MACIG Connect Series
Goldfields is taking a investing in developing projects again following a period of cost cutting.
What are the company’s expectations for the gold price over the next year?
We don’t make predictions on the gold price. The price of gold has been stable this year but has recently become more volatile over political uncertainty. Based on pure economic fundamentals we are not that bullish, as we believe interest rates in the US will rise, which pushes the dollar higher and depreciates gold. I think we don’t expect a major upturn. Everything else being equal, I expect gold to trade between $1200 and $1300 over the next year.
When gold fell sharply, we took really hard steps; we retrenched 50% of our people at the head office and we closed our exploration division. The way to combat the volatility in gold prices is to produce at low costs. Our costs are below or close to $1000 an ounce and seven of our eight operations are profitable currently. At the moment, the industry is producing at a low cost rate and this should keep us in a good position for the next two years.
Gold Fields just confirmed a $1.4 billion investment in Ghana. What were the reasons behind this decision?
We took the decision to invest further in our Damang mine in Ghana as we found that there are significant resources underneath our current main pit. We also entered into an agreement with the Ghanaian government, which gave us a number of tax incentives that encouraged further investment in Damang. The capital costs amount to $350 million over the next two years and about US$1 billion in operating expenditure over the next eight years. It was a beneficial decision for the government, the community and the company.
Gold Fields has recently engaged in an aggressive debt-reducing strategy. Will this extend in the short run?
In the boom time we invested heavily using debt. Now we have cut the debt ratio in our company. During the past few years, a large chunk of our cash flow was dedicated to paying off debt. We have reached a level at which we are comfortable with our debt so now we are also investing it in new projects, such as the Damang investment and a $260 million acquisition in Australia.
Safety at mines has improved considerably but Gold Fields recently recorded a fatality in its South Deep mine. Can you comment on Gold Fields’ safety record?
Safety is obviously our chief concern. Of course one fatality at our sites is one too many and a lot of the accidents in the mining sector are due to human mistakes. But the recent fatality at South Deep was difficult to prevent since it was caused by an underground tremor. We are investing in research and working closely with universities to predict and study underground earthquakes. Of all the accidents this was possibly the least preventable but we are devoting resources to perhaps limit these even further in the future.
How would you describe your relationship with the trade unions in South Africa?
South Deep is our only mine in South Africa and it is highly mechanized, compared to the more conventional mines in the country. We only have around 4,000 full-time people working there. We entered a 3-year agreement with the trade unions last year that incentivizes semi- and high-skilled workers and provides better salaries. Unions remain sceptical because they are concerned that mechanisation and automation will cut jobs. However, unions also need to address some of the productivity issues that they refuse to deal with in order to secure the jobs that exist.
What role does sustainability play on your operations?
Sustainability is no longer a separate strategy, it is part of our business strategy. Engagement with all stakeholders is essential. If you are a manager of a mine you cannot just focus on operations. We have to invest in communities, have good relationships with the regulators, and make sure that we manage our impact on the environment. We are completely transparent about our operations and we try to have good relationships with our stakeholders. The focus of our community investment approach has shifted from merely investments on infrastructure to investments that have a far greater impact to make communities sustainable.
Gold Fields CEO noted that among major global miners the existing reserves life has dropped from 24 to 17 years. Can you comment on this?
We have invested heavily in near-mine exploration to extend our mines’ life. The best choice we have in the current environment is to invest heavily on the mines that we know so that we can find new gold reserves not only to replace the reserves we mined during the year, but also to make new discoveries. Perhaps it is also time for the industry to return to greenfields exploration in more remote areas to ensure that future gold supply remains strong.
What are the major geopolitical risks facing the industry?
In emerging markets such as Peru, Ghana, Brazil and South Africa, community discontent is regarded as a major risk, although I believe that with the right community engagement you can mitigate many of these risks in these countries. Another aspect is that governments often regard the mining industry as an easy opportunity to raise taxes, but this is not a sustainable strategy, particularly at the current market prices of precious metals. In South Africa, we do not have a lot of clarity about the mining charter and there is still legislation pending in Parliament. We need long-term certainty through development agreements such as the one we have just signed in Ghana.
What are your prospects on the gold industry?
Gold will always have a role in society, particularly in times of political and economic upheaval. It is a safe haven investment and we regard gold mining as a long-term opportunity. We are definitely here for the long run.