"South Deep could well be the last operating gold mine in South Africa, and many of the closure obligations of the mining industry could fall on us. The reason why many predict the demise of the SA gold mining industry is that gold mining is costly due to the underground nature of mining."
In 2018 Gold Fields initiated a strategic restructuring plan for its South Deep mine in South Africa. Can you elaborate on the process?
The South Deep mine has experienced a challenging period over recent years, despite multiple interventions to meet its plan and build production volumes to leverage unit costs and become profitable. The mine was not sustainable, and transformation was required to set the mine on a path of value. We thus framed a strategy to reconfigure the operating model, reduce the fixed cost base, drive cash-flow and build the foundation to become a modern, efficient and profitable operation. The restructuring was also aimed at reducing the workforce and mobile equipment levels in alignment with consolidating mining activity. In the wake of the mine not delivering on production and cost targets, the primary objective of the restructuring is to get the mine to breakeven at current levels of production, to minimize the cash burn and to drive productivity improvements under the new operating model to bring the mine to profitability.
The South Deep mine is Gold Fields’ last mine left in South Africa. It has the world’s largest gold ore body with approximately 70 million oz of gold. Unlike other gold mines in South Africa, South Deep is a mechanized mine and part of the restructuring plan is to ensure that we fully mechanize the operation. As a result of all the measures introduced, we are starting to see some operational success, and the mine is on track to achieve break-even level towards the end of the year.
Can you give an overview of the gold mining industry in South Africa?
If Gold Fields mines South Deep mine properly, we are going to be in operation for 70 years. But South Deep could well be the last operating gold mine in South Africa, and many of the closure obligations of the mining industry could fall on us. The reason why many predict the demise of the SA gold mining industry – apart from South Deep – is that gold mining is costly due to the underground nature of mining. Going beyond 2 km to dig for gold is costly and raises significant safety concerns. If the rand/gold price goes beyond a certain level, it makes it viable to mine, but at its current level, we are not seeing any new gold mines coming into operation. The mines also need to be made safe, and thus technology is required. In order for the industry to have a longer life than is currently predicted, we need to invest heavily in technology and the gold price needs to increase to make the economics of gold mining worthwhile.
Unfortunately, most mines have a remaining life of between five to 20 years, and, beyond South Deep, I do not see the industry extending considerably. We will also not see any new investment entering the country unless we have regulatory certainty, which is currently not the case. The companies who are not selling their assets will struggle to attract the capital to fund the exploration necessary to extend their life of mine. Unless there is a higher gold price, new investment, technology and regulatory certainty, the gold mining industry is on a dying path.
Gold Fields wants to be the leader in sustainable gold mining. Can you elaborate on this statement?
Gold Fields strives for leadership in sustainable gold mining. This means that whatever we do, above all, we have to be profitable to sustain operations in the long run. We need to have a good return on investment to survive. Leadership in sustainable gold mining means being the company of choice for all our stakeholders, including investors, employees, governments, communities and society in general. We want to operate mines profitably over the life of mine to create shared value for all our stakeholders. We are also focused on enhancing the environments in which we operate and limiting the impact that mining can cause.
Communities are a particular focus as they hold the social license to operate. We have a three-pronged program to create value for these communities. Firstly, we invest in infrastructure and education, which both benefits the mine and the community. Secondly, we try to employ as many people from the local community as possible, and we have a target of having a high percentage of host community employment. Lastly, we aim to procure as many goods and services from host community enterprises as possible. We aim to ensure that not only Gold Fields and the mine are sustainable but that the communities and environment surrounding the mine are sustainable as well.
Do you think it is feasible to capitalize on unrehabilitated mines in South Africa?
Given the significant costs it would take to revive unrehabilitated mines, it does not seem like a feasible option. Illegal mining in unrehabilitated mines is also starting to become a big social and environmental issue, and the government is not yet addressing it meaningfully. I think that there is a way where smaller companies can take on individual mines and make them work again. The challenge is that the regulatory framework has to be more attractive to get investors to come to South Africa.
Do you think that opening up the grid to private investment would solve the power issue in South Africa?
Opening up the grid to private investment is at this stage the best option, but is still under discussion. Since the last elections, the Energy Department has been merged with the Minerals Resources Department, and there is still regulatory uncertainty. Gold Fields wants to invest in a 40 MW solar plant at South Deep, which would take care of 65% of our energy needs at the mine, but the regulations stipulate that anything above 10 MW has to be approved by the minister. Government’s regulatory and administrative capacity is woefully short where it should be, so this is a major obstacle to opening up the grid.
What is Gold Fields’ vision moving forward?
Apart from expanding our international portfolio, Gold Fields key program is to bring South Deep to break-even level and beyond. We have invested R32 billion into South Deep and aim to get a return on this investment. We will not make any new investments into South Africa, apart from maybe a power plant where we will use an IPP to finance the project. However, we will have to invest in training and upskilling our workforce, and we will also invest in our neighboring communities. We care about South Africa, and we want the country to prosper.