Gold Fields - H1 2024

Transcript

Operator (participant)

Good afternoon, everyone, and welcome to Gold Fields' H1 2024 Results Market Call. All attendees will be in listen-only mode. A question and answer session will follow the formal presentation. If you should require operator assistance during the conference, please signal an operator by pressing star and then zero. Please note that this event is being recorded. I'd now like to hand the conference over to Mr. Mike Fraser. Please go ahead, sir.

Mike Fraser (CEO)

Thank you. Good day, everyone, and thank you for joining us to this call to discuss our operational and financial results for the six months ending 30 June 2024. You'll have noted that we have taken a slightly different approach to the results presentation and the use of our time today. The results were released at, on SENS at 7:05 A.M. this morning, and at the same time, we also released a pre-recorded presentation of the results on our website. We thought that this might make it more convenient for everyone to watch the presentation at a time that suits you, and also to enable us to provide equal access to all of our investors and partners across the globe.

With me today in the Gold Fields team is Alex Dall, our Interim CFO, Martin Preece, our Chief Operating Officer, Francois Swanepoel, Chief Technical Officer, Jongisa Magagula, EVP of External Affairs, and Thomas Mengel, VP of Investor Relations. What I'll do today is provide a couple of high-level remarks and then move straight on to Q&A. It is with deep regret that we reported two fatalities in the half year. I again extend our deep condolences to the family, friends, and colleagues of our two colleagues who lost their lives. I believe that a fatality-free mining business is absolutely possible, and that we can deliver on our promise that everyone who works at Gold Fields goes home safe and healthy every day.

In response to the fatality in January at South Deep, we commissioned DSS Plus, formerly known as DuPont, to conduct an independent review of our safety culture, processes, systems, and practices. This review was completed in May and has formed the basis of a multi-year safety improvement roadmap, as well as some short-term interventions in our higher risk areas. In terms of delivering value to our host communities, earlier this month, our St. Ives mine signed a landmark Native Title agreement with the Ngaju people, who are the determined native title holders of the lands and waters surrounding Norseman, where St. Ives mine is located. This is an important achievement, given the importance of St. Ives in our portfolio, and will contribute significantly to the upliftment of that community.

We also continue to make strides in our decarbonization journey as we commence construction of the renewable energy plants at St. Ives and at Granny Smith. Moving on to our operational performance, we were disappointed to be reporting a 20% decline in production. This was also a major contributor to the sharp increase in both all-in cost and all-in sustaining cost, which came in at $2,060 per ounce and $1,745 per ounce, respectively. We do expect a significantly stronger performance for the second half of 2024, particularly for South Deep, Tarkwa, Gruyere, St. Ives, and Cerro Corona, where we are anticipating a step-up in production in H2 in 2024.

It is important to note, at this point, while we have had challenges in a number of our operations, there are a number of our operations, in particular, Granny Smith, Agnew, Damang, and Tarkwa, who have delivered in accordance with their operating plans in the first half. With just over 1.2 million ounces of production expected in H2, we also expect to see costs to improve to approximately $1,580 per ounce for all-in sustaining cost, and $1,750 per ounce for all-in cost at the upper end of the guidance. It just shows that it demonstrates the operating leverage in the portfolio.

Given the operational headwinds experienced in H1 of 2024, as well as the delayed start-up to the ramp-up at Salares Norte, we are also now downgrading our 2024 guidance to a range between 2.05-2.15 million ounces. This is around 150,000 ounces in the mid of the range compared to the previous guidance, and most of this is contributed from Salares Norte's delayed restart of the ramp-up and South Deep regardless. By way of an update on Salares Norte, our ramp-up was impacted severely by the onset of the severe winter weather conditions in April, which we'd foreshadowed previously. This led to a freezing of material in the process plant pipes, causing a temporary shutdown of the plant.

During the winter months, the team have worked very hard and undertaken significant work to advance the safe restart of the plant. But due to ongoing challenges, we have not been in a position to restart that plant safely. And on reflection, over the past few weeks, we believe that a delay in that start-up to the end of September is the highest confidence way of delivering a safe and reliable restart of that plant. What we have also seen over the past few months is some really deep and low temperatures, which has slowed down progress on these restart activities.

