Announcing lower net group March quarter earnings of R2 082-million ($268-million) compared with higher December quarter earnings of R2 605-million ($336-million), Holland puts the all-in cost of producing an ounce of gold at $1 400 and says the gold-mining industry will need prices higher than the current $1 500/oz to maintain output at 70-million to 75-million ounces a year.
“If we’re going to replace the ounces being mined out…we’re going to need higher prices,” he says, adding that analyst forecasts need to be moderated upwards.
Project curtailment, rationalisation and consolidation will follow if the gold price fails to return to at least the $ 1700/oz level at which it was trading prior to US Federal Reserve chairperson Ben Bernanke’s February 29 revelation that there would be no further near-term quantitative easing in the US.
Holland believes that the world is more likely to inflate itself out of debt than attempt to increase taxes and that there will be more quantitative easing.
“I think you’re going to see a lot more bad news coming through across the world and that should bode well for gold,” he says.
China, central banks and exchange-traded fund (ETF) investment is continuing to underpin gold, the World Gold Council (WGC) reports in its latest 'Gold Demand Trends' study.
The WGC expects China to become the world’s largest gold market by the end of the year in terms of yearly demand.
“Gold is actually in scarce supply. People are struggling to get gold,” says Holland, who adds that Gold Fields is patiently continuing to drive the fundamentals of the business and believes that the company will be rewarded in time.
“We’re not going to be distracted from our strategy by short-term gold-price volatility,” Holland assures.
MARCH QUARTER
The salient features of Gold Fields’ March 2012 quarter were group attributable equivalent gold production of 827 000 oz, total cash cost of $870/oz, an operating margin of 48%, a notional cash expenditure (NCE) margin of 24% and progress on its four growth projects.
Four fatal accidents took place at the South African operations.
Despite the lower production, net earnings remained robust benefiting from a stable gold price combined with continued sound cost control.
Attributable gold production for the year ending December 2012 is expected to be 3.5-million equivalent ounces.
The group NCE increased by 2 % from R313 286/kg ($1 206/oz) in the December quarter to R319 835/kg ($1 280/oz) in the March quarter. This increase was as a result of higher operating costs and lower production, partially offset by lower capital expenditure.
The company now owns 40% of the promising Far Southeast project in the Philippines where it has an option to take up an additional 20% stake from Lepanto Consolidated Mining Company for $110-million.
In Peru, the Chucapaca feasibility study is progressing, with particular emphasis on optimising recoveries, plant design and permitting.
At the Arctic Platinum project in Finland, resource drilling on the Suhanko North prospect added platinum-group element mineralisation to the original Suhanko project of 140 million tons.
At the Damang super-pit project in Ghana, drilling is complete and resource models finalised for the prefeasibility study.
The company’s latest resource and reserve statement indicates 5% higher reserves of 80.6-million ounces.
West African resources are up 46% from 17.3-million ounces to 25.2-million ounces and West Africa reserves are up 21%, from 11.3-million ounces to 13.7-million ounces.
The reserve base of Cerro Corona in South America is up 15%, from 5.3-million ounces to 6.1-million ounces.
At the Australian operations, gold production decreased by 9% from 172 000 oz to 157 000 oz, owing to lower underground volumes and grades at Agnew.
In South Africa, gold production at the Kloof Driefontein Complex fell 13% from 285 800 oz (8 890 kg) in the December quarter to 249 700 oz (7 765 kg) in the March quarter.
At Beatrix, production decreased by 12% from 89 700 oz (2 789 kg) to 79 200 ounces (2 462 kg).
