Tough times at South Deep

tough times at south deep

johannesburg - a high rand gold price came to the rescue of gold fields, which reported lower production numbers in line with company forecasts after the january and february power problems in south africa. the difficulties at south deep appear unrelenting.
south african production in the june quarter is forecast to be two to four percent higher than the march quarter and cash costs should come down a bit. this forecast is subject to steady electricity supply from eskom.

internationally, production should be unchanged in the june quarter, but costs will be up a bit on increase diesel and power costs as well as a royalty charge at st ives in australia.

gold production fell 16% to 827 000oz in the three months to end-march 2008, dragged down by a 21% fall in south african production at 520 000oz because of the week-long stop in january and then the slow build up to 90 to 95% of normal power in subsequent months.

gold fields had warned the market its south african production in the march quarter would be between 20 and 25% less than that of the december quarter.

"the increase in the rand gold price achieved more than offset the decrease in production," new gold fields ceo nick holland said in a statement accompanying the quarterly results.

the rand price jumped by nearly a third to r220 612/kg on the back of a weaker rand against the dollar and a higher average gold price of $921/oz.

adjusted net earnings were up 67% at 155 sa cents per share. operating profit was r2.57bn from r2bn the previous quarter, giving the company an operating marging of 42% from 38% before.

gold fields' shares were slightly ahead of the gold index on the jse, with a gain of two percent at r106.80.

problematic asset

international operations kept production steady at 307 000 oz.

the fall in south african production thrust costs higher. the total cash costs at the south african operations soared to r125 181/kg from just over r100 000 in the december period.

south deep remains a problematic asset. on may 1, nine workers were killed when a cage they were in fell to the bottom of a shaft after a rope snapped.

this has meant no development work will take place in the deeper parts of the mine below 95 level for three months as gold fields replaces the winder in the affected area. it is also putting in place a second means of egress from below 95 level.

cash costs at the mine shot up to r194 258/kg or $811/oz as gold production fell by a fifth to 52 600 oz. in the june quarter, production is forecast to fall further to 40 000 oz.

gold fields has depleted mining the vcr ore body above 95 level and is restructuring the mine. once that process is completed south deep will become a completely mechanised mine with the bulk of activity at deeper levels.

"the focus into the future will be on speeding up development of the ore body, completing the twin shaft infrastructure and increasing the rate of de-stress mining," holland said.

"until finalisation of these activities, production is expected to be maintained at approximately 50 000 oz per quarter," he said, without giving a time line. cash costs are expected to rise further.