This winter has been one of the most severe winters in Chile in almost 70 years, and we've had significant low temperatures, which have really caused some challenges in the restart. The restart plan, now scheduled for the thirtieth of September, will result in a production guidance of between 40 to 50 thousand ounces for 2024. This will also mean that ramp-up now goes into Q2 of 2025.

At South Deep, backfill rehandling challenges and poor ground conditions constrained access to stopes, resulting in slower stope turnaround. Whilst the backfill rehandling added complexity to the planning and mining processes, it meant that we were slower to access some of the high-grade areas. South Deep has developed and implemented a recovery plan to address this, which is being closely monitored and supported from our team. With that, I now propose moving over to Q&A.

Operator (participant)

Thank you, sir. Ladies and gentlemen, we will now be conducting the question and answer session. If you'd like to ask a question, please press star then one on your telephone keypad or the keypad on your screen. A confirmation tone will indicate that your line is in the question queue. You may press star two to exit the question queue. Our first question comes from Catherine Cunningham of J.P. Morgan. Please go ahead.

Catherine Cunningham (VP, Equity Research, Metal and Mining)

Hi, guys. Thanks for the call. Just two quick ones from me, so the first one is, could you just possibly expand on what the potential options are for Damang and for Cerro Corona, and roughly over what timeline you might be able to communicate an outcome there, and then, I appreciate you don't give any 2025 guidance, but would it be possible just to get an idea of where you see South Deep volumes heading next year, say, versus 2023? That's it for me.

Mike Fraser (CEO)

Great. Hi, Catherine. Look, just a couple of comments. On Cerro Corona, just to recall that we don't have to make any quick decision on Cerro Corona. Whilst we are planning to cease mining at the end of 2025, we've got around six years of stockpiles to mine. What is important is that we are doing ongoing exploration around our property at and in the region of Cerro Corona. We also have a very strong license to operate, and we believe we've got really strong relationships with communities. So managing whatever transition we take with Cerro Corona has got to be taken in a very sensible and strategic way. So I wouldn't expect that you'd see us rushing out with a decision on Cerro Corona anytime soon.

We really need to approach that with a degree of caution, and not giving up some of the broader optionality in that region. I would also say that Cerro Corona is gonna contribute significant cash to us, as we mine those significant stockpiles over the remaining six years, so it's certainly not something we wanna just give up very quickly. I think on Damang, it presents a slightly different proposition, and I'll ask Francois to comment on it, because he's leading a study at the moment. And whilst we know there is significant resource there that we can mine again for an extended period, I think when we first looked at it, we felt that it didn't really meet our capital allocation hurdles.

But I think with the study that's underway, which we should deliver by the end of this year, we may have a slightly better way of thinking about this mine. And again, for us, it's not gonna be the highest priority long-life asset in our portfolio, but if we can extend life, continue to provide a livelihood of communities, not be a burden on our company, and if we can do it in partnerships, you know, there might be something responsible to do around it, which is really what we're trying to achieve. But I don't know, Francois, if you want to comment on that study?

Francois Swanepoel (Chief Technical Officer)

Yeah, certainly the higher price environment currently has really changed the way that we look at Damang. There are a number of bits, and what we're currently doing is to see what combination and then what sequence can actually derive most value for us going forward. So I think there is significant value on the table, either for us or if not, if we decide to divest for, you know, somebody who can take that operation over going forward.

Mike Fraser (CEO)

Yep. And that's the priority, is, there might be value for us, but it's really about how do we, how do we sustain the livelihoods of the community? Martin, do you want to talk to South Deep? What do you think?

Martin Preece (COO)

I think certainly we're off the long-term trajectory that we had spoken about. I think it wouldn't be wise after this year to have a big step up into next year. We are looking at our plans now, and hopefully sort of towards the back end of the year or at, in February, we'll be able to give you guidance on next year's plan. But it will be better than this year. We've looked at the fundamentals that underpin next year's plan, and we do believe that we will be able to see a step up from where we're forecasting to land this year.

Catherine Cunningham (VP, Equity Research, Metal and Mining)

And then just to be clear then, does that imply that the sort of longer-dated targets that you outlined in the past are also off the cards, or should we still expect to realize that over time?

