 150,000 ounces, which will have a positive impact on unit
working costs. Capital expenditure is planned to increase by 30 per cent in the
December quarter due to the need to increase certain key development projects
to maintain higher levels of production.
International Operations
Ghana
Tarkwa
September June
2005 2005
Gold produced - 000"ozs 174.2 199.1
Yield - Heap leach - g/t 0.9 1.0
Yield - CIL plant - g/t 1.5 1.7
Total cash costs - US$/oz 277 240
Tarkwa"s gold production decreased by 13 per cent from 199,100 ounces in the
June quarter to 174,200 ounces in the September quarter. The heap leach
operation contributed 119,600 ounces, down 16,100 ounces from the June quarter.
The CIL plant contributed 54,600 ounces, a decrease of 8,800 ounces. A total of
5.3 million tons of ore was processed during the quarter.
The CIL plant processed 1.14 million of these tons at a yield of 1.50 grams per
ton, compared with 1.18 million tons at a yield of 1.66 grams per ton in the
June quarter. The decline in head grade reflects difficulties experienced
during the quarter in balancing the load of soft high grade and hard medium
grade ores to the mill. The volume of the latter had to be increased during the
quarter to provide competent ores to the mill to maintain mill performance, in
the process displacing the former.
Ore stacked on the leach pads was 2 per cent lower than the previous quarter
reflecting the effects of the 2 day strike and 3 fewer operating days in the
quarter. Head grade to the leach pads was 1.20 grams per ton, compared with
1.29 grams per ton in the June quarter. The decrease in grade was in line with
forecast. Gold-in-process release at the heaps during the period was 1,400
ounces compared with 6,000 ounces in the June quarter. The decline in gold
release from the heaps was due to stacking on the 3 and 4th lifts at both the
north and south heap leach plants.
Tons mined increased by 2.2 million tons for the quarter to 24.1 million tons.
The stripping ratio increased from 3.17 to 3.46 reflecting the current push
backs taking place at both the Teberebie and Kotraverchy pits. Mining costs
were US$0.88 per ton for the quarter compared with US$0.81 per ton last quarter
reflecting the increase in the maintenance cost of the fleet due to the number
of hours the units have been operating and the increasing cost of diesel.
Operating costs at US$48 million (R315 million), including gold-in-process
adjustments, were similar to the previous quarter. The costs of the additional
stripping were offset by the lower GIP charge. Operating costs per ton treated
excluding GIP charges were US$9.25 per ton as against US$8.73 per ton in the
June quarter, reflecting the increase in stripping ratio. Total cash costs at
US$277 per ounce compare with the June quarter"s US$240 per ounce and reflects
the decrease in gold production and increase in strip ratio.
Operating profit at US$28 million (R182 million) decreased by US$10 million
(R57 million) compared with the June quarter. The lower production was partly
offset by the increase in the average gold price, which increased from US$428
per ounce in the June quarter to US$437 per ounce in the September quarter.
Capital expenditure decreased from US$16 million (R101 million) in the June
quarter to US$7 million (R47 million) in the September quarter. The
construction of leach pads at both the North and the South facilities remains
the major focus of expenditure.
Gold production for the December quarter is expected to improve, as stacking
has commenced on the first lift at the new Blue Ridge pads at the South heap
leach facility, although the North leach pad will remain on high lifts
throughout the quarter. This will result in unpredictable gold production from
these heaps in particular. During October good progress was being made on
resolving the mill blend issues referred to above and a slight improvement in
grade is expected there.
Damang
September June
2005 2005
Gold produced - 000"ozs 57.2 58.2
Yield - g/t 1.3 1.4
Total cash costs - US$/oz 375 340
Gold production decreased from 58,200 ounces during the June quarter to 57,200
ounces in the September quarter.This decline was due to a decrease in feed
grade to the plant, from 1.54 grams per ton in the June quarter to 1.46 grams
per ton in the September quarter. The decrease in grade resulted from reduced
higher grade fresh ore tonnages mined from the Juno 2SE pit, which will reach
its final depth in the December quarter. This was offset, to a degree by a 5
per cent increase in mill throughput to 1.33 million tons, notwithstanding the
shorter operating period.This increase reflects better availability of the mill
and a slight reduction in the volume of the Juno ores referred to earlier,
which are particularly hard.
Total tons mined decreased slightly from 3.8 million tons to 3.7 million tons.
