World number-four gold miner Gold Fields is looking to restructure further its South African operations, following the decline in the rand gold price below R80 000 a kilogram, Gold Fields CEO Ian Cockerill said on Thursday.
For the past month, the rand gold price has been below the key R80 000/kg level, which compares with Gold Fields’ total cash operating cost during the June quarter of R73 033/kg. At 3.15pm on Thursday, the rand gold price was quoted at R78 076/kg.
The weaker rand gold price has resulted in Gold Fields changing its mining strategy from pumping large volumes of low-grade ore to shifting away from marginal areas and focusing on high-grade, lower-volume mining, said Gold Fields’ head of South African operations, Mike Prinsloo.
Gold Fields has three gold mines in South Africa — the Driefontein, Kloof and Beatrix mines.
Earlier, Gold Fields reported a loss after tax of R155,1-million for its June quarter compared with a profit after tax of R301,3-million in the quarter before.
A year ago in the group’s June 2003 quarter it produced a profit after tax of R817,1-million.
“Gold Fields local operations are in a bad way. However, I think that management is doing all they possibly can and I see a good recovery in the group’s local mines in the September quarter,” said Investec Securities analyst Leon Esterhuizen.
To cope with a rand gold price under R80 000/kg, Gold Fields will defer some of its capital expenditure, scale down on development, close marginal areas and loss-making shafts and reduce its workforce via voluntary separations.
Gold Fields will seek to increase its revenue at its local operations by upping its mining ore volume by 2% to 3% and by embarking on grade improvements of 3% to 4%, Prinsloo said.
On the cost side, Gold Fields will embark on a 10% development reduction at its Driefontein and Kloof mines and a reduction of between 40% and 50% in mine development at Beatrix.
Capital expenditure will be reduced by 10% to 20% at Driefontein and Kloof, while capex at Beatrix will be cut by 40% to 50%.
Employee numbers at Gold Fields’ local operations will be reduced by between 3% and 5%, and the company will seek to reduce costs by 2% and 3% across the South African operations.
“We remain in pursuit of double-digit margins,” Prinsloo said.
During Gold Fields’ June quarter, its profit margin at its local operations declined to 9%, from 14% in the March quarter.
Only 30% of the group’s operating profit during the June quarter came from South Africa, while its international operations in Ghana and Australia contributed 70%.
During the March quarter, South Africa made up 42% of Gold Fields’ operating profit.
In the instance where the rand gold price moves below R70 000/kg, Gold Fields will increase the amount of high-grade ore it mines, stop capital expenditure totally in South Africa and close more shafts. It may also embark on forced retrenchments, Prinsloo said.
Over the past nine months, Gold Fields has pared about 2 000 jobs, 800 of those in the June quarter, mainly through natural attrition and voluntary retrenchments at its South African operations due to the strong rand.
In South Africa, Gold Fields currently employs 44 000 people.
All three of Gold Fields’ South African mines are currently under Section 52 notification. This sort of notification by a company to the South African government takes place when a mine’s profit slips to below 6% of its revenue.
“Gold Fields is in the process of preparing Section 189s for all three gold mines. Since early 2003, we have been continuously restructuring our South African operations,” Gold Fields’ spokesperson Willie Jacobz said.
A Section 189 or a 60-day review is when a company notifies its trade unions that its operations are struggling and it needs to seek engagement to start retrenchment avoidance measures.
During the June quarter, the Driefontein mine produced an operating profit of R121-million, the Kloof mine added R49-million to operating profit while the Beatrix mine ended the three-month period R7-million in the red.
Despite its difficulties, the Beatrix mine is not up for sale, Cockerill said.
During the June quarter, Gold Fields closed the 5 West shaft at Driefontein, shut the Kloof 9 shaft and is in closure mode at the Beatrix 4 shaft. — I-Net Bridge