Martin Preece (COO)

I think all we've done is we've gone back a little bit on the buildup curve, but I think the longer-term targets. I'm certainly confident in that. I think we spoke about the twelve tons, to get up to that twelve tons per annum. And that mine, as we open up more and more infrastructure and move towards South of Range, you've just got more points of attack. And I think longer term, the twelve tons remains intact.

Catherine Cunningham (VP, Equity Research, Metal and Mining)

... Okay, cool. Clear. Thank you so much.

Mike Fraser (CEO)

Thanks, Martin.

Operator (participant)

Our next question comes from Chris Nicholson of RMB Morgan Stanley. Please go ahead.

Chris Nicholson (Head of Research & Equity Analyst)

Hi, Mike and team. Thanks for the call. Good to chat to you again. I've got a bit more of a, I guess, a high-level question on shareholder returns versus investment. Clearly, obviously, you had a difficult first half, and we saw net debt grew over the half. But, just kind of taking a step back, we are at a time of extremely, I guess, elevated gold price versus history, and I guess this is the point in time where I guess shareholders should be expecting potentially greater returns from a mining company. How do you think about that in terms of your dividend payment on a forward-looking basis? So is maybe, you know, the 35-45% of earnings the best we can expect?

Linked to that, I think the key thing, kind of, that's in my mind, and maybe you've just confirmed this, is clearly to the second half. You will now be buying Osisko Mining. And then from then into 2025 and 2026, you've obviously got the CapEx of that project to come, which I think the last time we were updated was about in excess of CAD 1 billion. So maybe just confirm that, and against that backdrop, you know, 35%-45% spending is the best we can expect over the next three years. Thanks.

Mike Fraser (CEO)

Yeah. Hi, Chris, and good to chat to you. Yeah, look, I think this is something that we are very mindful of, because as you can appreciate, we're dealing with solving for a couple of things. One is that we do not believe, in terms of our strategy, what we're trying to grow is growing cash flow per share. So when we think about reinvestment back in our business, all of those reinvestments have to come in a way that they're improving the quality of our underlying cash generation and underlying margins. So when we think about our investment in things like Salares Norte, when we think about our investment in Windfall, these are all projects that are gonna come in at a significantly lower cash operating cost and better cash margin than our current portfolio.

So it should be, in the longer run, creating optionality for us to increase that margin of cash return back to our shareholders. So how do we think about it in the next few years? As you rightly say, with the acquisition of Windfall, we've got the... Sorry, of the Osisko Mining, we've got the acquisition cost of the Osisko Mining. We've also got that capital build, which the anticipated capital build is, I think, around CAD 1 billion, as you rightly call out in the feasibility study. But what we also acknowledge is that if you look at our current portfolio, even if you look at the consensus pricing, over the remainder of this year, and into 2025 and into 2026, we will be generating significant cash.

And we will de-leverage this balance sheet at a fairly rapid rate, which will give us the ability to both fund the future optionality and the future growth in a project like Windfall, and also ensure that we appropriately reward our shareholders. So one of the things that we are talking about is if you look at our dividend policy today, which is that range of 30%-45%, it's kind of a wide range. I mean, today we announced a 40% payout ratio, which is kind of towards the top end of that.

But I always think that we need to be quite clear about how do we separate what we think is a reward for being part of our journey during periods we've got elevated prices and high prices, and what is our just core base dividend? So I think we'll come back and just talk about how we can be a little bit more precise around that conversation of splitting a base dividend and a higher return and a higher recognition. But I do think that over the coming years, if prices stay even if it's slightly below this and in line with consensus, given the cash generation that we expect, we should be able to be at least in the pack, and if not a little bit higher on overall yields to our shareholders.

And then we've got to decide what is the best way of returning that. And if our share price stays where it's at, obviously that would be a good opportunity of attack.

Chris Nicholson (Head of Research & Equity Analyst)

No. Okay. Thanks, Mike. I think that's a comprehensive answer. Thank you.

