SUNDAY TIMES - South Deep looks to better days ahead
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Sunday Times Business By LUTHO MTONGANA and LUCKY BIYASE, 2017-03-12 00:00:00.0

South Deep looks to better days ahead

Nick Holland, CEO of Gold Fields Mining. File photo
Image: Martin Rhodes

A lift that can carry about 80 people at a time and travel at 60 metres a second to reach 2.5km below the surface is one of the features of Gold Fields's treasured South Deep mine.

The world's second-biggest gold ore body is wholly mechanised, the first in South Africa.

The mechanised mine has, however, struggled to reach full production in more than a decade that it has been in the hands of Gold Fields.

It now has a new set of faces leading operations. Over the last two years, they have repositioned the mine. Positive cash flows started last year for the first time since it was bought in 2006.

Many who were there when South Deep reported loss after loss, and when management was criticised for not having a clear plan, will know that a lot has improved from the days when the roof of the mine leaked puddles on the shaft floor.

"In the last two years the team had time to assess the mine and work out what plan could be more profitable and sustainable in the long term," said Nick Holland, CEO of Gold Fields. He was on a visit to the South Deep Twin shaft this week.

Gold Fields spent R33-billion in the past 10 years on South Deep and will spend a further R2.3-billion over the next five years.

He said it was still early days. A lot of work still had to be done. The plan was detailed and had been fully reviewed, internally and externally.

"Across all the operations around the world, [the new operators] have looked at this in detail, made suggestions and changes, which we have incorporated. It's also been reviewed externally," Holland said.

The assessment of new mining methods was done by Gold Fields's technical team, the Geo Technical Review Board and consulting firms.

Going through the mine of about 6100 employees, most of the area is empty and the only sounds are of the machines and trucks. It's unlike other gold mines, which are more labour intensive and filled with voices of miners.

On a nine-hour shift there are five hours of working time. That's because the shaft is currently operating one half of the shaft, the North of Wrench.

A rock driller who has worked at South Deep since its conventional mining days, said the machines were a good innovation. It was not painful on the body, but painful to see many colleagues lose their jobs since the transition to mechanised mining in 2006.

Within the next five years, South Deep plans to employ about 5800 workers instead of the initially planned 3000 or so. They will include management, permanent employees and contractors.

"As efficiency improves there's an opportunity to reduce labour. To maintain and operate five big shaft systems requires a lot of skills. That's why it's difficult to compare ourselves to other trackless operations because of the infrastructure," said Adriaan de Beer, mine general manager and acting executive vice-president of South African business at Gold Fields.

South shaft, which used to be a conventional mining operation, was being used to transport all services and equipment to Twin shaft, and is also used for maintenance and operations of the trackless trucks.

The change in the mining methods, which included an increase in mining corridors from four to six, would enable Gold Fields to boost production.

Although the mine still had some technical issues and two deaths this year that might affect its first-quarter production results in May, it was still unclear whether, for the rest of the year, production guidance would remain at 312000 ounces, or even fall at South Deep.

"What's happening in the short run in no way affects the integrity of the long term, but it may impact whether 9.8 tons (312000 ounces) is achievable or whether it will be a low number," said Holland.

In 2010, a promise was made to deliver about 800000 ounces by the end of 2014. However, by then South Deep changed management for the second time. It brought in Nico Muller as executive vice-president of the South African region. Production was still far off target.

In 2015 Gold Fields hired De Beer of Two Rivers platinum mine. De Beer replaced Garry Mills, an Australian from Gold Fields's Agnew mine in Australia. Mills came with a team of 40 people but failed to turn the mine around.

A member of the new team was asked about the damage the Australians had done and how much of a setback it had been for Gold Fields. He said he did not blame the Australians. They knew what they were doing, but it was a different environment, a different ore body and with a greater labour force than they were used to, which was about 400 to 500 workers. This had made things difficult.

"How do you go from managing about 400 people to 6000 people?"

Muller, who had been with South Deep since 2014 and was said to have made tremendous improvements at the mine, has left to head Impala Platinum, the world's second-biggest platinum mine.

Last month, in its 2016 annual results, Gold Fields announced the first five-year plan for South Deep, which it had been stalling since last year after it had missed a number of production targets.

According to the South Deep Rebase Plan, the mine will reach a steady rate production of about 500000 ounces during the next five years.

Production from the mine increased 47% to 290000 ounces in 2016, helping the company reach a profit of $208-million (R2.7-billion), compared with a $28-million loss the year before.

South Deep broke even last year and generated a net cash flow of $12-million.

Many critics were now optimistic that this time around South Deep could work.

Some analysts said the rebase plan was probably the best they had seen.

Boitshepo Seruwe, an analyst at Avior Capital Markets, said that for the first time in its history Gold Fields needed South Deep to deliver.

"Its competitive advantage has been through the low-cost Australian and South American assets, but those assets are reaching the end of their lives," she said.

"With South Deep embodying almost 75% of Gold Fields's reserves, that mine now needs to deliver returns."

Leon Esterhuizen, an analyst at Nedbank, said it was now an achievable plan.

"The plan is a low plan, a lot lower than the initial plans for the mine but there is a hell of a lot of handles you can pull to improve on this over the following five years.

"I wouldn't be surprised at all if they get to a better number, not right now, but in the next three to four years than what they are currently guiding," Esterhuizen said.

He said the company was not spending the capital to get on the lower block of the mine, South of Wrench, which could help it reach 700000 ounces and more which was initially estimated. It would cost a lot and the gold price environment was also not helping to develop that part of the mine.

"If they improve the performance and generate stronger cash flows, you could actually see South of Wrench coming into the equation earlier. It would also help if the gold price was higher of course.

"They will be producing more than 500000 ounces in time," Esterhuizen said.

South Deep's life is 70 years, with about 37million ounces of reserves.

mtonganal@sundaytimes.co.za, biyasel@timesmedia.co.za