Mining operations commenced in the Tomento pit and continued in the Amoanda and
Juno 2SE pits, with ore tonnages mined decreasing from 858,000 tons in the June
quarter to 742,000 tons in the September quarter. The Tomento and Amoanda pits
were the main source of oxide feed to the plant, although towards the end of
the quarter the Amoanda pit joined the Juno 2SE pit as a source of fresh ore.
Operating costs, including gold-in-process adjustments, increased marginally to
US$21 million (R138 million) from US$20 million (R125 million) in the June
quarter. Cost per ton milled decreased from US$15.52 to US$14.40 largely due to
lower mining costs associated with the increased volumes from the conglomerate
pits. Total cash costs increased from US$340 per ounce to US$375 per ounce
reflecting a US$2million (R13million increase in GIP charge for the quarter
and also the lower grades.
Operating profit decreased from US$5 million (R35 million) to US$4 million (R26
million) for the September quarter with the higher gold price only partially
offsetting the lower gold production and increased costs.
Capital expenditure for the quarter amounted to US$4 million (R25 million). The
majority of this expenditure was incurred in development costs at the Damang
pit cutback, which commenced during the quarter
Gold production and costs are expected to be similar in the December quarter.
Australia
St Ives
September June
2005 2005
Gold produced - 000"ozs 119.8 143.1
Yield - Heap leach - g/t 0.5 0.5
Yield - Milling - g/t 3.1 3.5
Total cash costs - A$/oz 415 450
- US$/oz 316 348
Gold production for the quarter was 119,800 ounces, 16 per cent down from last
quarter"s 143,100 ounces. This decrease was due to lower treatment volumes, a
revised open pit mine plan and operational difficulties at the underground
mine, particularly at Leviathan. The June quarter also included 12,000 ounces
of clean up gold from the old mill. The Lefroy mill produced 111,200 ounces for
the quarter and the heap leach plant 8,600 ounces.
Total tons processed during the quarter amounted to 1.64 million, a decrease of
3 per cent from the June quarter. The new Lefroy plant processed 1,118,400 tons
a decline of 5 per cent against the previous quarter reflecting a planned shut
down but also a slow ramp up in tonnage after the shutdown. Tonnage treated
through the heap leach plant declined to 522,000 tons following the failure of
one of the tertiary crushers there.
The average head grade processed at 2.5 grams per ton was down significantly
against the June quarter"s 2.9 grams per ton. Poor performance of the
underground mines led to a decline in volumes of high grade ore to the Lefroy
mill and a drop in yield to 3.1 grams per ton from 3.5 grams per ton in the
previous quarter.
Mining operations produced 1.63 million tons of ore during the quarter, only
marginally below the previous quarter"s result. Open pit head grade was steady
at 1.64 grams per ton but lower than the planned grade due to a revision of the
mine plan that resulted in delayed deliveries from the Agamemnon open pit.This
decision was made to accommodate recently delineated higher grade extensions
that will now be accessed in the latter part of the December quarter. As a
consequence, alternative lower grade ore was substituted. Waste movement was
again reduced but will increase in future quarters as stripping activities on
new ore positions increase. During the quarter 1.43 million BCM"s of open pit
ore and waste were mined at an average strip ratio of 2.64 as compared with 3.1
in the June quarter.
The underground mining operations performed below expectations, producing
427,600 tons of ore at 4.5 grams per ton compared with 538,000 tons of ore at
5.6 grams per ton in the June quarter. At the Leviathan underground mine the
June quarter performance was not sustained with a reduction in volumes and
grades being the biggest contributor to the shortfall in underground ounces
referred to earlier. The East Repluse issues reflect a backfill failure in one
of the high grade stopes and subsequent effect on surrounding stopes.
Production commenced from the new Conqueror ore body which is part of the
Leviathan complex.
Operating costs, including gold-in-process adjustments, decreased from A$67
million (R327 million) to A$50 million (R249 million) reflecting not only the
reduced volumes milled but also the continued focus on cost control and the
lower cost of running the new Lefroy mill. Operating costs do however include a
A$3 million (R15 million) credit for power charges, reflecting settlement of a
long running claim. Total cash costs fell from A$450 per ounce (US$348 per
ounce) in the June quarter to A$415 per ounce (US$316 per ounce).