Operator (participant)

The next question comes from Tanya Jakusconek of Scotia. Please go ahead.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Yes, great. Thank you so much for taking my questions. I have two. One to do with Salares Norte and the other one to do with guidance. So maybe if I could start with Salares Norte. If I heard you correctly, looks like we're gonna get to nameplate capacity now in sort of like mid-2025. Is that correct?

Mike Fraser (CEO)

Yeah, it's hard, Tanya. Look, I think. So what we're saying is that we should be at our ramp up by the end of Q2 of 2025. And just one thing, because I think we need to understand the nuance of this, of the curve as well, is that you probably would expect lower yields and lower production in our winter months. We have planned for some of that. So you'll probably see, if you're really talking about nameplate and running at its potential, it's probably more into the Q3, I would suspect. But you're right. I mean, it's probably second half of 2025 where you would be expecting to achieve our annual production rates.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. And based now, then I will get to what you're doing and appreciate working in cold temperatures, 'cause we have a lot of that here in Canada. So I just want to talk about. Then where do you see commercial production? I know we at first talked about the end of Q3, which probably is not the case. Q4, probably not. Should I be thinking sometime in 2025, you going commercial, given this ramp-up delay in your plant?

Mike Fraser (CEO)

I'll ask Alex to answer that one.

Francois Swanepoel (Chief Technical Officer)

Thanks, Tanya. Yes, it will be sometime in the first half of Q1 next year that we'll reach our commercial levels of production. I mean, in the first half, yes, next year.

Mike Fraser (CEO)

Yeah, and that, again, assumes that and the dates, and Francois will always tell us this, is that the date of the starting up of the ramp-up is so important, because the curve is the curve. And so if we can achieve that, that 30th September startup date, which we now feel quite confident about, that will deliver that in H1 of next year.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. And then just for you know myself to understand, I appreciate you have a frozen plant with pipes, and I'm assuming material that would be a stockpile is frozen as well. So can I kind of just get an idea of how you see, you said September thirtieth, maybe sort of what the temperatures are, so we can understand how we're getting to ... 'Cause obviously, things have to unfreeze, and then you can start that plant up. Have you looked at any impacts to this plant in its state? And do you, you know, have you assessed it, and, you know, what has to be replaced, if anything, and do you have that on inventory? I'm just trying to understand, once September thirtieth-

Mike Fraser (CEO)

Yeah

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

comes, that we, you know, started, and then we're missing pieces and/or other. Maybe just give us an idea of how you're going to September thirtieth from now, and kind of what have you seen on site and preparing for.

Mike Fraser (CEO)

Yeah, and I might ask Francois to talk to that. He can probably give a much better answer. Over to you, Francois.

Francois Swanepoel (Chief Technical Officer)

I think what we've achieved up until now was we've successfully ran the crushing and the milling circuits, so we know that's functioning as planned. We've also been able to continuously provide circulation throughout the leach circuit and all the thickeners. So we also know that infrastructure is required. The next step of the puzzle, really the final piece now, is to perform the functional testing of the filtration plant, and we're actually in a good position to commence those tests as early as next week. So we believe that all the main equipment is fully functional, obviously, pending the functional test next week. The visual inspections are not giving any indication of any issues.

What we found, and you know, really the damage that we've sustained, we've largely repaired already, and that was mainly related to some pipelines, smaller diameter pipelines, which we've changed, but in some cases, we've actually installed bypass lines. So for us, in certain cases, it's easier to install new pipelines than it is to actually unfreeze these pipelines or let them unfreeze by themselves. So I guess the biggest sort of impact we've seen was really on instrumentation, and we're currently finalizing the replacement of those instruments that were in the pipelines, and we're also doing the final testing on the control system. So we do not expect any significant issues when we start up at that date.

Mike Fraser (CEO)

For example-

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay

Mike Fraser (CEO)

One of the key issues that resulted in the delay of the restart, which we were kind of aiming for that end of August restart, was that we felt it was appropriate to have additional pumps on site to ensure that if we had any failures, it would not actually affect the ramp-up. That is, we should be expecting those on in the next week, week and a half, or two weeks, sorry, I should say. Those are the only other ones that I would have thought. Yeah.

