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Gold Fields lowers South Deep's FY guidance after below-expectation Q1 performance - Mining Weekly

Wednesday, 25 April 2018

JOHANNESBURG (miningweekly.com) – A below expectation performance at its South Deep mine, in Johannesburg, contributed to a 1% year-on-year and a 10% quarter-on-quarter decrease in Gold Fields’ output for the quarter ended March 31.

Production for the quarter was 490 000 oz.

South Deep had a tough start to this year, with production in the quarter 4% higher year-on-year, but 41% lower quarter-on-quarter at 48 000 oz of gold.

CEO Nick Holland stated that South Deep’s production for the quarter had been impacted on by the slow production build-up after the seasonal holidays; two labour restructuring processes that took place at the end of 2017 and during the quarter; and a change in underground working shift arrangements that were implemented to increase productivity.

“Although necessary to create a platform for sustainable and consistent performance, these changes have inevitably created workforce uncertainty and a disruption of operations,” he explained.

The labour restructuring comprised 47 personnel at managerial levels and about 260 personnel at lower levels. The restructuring was done to streamline organisational levels and increase control and was effected through a combination of voluntary and statutory processes.

Additionally, the change in underground shift arrangements effected in April have provided a longer shift of 11.5 hours instead of the original 9.5 hours. “The intention is to increase the effective time on the face and it will take some time to see the impact of this change,” Gold Fields reported.

In addition, continued low mobile equipment reliability, the intersection of active geological features (faults and dykes) in the high-grade Corridor 3 and poor ground conditions in the composites in the far western part of the orebody, slowed production rates.

Holland highlighted that these factors affect the North of Wrench (NoW) development, which decreased by 55% from 798 m to 357 m, owing to insufficient power capacity and as a result of Corridor 3 Cut 4 that was stopped as it approached the abutment of Corridor 3 Cut 3.

South Deep aims to reduce output from the current mine area while proportionally increasing production from the NoW mining area, which is a lower extension to the current miningoperations and contains reserves of 10.7-million ounces.

Production from the current mine area and NoW are expected to be completely phased out by 2052.

The mining areas north of the Wrench fault line are set to sustain South Deep only until about 2030, when it plans to begin mining the two mining blocks south of the Wrench fault – the South of Wrench (SoW) West and SoW East mining areas – with SoW West expected to supply the bulk of output up to 2094, the current estimated life-of-mine of South Deep.

At steady-state production, SoW West (16.6-million ounce reserve) is set to produce 150 000 t a month, while SoW East (8.6-million ounce reserve) will produce 80 000 t a month.

Meanwhile, production for April was further impacted by a 22-day Department of Mineral Resources Section 54 safetyrelated stoppage to re-support back areas in two of the critical new mine access ramps, which account for half of total production for the South Deep mine.

The mine team is developing a recovery plan to mobilise the workforce post the restructuring and to bed down the new underground shift cycles.

Management is implementing programmes to improve and integrate the critical aspects of the mining value chain. Backfill placement programmes continue to be implemented to improve both the quantity and quality of backfill used to fill open stopes and significant emphasis is being placed on developing integrated plans, short interval controls and the required discipline to execute these plans and schedules.

Gold Fields does not expect the mine to reach the 321 000 oz production guidance for this year provided at the start of this year and has lowered its guidance to 244 000 oz.

“The reduced full year guidance is attributable to the ongoing impact of poor equipment reliability, the slower advance rates in Corridor 3 and delayed extraction in the composites, as well as slower rates of distress in the March quarter, again a symptom of the lower productivity related to uncertainty around the labour restructuring,” said Gold Fields.

Gold Fields’ overall production for the full-year is expected to be between two-million and 2.5-million ounces.

Meanwhile, during the quarter, Gold Fields continued with its reinvestment programme at the Damang mine, in Ghana, which will extend the life-of-mine by eight years from 2017 to 2024.

At the end of the quarter, total material mined at Damang was 22% ahead of the project schedule. Gold produced during the same period was 180 000 oz – 35% above plan.

Gold Fields is installing a jaw crusher on site and expects it to be commissioned in the June quarter.

The semi-autogenous grinding mill shell replacement is on schedule, with installation and commissioning planned for the December quarter.

In Australia, Gold Fields’ joint venture Gruyere project, had experienced abnormal weather events during the quarter, which impacted on the project schedule and costs, with first gold now likely to be poured in the June quarter of 2019, rather than the March quarter of 2019, as previously forecast.

Gold Fields pointed out that project capital expenditure is also likely to be 10% higher than the previously estimated A$532-million.

Gold Fields will release a full financial update on August 17.

Gold Fields' share price on the JSE rose more than 5% on Wednesday morning to trade at R46.53 a share at 10:45, compared with Tuesday's close of R49 a share.


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