Operating profit at A$19 million (R94 million) was up on the A$13 million (R65
million) achieved in the June quarter despite the decrease in gold production.
This was due to higher revenues (average gold price of A$577 per ounce for this
quarter compared with A$555 per ounce in the June quarter) and lower operating
costs.
Capital expenditure for the September quarter amounted to A$16 million (R81
million) similar to the June quarter.Capital development underground and
capital equipment at Lefroy plant were the main expenditure areas. Capital
expenditure will increase slightly in the coming quarters in line with
increased waste stripping activity in the open pits.
Gold production and cash costs are expected to improve in
the December quarter.
Agnew
September June
2005 2005
Gold produced - 000"ozs 62.0 65.1
Yield - g/t 5.9 6.4
Total cash costs - A$/oz 303 265
- US$/oz 230 205
Gold production at Agnew decreased 5 per cent to 62,000 ounces in the September
quarter compared with 65,100 ounces in the June quarter. This was driven by a 3
per cent increase in mill throughput to 325,000 tons balanced by a slight
reduction in head grades and volumes from the Kim underground mine as compared
to the out performance reported in the last quarter.
Mining from the Waroonga underground complex (Kim and Main Lodes) decreased 4
per cent to 117,300 tons of ore resulting in gold production also decreasing to
49,000 ounces, against 59,000 ounces in the June quarter. This result reflects
a slightly increased contribution from Main Lode.
The Songvang open pit continued at the planned rate. Total BCM movement for the
September quarter was 1,555,800, a reduction of 20 per cent on the June quarter
figure of 1,938,800 BCM. This was driven by reduced waste movement reflected by
the strip ratio dropping to 16.1 from 20.1. Ore mined from the pit totalled
248,900 tons at a head grade of 2.5 grams per ton compared to the June
quarter"s 236,500 tons at a grade of 2.2 grams per ton.
Operating costs, including gold-in-process adjustments, increased from A$17
million (R82 million) in the June quarter to A$19 million (R95 million) in the
September quarter reflecting higher volumes of waste charged to operating costs
and a slight increase in mining costs at Songvang open pit, reflecting
increased ore hardness and mining depth.
Total cash costs increased from A$265 per ounce (US$205 per ounce) in the June
quarter to A$303 per ounce (US$230 per ounce) in the September quarter. The
increase was as a result of the decrease in gold production coupled with an
increase in unit mining costs at Songvang.
Agnew"s operating profit decreased from A$20 million (R94 million) to A$17
million (R83 million) in the September quarter, reflecting the decrease in
production and increased costs. Capital expenditure decreased from A$7 million
(R36 million) to A$6 million (R30 million) in the September quarter, the
decrease being due to a reduction in the rate of spend on the mill
adsorption/leach tank refurbishment programme.
Gold production and cash costs are expected to be similar in the December
quarter.
Quarter ended 30 September 2005 compared with quarter ended 30 September 2004
Attributable gold production in the September 2005 quarter was 1 per cent lower
at 993,000 ounces when compared with 1,007,000 ounces in the September 2004
quarter.Production at the South African operations at 647,000 ounces was 8 per
cent below the 700,000 ounces produced in the September 2004 quarter, mainly
due to the strike in August 2005. At the international operations, gold
production increased 13 per cent to 346,000 ounces, the majority of this
increase is due to the commissioning of the new mill at Tarkwa, where an
increase of 35,000 ounces was achieved when comparing the two quarters.
Revenue increased 12 per cent in rand terms (increased 9 per cent in US dollar
terms) from R2,705 million (US$425 million) to R3,023 million (US$464 million).
The lower gold production was more than offset by the increase in the average
rand gold price, which increased 12 per cent from R81,815 per kilogram (US$400
per ounce) in the September 2004 quarter to R91,669 per kilogram (US$437 per
ounce) in the September 2005 quarter.
Group operating costs in rand terms increased 5 per cent to R2,457 million
(US$377 million). At the South African operations operating costs were
virtually unchanged at R1,672 million (US$256 million). The lower production
and the effect of the no-work no-pay implemented during the strike in August
2005 together with stringent cost controls offset the wage increases and normal
inflationary increases seen over the past year. The increase in operating costs
at the international operations amounted to 7 per cent, from R672 million to
R786 million. In US dollar terms, including GIP movements, the increase in
costs at the international operations was US$30 million, from US$92 million to
US$122 million. The main reason for this increase was the increased production
at Tarkwa due to the commissioning of the new mill. Added to this are
significant increases in diesel, steel and reagents over the past year.
