Consolidation cannot save SA's gold sector and job cuts are likely to continue, says Gold Fields CEO Nick Holland.
Holland, whose company has been linked to a possible merger with larger rival AngloGold Ashanti, told Business Times: "There might be some local gold assets that can be moved around, but I think consolidation in the South African industry has largely happened."
With a 132-year history in SA, Gold Fields is one of the few remaining pure gold miners at a time when companies like Sibanye-Stillwater are working to offset gold losses with revenues from platinum operations.
Holland has long held the view that consolidation is good for deriving synergies in the local sector.
Six years ago, Gold Fields unbundled its labour-intensive operations — Kloof, Driefontein and Beatrix mines — into Sibanye, which this week said it was cutting 6,670 jobs to curb losses.
Reflecting on that deal, Holland said: "There's not too much left to happen in SA. I think it's more globally where the opportunities lie."
Ian Cruickshanks, an independent analyst, thinks it's better to have two major gold miners in the country for competition. AngloGold has said it wants to cut ties with SA and a merger would go against that intention.
"I don't see any alternatives there except to carry on as separate entities," said Cruickshanks.
Gold mining is seen as a sunset industry. Regarding its future, Holland admitted: "If you look at the deep-level, conventional, labour-intensive mines, you'll find that they're getting deeper, the grades are declining, the costs keep going up, the trade unions keep getting increases that are beyond inflation when productivity doesn't match it.
"Eskom now wants to get a lot more money, so I think the writing is on the wall. It's not looking good."
The crown jewel of the group is its loss-making South Deep mine, the only mechanised gold mine in the country. More than R32bn has been invested since its conception in 2006.
"We're a little bit different because we're mechanised and we have a large ore body ahead of us and we're shallower than some of those deep-level mines," said Holland.
He remains steadfast in his belief that the mine can still turn in a profit. Analysts have questioned whether Holland and his team will turn around operations.
Holland, 59, has been at the helm since 2008. When asked if he was ready to hand over the reins, he said: "I still have an appetite to lead the company."
Cruickshanks said Holland has been managing as well as anybody else might have done in extremely difficult circumstances over the past few years.
"What I'd like to see is more signs of a succession plan. If something happens, who takes over? The company owes it to the investors to make a plain succession plan available."
Holland said Gold Fields has fixed South Deep's cost base. "The grade on the operation is well understood. Now it's a question of getting the volume. Drive the volume and you'll bring down the cost because of the fairly high fixed cost component of running an operation with the level of infrastructure that we have there."
Gold Fields has brought in three consultants from Australia — where many mines are already mechanised — to assist with operations.
"They're helping us to improve our whole value chain of mining, planning, execution — things like drill or blast, our mechanisation and our fleet management," said Holland.
South Deep has had major restructuring in the past year, reducing its workforce from about 4,000 to 2,460.
This restructuring was met with strong opposition from labour. The National Union of Mineworkers went on a 45-day strike at the end of 2018. The strike cost Gold Fields about R360m in lost revenue, according to its own calculations.
"Gold is only 1% of the country's GDP now. It's not that it's not relevant anymore, but we've seen gold decline year after year for the past 25 years. That trajectory won't change and we have to accept there's a lot of job losses that will probably still happen in the gold industry," said Holland.
On Friday, Gold Fields announced an 82% drop in normalised profit for the 2018 financial year compared with 2017. The group — which has a presence in SA, Ghana, Australia and South America — has seen its share price down 44% from its high in August 2016.
gavazam@sundaytimes.co.za..