JOHANNESBURG (Mineweb.com) -- Growth in new production across the global gold industry is not going to spike any time soon, despite a spot price currently at multi-decade highs.
Ian Cockerill, chief executive of Gold Fields, describes replacement as the new growth in the global mining industry, with very few large scale deposits being found to mine.
“The net result is that it is almost inevitable that new mine supply is going to decline, before it recovers, if it ever does recover,” Cockerill told guests at his company’s fourth quarter results presentation, “and for it to recover, you are going to have to see a lot of discoveries, along the lines of a Driefontein, Tarkwa or Cortez in America.”
On Thursday, Gold Fields, the world’s fourth largest producer, reported production of 1 million ounces for the quarter to end-June, bringing full financial year production to 4.1 million ounces, 100,000oz lower than a year earlier.
A 13% increase in the dollar gold price, quarter-on-quarter, to $628/oz, outstripped group cash cost increases of 1% to $376/oz, stretching the operating margin to 38%, from 32% previously.
The company generated $234.5 million (R1.53 bn) in cash from operating activities, compared to $176 million (R1.12 bn) in the previous quarter.
The company expects to more than double its capital expenditure in the coming financial year, from the R1.86 billion spent this year, to R4 billion in F2007, on replacement and growth projects.
Feasibility studies on two replacement projects in South Africa will go to the board in the next few weeks according to Cockerill. These projects will involve below infrastructure projects at Gold Fields’s Kloof and Driefontein mines.
Neighboring Kloof is the South Deep mine, owned by Western Areas and Barrick, which Cockerill described as a possible long-term replacement project. On two occasions earlier this year, Gold Fields boosted its holding in Western Areas up to 18.9%.
Gold Fields says it can access below infrastructure ore on South Deep Phase 2 from its existing Kloof operation, but explained on Thursday that South Deep would probably be part of replacement in South African ounces rather than growth.
“I always believed it is the role of an executive team not just to look at the next quarter, our job is to make sure in 10-20 years time we still have a company,” said Cockerill, “The very real likelihood is that something like the South Deep project, could play a role in such a replacement. That is why we like it.”
Globally, Cockerill says there are projects, which are looking attractive at existing gold prices, but that production costs are also on the rise.
“People look at a rising gold price, and say where is the problem, there should be plenty of new mines coming on board. They are forgetting the other side of the equation and that is the input costs.”
These costs have increased dramatically in the last few years, and Gold Fields says it is working hard at keeping costs in check.
“What five years ago would have been an attractive project at $400/oz, might need $500/oz maybe $600/oz today, simply because of the cost of tyres, fuel and such lot,” says Cockerill.