Francois Swanepoel (Chief Technical Officer)

I might just add that, you know, the average temperatures are certainly starting to, or will, is likely to, to increase throughout September. So it's unlikely that we'll see temperatures really below minus five, and highly unlikely that we'll see temperatures below minus 10 from that point onwards. So that actually gives us quite good operating conditions going forward.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay, so from what I understood, and again, just because, you know, I've seen this at other mines, so it looks like your instrumentation has been changed, your control system, and all of that is now operational. You've got some backup on pumps should we have some additional issues, or the backups are coming shortly. But everything else is looking like a restart, as long as we're within that minus five to minus 10 in September. Would that be a fair assumption?

Francois Swanepoel (Chief Technical Officer)

Yes. That, that's fair.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. All right, and okay, well, that's good, and I guess I just wanna finish off with the little chinchillas. Is there any update on those little animals? You know, have you... Your interactions with the government, are we still looking at that hundred and twenty days to go through and then restart, or where do we stand on that?

Mike Fraser (CEO)

Yes, so Tanya, just to recall that we were never going to do any relocation and/or capture and relocation activities during the winter months, so we'd always planned to suspend from May through to October in any event. So it just happened that the environmental suspension kind of overlapped with that period. But we have used that opportunity to engage quite deeply with them, remembering that the program, the plan for the relocation and capture was approved, was designed with the probably the premier environmental consultancy in Chile and endorsed by the SMA. So it's really been getting ourselves-...

And those, the experts as well as, the environmental agency to align on, once we've gone through all the monitoring, once we've gone through all the processes, and we haven't identified any chinchillas, can we then start with the dismantling of the rocky areas? Which is where the real kind of concern came in. And at this stage, we are planning with the alignment to recommence the monitoring program in October, in line with our plan.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay. And one other question I forgot to ask on just Salares Norte, and maybe someone can help me on the capital side. We've had quite a number of delays, and I'm quite surprised that this capital has not moved up. So my question to you is: If we get, if we're online to start this mill up at the end of September and ramp up, are we comfortable that this capital cost is not gonna move? If we have another delay, are we at risk? Because it's just, I'm very surprised that we are still on target in that band.

Mike Fraser (CEO)

Yeah, Tanya, look, I'll ask Alex to add some color on that. But one of the things that does kind of move around is the move between ramp up and project capital. So, but Alex, you wanna pop in?

Martin Preece (COO)

Yes. So, Tanya, when we refer to the project capital that hasn't moved, that's the actual cost incurred to construct the plant, that has stayed pretty fixed. It's the number that is moving, and we've disclosed in the book, is the ramp-up capital, which is now $71 million. And the longer the delays go on, that ramp-up capital goes up, goes up as we classify operating costs back to capital expenditure. But. And every month, sort of holding cost or, is about $35-40 million. So that's sort of what would get capitalized on that ramp-up phase until we reach the commercial levels of production.

Mike Fraser (CEO)

Yeah. And just to be clear on that, so from a cash point of view, it's pretty much square, because it's a reallocation of operating costs in 2024 into what we call ramp-up capital.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay, got it. Okay, so I'll have to look for that. Thank you. And then if I could just ask my final question on the second half guidance. I mean, pretty much every mine has to go up in production, except for Damang, I think, in order to meet that 55% coming in versus the 45. Where are we? Are you comfortable on your grades? Are you seeing grades improve? Are you seeing throughput improve? And at South Deep, when do you think you will resolve the issue with the backfill plant? Because-

Mike Fraser (CEO)

Yeah

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

... that's obviously not giving you the flexibility to open your stopes and mine and then close, you know, pump them back up to give you that, you know, development ahead of production and ability to make your numbers. So maybe a bit of clarity on that. Thank you.

Mike Fraser (CEO)

Yeah. Thanks, Tanya. I'll ask Martin to talk about South Deep, because he's better placed than any of us to answer it. But I think if you just look at the guidance, I mean, I think all of our operations outside of South Deep and Salares Norte, we have a degree of comfort on how they're tracking. Probably the one that has got more of the higher relative risk, just because of the weighting of production in St Ives, because Quarter Four for them is a very, very big quarter. So that does, you know, just from a timing point of view, place a bit of risk. But I think all the others are pretty much back on track for that. But Martin, I don't know if you would talk South Deep.