Operating profit at R554 million (US$85 million) for the September 2005 quarter
compares with R456 million (US$72 million) for the September 2004 quarter.
Profit before tax amounted to R110 million (US$17 million) compared with the
restated R197 million (US$31 million) in the September 2004 quarter. This
decrease was mainly due to a change in financial instruments - from a gain of
R152 million (US$24 million) in the September 2004 quarter to a loss of R9
million (US$1 million) in the September 2005 quarter. The gain on financial
instruments in September 2004 was mainly the marked to market gain on the Mvela
interest rate swap which was closed-out in the June 2005 quarter.
Earnings decreased from the restated R89 million (US$14 million) in the
September 2004 quarter to R39 million (US$6 million) in the September 2005
quarter. Earnings excluding gains on financial instruments, foreign debt and
exceptional items increased from a restated loss of R18 million (US$3 million)
in the September 2004 quarter to a profit of R44 million (US$7 million) this
quarter.
Capital and development projects
Cerro Corona
During the past quarter, a third round of workshops was held in six local
communities with the assistance of the Peruvian Ministry of Energy and Mines
(MEM). During July the official public hearing for the Project, which was
directed by the MEM, was held in the nearby community of Hualgayoc with over
2,500 people in attendance. In general participants at the hearing demonstrated
a high level of support for the development of this project. Subsequent to
these meetings, public and regulatory comments on the Environmental Impact
Study were invited.
This public engagement process has generated extensive questions and
commentary, to which we are now responding. Although the scope of this is very
broad, approval of the EIA is still anticipated in the December quarter.
Voluntary public information workshops continue to be held in the project"s
area of influence to keep the local populace up to date on the project status
and site activities.
Site work during the period remained largely focused on geotechnical activities
in support of the ongoing design engineering work being developed by Hatch, the
engineering and procurement contractor. Construction of a project perimeter
wall was begun using local companies and labour.
The detailed engineering design work for the plant and tailing facility
continued. Hatch completed a ?10 per cent capital and operating cost estimate,
which is currently being reviewed. A project decision is expected in the last
quarter of the calendar year.
North American Palladium and Gold Fields Announce
Option/Joint Venture on the Arctic Platinum Project
On 18 October 2005, North American Palladium Ltd.
("NAP") and Gold Fields Limited ("Gold Fields") announced the intent to form a
joint venture to further explore mining properties and develop a mine at the
Arctic Platinum Project ("APP") located in Finland. APP"s location and geology
are quite similar to that of NAP"s Lac des Iles mine in Northwestern Ontario
and will permit NAP to utilise its operating and development experience in the
design and construction of a mine at APP.
NAP will be granted an option to acquire up to a 60 per cent undivided interest
in APP including the Suhanko, SJ Reef and SK Reef mining properties and claims
located south of Rovaniemi, Finland (collectively the "Project"). NAP"s option
to acquire its interest in APP will vest upon NAP satisfying the following
conditions on or before June 30, 2008: (i) completing a US$7.5 million
re-scoping study and exploration program and US$5.0 million feasibility study;
(ii) making a decision to develop a mine at the Project; and (iii) paying Gold
Fields up to US$45 million through the issuance of NAP common shares. The price
per share will be the weighted average trading price on the American Stock
Exchange for 11 trading days commencing October 11, 2005.
During the next stage of work, NAP will manage the exploration, engineering
and evaluation activity on APP.
The re-scoping study on the Project will address the following objectives:
# define a combined mineable resource of 5 million ounces of 2PGE + Au at
grades greater than 3.0 grams per tonne;
# exploration on the SK Reef and SJ Reef mining projects to drill and examine
mining claims that have the potential to satisfy the target grades, obtain
sufficient data to create a new geological model that supports a combined
mine plan for the Project and identify other high potential geological
zones along the Archaean- Proterozoic contact;
# examine various mine design options to efficiently exploit all identified
APP resources and produce a marketable product in a cost-effective manner;
and
# evaluate the metallurgy of various ore types contained within the Project
and categorize as to possible processing options.
The re-scoping and feasibility studies are expected to commence in the first
quarter of 2006 and take approximately 30 months to complete.
Upon NAP"s ac
