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Gold Fields plans further restructuring at South Deep mine

Published by , Assistant Editor
Global Mining Review,

Johannesburg-based gold mining company Gold Fields Ltd (Gold Fields) has announced plans for restructuring at its South Deep operation and provides a further trading statement relating to its 1H18 results, which is due for release today.

According to the international gold miner, South Deep has had a number of operational challenges since it acquired the project back in 2006. A key challenge has reportedly been the difficulty in transitioning the mine from one run with a conventional mining mindset and practices to mining with a modern, bulk, mechanised mining approach. Such persistent issues that South Deep has faced and have needed to be addressed include:

  • Rising operating and overhead costs, which are not aligned with the profile of a high-volume, medium-grade operation or with current output levels.
  • Consistent failure to meet mining and production targets.
  • Unique and complex mining method, long hole stoping mining at 3000 m with attendant challenging geotechnical and ground conditions requiring extensive support.
  • Extensive infrastructure and support services required to underpin mining activities, which continue to operate suboptimally impacting backfill and stope turn over.
  • Poor equipment reliability and productivity impacted by poor maintenance practices and operational conditions.
  • The operation is staffed and resourced for a much higher production rate than is currently being achieved.

Overall labour productivity is significantly below industry average. Despite numerous interventions to address these challenges, including optimising the mining method, extensive training and skills development, changing shift and work configurations, and outsourcing functions, the mine continues to make losses (R4 billion over the past five years).

Gold Fields has invested a total of approximately ZAR32 billion (including the ZAR22 billion acquisition cost) since acquiring the mine in 2006. Management believes that the mine can no longer sustain these cash losses and that the cost structure needs to be realigned with the current lower level of production.

Despite the most recent restructuring, South Deep continues to face a number of organisational and structural challenges that directly impacts both short and consequently long-term performance. The mine did not see much improvement in 2Q18 post-restructuring and shift changes, with production only marginally higher at 1518 kg (49 koz) from 1485 kg (48 koz) in 1Q18. Similarly, the cash burn continued into 2Q18 at ZAR295 million (US$24 million) compared to R361 million (US$30 million) in 1Q18. South Deep needs to be operated and scheduled as a safe, deep-level, capital-intensive, but highly mechanised and efficient operation. This will require a reduction in fleet and the associated labour complement as well as an improvement in effectiveness and productivity to build sufficient margin in the business to carry the high fixed cost base and deliver sustainable profitability.

South Deep has embarked on a host of initiatives to improve the productivity and deliver sustainable profitability, which to date have not had the desired impact. In the context of continued negative cash flow, management believes that the best course of action to address these issues includes further restructuring at the mine.

Focus on securing the future with intensive near-term initiatives. In support of returning the mine to sustainable profitability Gold Fields proposes to:

  • Temporarily suspend mining activities at 87 Level and redeploy these mining crews into the 4W corridor.
  • Service the eastern part of the mine from the Twin Shafts and restaff the South Shaft operations to a single shift per day. South Shaft will facilitate the provision of the following services to the full mining operation: Water and Backfill reticulation, Water Pumping, Ventilation.
  • Reduce growth capital expenditure for the next 18 months to reduce the cash burn. New mine development has outperformed the plan in recent years, which allows us some flexibility to reduce this activity for the near term. Given the significant impact of the restructuring from late 2017 and early 2018, we are unable to quantify the impact of the proposed large-scale restructuring on production in 2019 and beyond.
  • Consequently, the previously guided build-up plan for the mine (released in February 2018) has a high degree of risk and uncertainty and can no longer be relied upon. In addition, based on the current situation, detailed mine planning will be undertaken over the next few months. Once the full impact of the mine planning exercise and proposed restructuring is completed, the company will provide guidance for 2019 and beyond.

Gold Fields are to release their 1H18 11H18 financial results today at 12 pm.

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