Martin Preece (COO)

Tanya, we're expecting a 15% uplift in H2 at South Deep. So I think we've been conservative because of the challenges we've had. I think the problem is less about the backfilling. It's about the leakage that we've got to clear. So we've made significant inroads into that leakage, which is gonna allow us to move back into some of the better grade areas of the mine and get the mine running per the original sequence we envisaged in the year. We also, the other thing that's lifting grade in the second half at South Deep is our development to put infrastructure in moves back into reef. So we see a bit of an uplift from that in the second half.

I think in terms of resolving the backfill problems, we've been working on different solutions. One of them is a gelation solution to start minimizing the leakage through the crushed ground in the pillars. We're getting some positive results from that now. We've also worked on improving the barricades we've put in place to hold the leakage. And then there's a polymer product we're working on to further improve the leakage through the actual pillars. We're also looking at options to increase the density of backfill close to where we place it. So I think the combination of all those things, we're not waiting for the perfect solution. We keep on working on those solutions as we go along and refining them. And there's not, I think, a definitive date that we'll have no leakage.

I think the reality is the kind of mining we do, we'll always have an element of leakage. It's about getting that to the minimum and then rehandling it as efficiently and as quickly as we can, and as I said, minimize the leakage and rehandle it, so I think during the second half, we'll get on top of the rehandling, or we're fairly on top of that now, and then start minimizing leakage. But have we got a definitive date when we've got the perfect solution? Not yet, but I think it's getting better every month as we go along.

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

Okay, great. Thank you so much for the information. I really appreciate you taking my questions, and look forward to seeing-

Mike Fraser (CEO)

Thanks, Tanya

Tanya Jakusconek (Managing Director and Senior Equity Analyst)

... you guys at the Colorado Springs.

Mike Fraser (CEO)

Thank you.

Operator (participant)

... The next question comes from Adrian Hammond of SBG Securities. Please go ahead.

Adrian Hammond (Executive Director - Equities)

Thanks, operator. Mike, if we just stand back for a second and look at this portfolio, I'd like to get a better sense of how Gold Fields is gonna fare in the next five years. So if you take 2030 as a target, how many ounces are banked in the portfolio relative to current production that can be delivered? You've done Windfall to bring in 300,000 ounces. How many more ounces does the group need to acquire to keep the base steady?

Mike Fraser (CEO)

Yeah, look, Adrian, a really good question, and something that, if you just take a step back, that certainly I think has been raised in the minds of a lot of the investors, because when we went into Yamana, I think there was a lot of uncertainty created on the belief that we didn't have a portfolio that could actually deliver a sustainable production profile. So what we are looking to. And 2030 is actually not the way we should think about this portfolio. We should be thinking about it, well, what does 2035 look like? Because that's the kind of horizon that we wanna keep ahead of ourselves.

And from a strategy, I guess what we want to build into the market is a confidence that we've got this rolling ten-year horizon plus of reserves that allows us to hold a production profile of between two to three million ounces. But we'll only replace those ounces if we can continue to grow cash flow per share, so that kind of gives you a bit of a sense of how we're thinking about portfolio evolution, but to 2030, which is, you know, six odd years out, all of our current operations, with the exception of probably Cerro Corona, which you'll start seeing lower production coming because we're gonna be processing stockpile. Damang probably comes out unless we do the additional reinvestment there.

But then you get kickers from, you know, Salares Norte. You get the kicker from hopefully the Tarkwa-Iduapriem JV, which we get some additional volumes out of, and you hopefully start seeing the ramp up out of South Deep. So I look at the portfolio today, and you don't want to ever say this, but it feels like we had a bit of this inflection point. And probably what's hurt us is that we haven't had Salares Norte ounces coming in as soon as we would've liked. But I certainly, if I look through to 2030, I think there should be no reason that we're not in that two and a half million ounce range. So I think. And then, that's without having to do anything different, and that excludes even the addition of Windfall, you know?

So, I think there's definitely things that we have to do. And I think what that does is, again, if we think that the kind of happy range for us is between two and three million ounces, that maybe that then does force our hand in making decisions around assets that may be on the tail of our portfolio in terms of contribution.

