NICK HOLLAND: We've got an exploration JV, we've started our first target, and we're going to be stepping that up. And I suppose my investment, taking our interest from 15.9 to 19.9%, really puts our foot on this company, gives us a strategic option for the future. They themselves will be a half-million ounce producer in about three years' time, so if that company was ever to be in play, we've certainly got the first look at it.
Holland – CEO, Gold Fields
01 August 2008 23:09
MONEYWEB: Nick, good to have you in the studio. I'm sure you'd like to be other places on a day when your share price takes a 12% hit. What do you guys do at the company when you see this kind of value wiped off a business?
NICK HOLLAND: I don't think you can be influenced by one- or two-day events in the market. What we've got to continue to do is focus on the fundamentals., or what we're trying to do in terms of delivering value, and in time the share price will sort itself out. I can't be distracted by what the market's done today. We're doing all the right things, I believe, to set Gold Fields up for the future, and I don't think you must be driven into a panic situation by what's happened in the market. This has been a bad day.
MONEYWEB: Talking about setting up things for the future, your dividend this year is the same as it was last year, your total dividend, R1.85, and it was only up from R1.50 the year before. If you look at the way the gold price has reacted over those two years, I'm sure some shareholders will be disappointed, hoping that the dividends would be going up with the gold price. But you are investing heavily for the future.
NICK HOLLAND: Well, this last year we invested about half a billion dollars in growth projects that you will see in this fiscal year, and that meant a significant reinvestment of our operating cash flows. So I think we are going to give shareholders the benefit in the long term.
MONEYWEB: But it's not going to be good in the short term? Safety issues - you did warn that you've got a horrible quarter coming up in the three months to September, when your production will be down sharply and your costs are going to go up.
NICK HOLLAND: Ja. The next two quarters are going to be hard, and we have to fix the Kloof main shaft infrastructure. You know, the steel work is basically 40 years old and has to be replaced, and at some point you have to stop the shaft to do it. And also there's safety support work we have to do at Driefontein and at South Deep. So the next two quarters are going to be tough, but I think thereafter we are going to be set up. Given that this is my first quarter, really, my first 90 days, I've used this as a cleanup quarter and have done a detailed review across all of the operations to work out where are the problems, let's fix them so we don't have unpleasant surprises a year from now.
MONEYWEB: Looks like your predecessor, Ian Cockerill, left at just about the right time, judging on what you've just told us.
NICK HOLLAND: Look, I think some of these issues, in fairness, had to be dealt with sooner or later anyway, you know, the maintenance on a main shaft like that can't really be dealt with adequately on a Sunday. But I would believe and I do believe that my approach to safety has certainly increased the total awareness, and people are really thinking about it now. So we've got more work to do, but I'm please in a sense that these issues have arisen in this quarter and not in subsequent quarters.
MONEYWEB: Nick, you did mention South Deep almost in passing, the Kebble ghost of that operation. Looking back on it now, a horrible quarter from South Deep, gold production down 29%. The cash cost there to get an ounce of gold out is over $1 000/oz. When might this thing ever start coming right?
NICK HOLLAND: You see, it's not really a mine at the moment. That's where I think a lot of people misunderstand this process. The infrastructure that's been put in place there is to support a R330 000-ton-a-month operation. At the moment we are not even doing a third of that. So you've got all of those costs set up to do that, and you're not producing. What we need to do is get the development up to speed, and that's seven or eight years behind, and we've only owned it for 18 months. Complete the infrastructure, and then this mine can produce what it should produce. We need five to six years to get to that, so the really focus now is to get the infrastructure completed, get the development up to speed, and then South Deep will be a good mine one day.
MONEYWEB: So don't treat it like an operating mine for five to six years as an investor's perspective?
NICK HOLLAND: No, absolutely.
MONEYWEB: Some good news, though - the decision to make a bigger investment in Sino Gold, and you've now got nearly R2.5bn tied up in the 20% that you own of that Chinese operation. Also, you've changed your approach towards going into China.
NICK HOLLAND: Certainly. We've had the ability to reduce the exploration thresholds from 5m-ounce targets to 3m-ounce targets. And, given that China is largely unexplored, despite being the world's largest producer, that gives us a much better chance. Now, if you look over the last ten years, there's only been one 5m-ounce-plus deposit found a year, and there's $4bn of exploration chasing that one 5m-ounce target. So very tough if you leave your threshold at that level.
MONEYWEB: So what are you doing with Sino Gold right now? Is it mainly exploration?
NICK HOLLAND: We've got an exploration JV, we've started our first target, and we're going to be stepping that up. And I suppose my investment, taking our interest from 15.9 to 19.9%, really puts our foot on this company, gives us a strategic option for the future. They themselves will be a half-million ounce producer in about three years' time, so if that company was ever to be in play, we've certainly got the first look at it.
MONEYWEB: How prospective is China? You say that it is the biggest producer of gold in the world, but not very well explored.
NICK HOLLAND: You see, it's so underexplored it's difficult to say. But so far what we've found is very fragmented gold deposits, and there's really only two large operations. There's the Sichuan [?] and Jinfeng, which is Sino. So there's a lot to do to understand the geology, but we know from our own geological mapping that this is in the right part of the world where you could expect to find the large deposits.
MONEYWEB: Looking ahead to the next financial year, shareholders have seen their dividend not increase this time round. You are going to have a bad quarter and probably another three months after that being poor. Is there any threat to the dividend for the year to come?
NICK HOLLAND: I don't think so. You know, with the new projects coming in one has to remember that Gold Fields' production profile is also going to be bolstered by that. You know, Cerro Corona at the moment we've got the mills turning, we are starting to process rock. I expect the first concentrate out by about 12th August, and that will ramp up very quickly to 375 000 ounces by Christmas. The Tarkwa expansion as well. So although the SA ops are going through some rehabilitation period, if I can call it that, the new projects are coming through and that will put us in a good position by the end of the year.
MONEYWEB: We saw AngloGold having nearly a billion-dollar bet on the gold price. From what Wayne was telling us earlier, and Barry Sergeant as well, they must be maybe a little bit nervous at the moment, given the way that the gold price is coming under pressure. From your perspective, do you still see a very strong gold price in the year ahead, or might things turn around?
NICK HOLLAND: I think gold is going to outperform for the next year, and principally for two reasons. I think the US economy has still got more bad news to come through, I think the dollar has to weaken over time, and the other thing is, if you look at the situation round the world with inflation, I think you're seeing negative real interest rates starting to emerge. That's always a positive sign for gold. And the fundamentals are good too. Producers aren't replacing what they are mining, there's not enough projects going around, permiting's a bigger issue. So I think gold should already be higher than $1 000. It isn't, but I think it will get there pretty soon.
MONEYWEB: Nick Holland is the chief executive of Gold Fields Limited. The share price down 12.5% today, but looking past the next six months, well, it's maybe one that you should be keeping in your portfolio.
SGX Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