Adrian Hammond (Executive Director - Equities)

Sure. No, that's clear, and I appreciate your fresh eyes on the assets. Just secondly, on Salares Norte, and I hate to labor it, as you've had many already on this topic, but I think my concern is really, you had an independent assessment done, and the conclusion there was that the steady, the ramp up was intact. Obviously, it's been delayed with this bad weather, and I wonder what they... what are they saying now about the steady state, if you've had any conclusions from that? And then secondly, you know, what happens next winter when, you know, operations get disrupted all the time? I mean, are you confident to say today that should you have a disruption next winter, that that plant can continue unaffected?

Mike Fraser (CEO)

Yeah, and I'll ask Francois to comment, and I can add in at the back end.

Francois Swanepoel (Chief Technical Officer)

Yeah, firstly, from the independent review, their focus was really on the ramp up, and just nothing in the ramp up has changed, so we still believe when we recommence the ramp up that we will continue to follow that curve. At this stage, we don't have an independent or an additional independent review on the steady state conditions. But what I can say is that the events that led to the delay and what we experienced during April was we were really dealing in totally unusual operating circumstances. We were in the process of commissioning the plant, so the plant was stationary during significant periods of time, and we suffered an unseasonable event causing the plant to start to freeze up. So, that's...

Just under normal operating conditions, what you have is you've got a milling circuit where you're injecting a significant amount of heat into the circuit. So six megawatts of power goes into your system. The slurry and solutions continue to circulate, and that was simply not the conditions we had during April. So if we look forward towards next year, and if we continue with the ramp up, we would certainly we don't expect to have similar conditions. The question might be, what happens during a shutdown? During a shutdown, obviously the team needs to take the required operating precautions, stop or circulate or drain the lines, so there are operating procedures in place for that. So we're definitely not foreseeing a similar event taking place.

What we are, however, doing as a precautionary measure is obviously we're looking at everything very critically and assessing where we should apply additional measures. But what we believe is that those measures are incremental in nature, so we don't think it will require significant additional CapEx. There might be a small portion of additional heat tracing and installation to be done. We are definitely planning to put specific protection for some of our pumps, but again, very incremental in nature. So the operating conditions will be vastly different next year when we're already in steady-state conditions, when we get into winter, and we will also have some additional protection against those conditions.

Mike Fraser (CEO)

Yeah. Thanks, Francois. And I think the real thing that's hurt us at Salares Norte is the fact that we had that early winter event in April, which really put us on the back foot. And we probably then just were gonna be struggling. Yeah, but I think getting, as Francois said, once we ramp up steady state, next year is gonna be a lot easier.

Adrian Hammond (Executive Director - Equities)

Yeah, I hope it goes well. Thanks, guys.

Francois Swanepoel (Chief Technical Officer)

Yep. Maybe if I can just add to that. Just to support that, what we've been doing as part of our preparations for the restartup, we've been circulating solutions in the plant, in the whole of the thickeners circuit, the leach circuit, so we know it's working. You know, we've had the you know, the coldest day in nearly a decade on site, and then the circuit was able to to operate continuously through that. So yeah, that is obviously underscoring our belief that we can maintain this during the following winter.

Operator (participant)

Thank you, sir. The next question comes from Leroy Mnguni of HSBC. Please go ahead.

Leroy Mnguni (Mining Equity Analyst)

Hi, good afternoon, guys. Thanks for the opportunity. I've got two questions. So I'm mindful that you guys revised your guidance in May, citing some issues at South Deep, and again in June because of the Salares Norte issues. And in both instances, you said you were quite conservative in your guidance, or you gave a wide range to account for contingencies. And yet, again, we're seeing, you know, the same assets kind of feature in the justification for a further cut in guidance two months later. Is this just an unfortunate set of incidents that happen to coincide, or is there a need to review some of your planning processes and management supervision? My second question is just on labor issues across the groups.

I remember a few months ago, you were considering moving a labor force from Ghana to Australia to relieve some of the pressure there. We've seen your PGM peers along the eastern limb having some challenges with labor shortages. I know those are often some of the skills to South Deep, so if you could just give a bit of a summary of how that's going across the group.

Mike Fraser (CEO)

Yeah. Thanks, thanks, Leroy. Look, I think just in terms of the first one on guidance, I guess I'd make two comments on that. Firstly, we make decisions based on the information that we have available at that time. So quite clearly, in May, the two biggest unknowns were Salares Norte and South Deep. And certainly on the back of that, we believed that we would be able to get a restart on Salares Norte, and that certainly we now know has been delayed further. And it's purely that delay in the restart of the ramp-up has meant that we've had to re-guide on Salares Norte. And hopefully, when we did the initial guidance on Salares Norte, we were quite clear that ninety thousand was assuming a restart on the first of September.

Similarly now, as we go out, if we really can't start on the thirtieth of September, we're probably gonna lose ounces again at the rate of about 2,000 ounces or 1,000 ounces a day. It's really important for us to understand the impact, particularly in the early days, on guidance. I think as related to South Deep, the team has been working really with a number of partners to try and find a solution to this leakage through a number of products, as Martin has said. I think it's been probably a little bit disappointing that we haven't been able to get a solution quicker.

I think where we're at now is recognizing the backlog that that's created, that we really wanna do this in a safe and sustainable way. I mean, the last thing we wanna do is to push that team continue to operate in difficult conditions and overly stress that operation. I think those are the two things that may have changed from May. And I fully appreciate that, you know, this is putting out a change in guidance three months later is absolutely not what we stand for, not what we want to do. But again, I think in the context of this, I'd much rather keep people safe and do ramp-ups in a safe and reliable way.

And, if it means that we create a lot of disappointment to the market, I fully appreciate that, but if I keep people safe, that's more important. And then just on the Ghana to Australia issue, Martin, you may want to comment on that.

Francois Swanepoel (Chief Technical Officer)

Yeah. I think, Leroy, it was with some relaxation with the immigration regulations in Western Australia.

Martin Preece (COO)

... We had a number of our staff that have applied for roles at our mines in Australia. So we've some of them have moved, some of them have gone on interview there, and I think prefer Ghana. So we have had a few people, but I don't think it was ever envisaged as a mass migration of Ghanaians to our operations in Western Australia. But we certainly have seen a couple of our colleagues move there. Some have accepted roles, some have turned them down. If I go on to your question about South Deep and the loss of, it's in particular around longhole drilling operators, as well as the artisans who maintain those machines. There has been a little bit of a slowing, but certainly we're still under pressure.

The window for longhole stope rig operators sort of training up is obviously a lot shorter, because that is almost the apex of our operating skills underground. So what we are doing is we are over-training in that category, so we're taking people off jumbos to train up, and we're training surplus to requirements, with the understanding that we will continue losing operators until the market is saturated. Unfortunately, it's a cost we're gonna have to bear to, I suppose, train for the industry. And that is steady, but obviously there's a proficiency challenge, 'cause you've just got new operators on your machines all the time.

With artisans, a little bit more difficult to one, to sort of get an artisan qualified, sort of hydraulic fitter, diesel fitter, is sort of at least a four-year window, and to get them proficient is most probably sort of seven, eight years, so we are investing in artisan training, but we also gonna have to look outside to try and attract and retain those skills external to the mine. Thanks, Martin, and thanks for the question.

Leroy Mnguni (Mining Equity Analyst)

Thanks. Thanks, Martin. Thanks, Mike.

Operator (participant)

It appears we have no further questions in the queue. I will now hand back to Mr. Mike Fraser for closing remarks.

Mike Fraser (CEO)

Look, thank you very much for joining our call this afternoon. I fully appreciate there's been a number of disappointments, not just the underlying performance, starting with safety through to production, and also the change in guidance. But I can honestly and confidently say that the second half is gonna demonstrate a much stronger operating performance. And as you can see with the guidance, that translates into a much bigger kicker and improvement in our cash generation and reduction in unit costs.

Clearly, Salares Norte's restart is a key issue for us over the next six weeks. We think that the delay is actually a very sound and safe way to think about a safe restart. Fully appreciate that the next quarter is gonna be an important one to demonstrate some confidence back in our performance. Appreciate the questions and the engagement today, and look forward to speaking to you. Thanks. Bye-bye.

Operator (participant)

Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.