Gold Fields results: Nick Holland - CEO, Gold Fields

ALEC HOGG: Nick Holland, chief executive of Gold Fields is with us in the studio. Nick, it's the final quarter in your year, the three months to the end of June, and it's been a good quarter. But on the other hand, if you look back on the financial year as a whole, it hasn't been that great. Your dividend, which many people are buying gold shares for, you've declared a final dividend of 80c today. That's down 40% on the year, and it goes back to where you were last in 2005. With the way the gold price has been going people might have expected more.

NICK HOLLAND: Well, certainly it has been a tough year for us in terms of all of the safety stoppages I have put in place, rehabilitation of the assets that were allowed to deteriorate over the last five years. And so it was a tale of two halves really, the first half tough, as I said it would be, but the second half a strong recovery and I am pleased we met our guidance and we showed now three quarters in a row of growth in production from the low base of the first quarter.

ALEC HOGG: So the momentum's building, but the year as a whole, even to you, must be disappointing.

NICK HOLLAND: Well, if I look back at what we've achieved over the year, compared to what I wanted to achieve, I'm very, very pleased with what we have done, because you have to remember, if we go back a year, Gold Fields had a terrible safety record. We had 47 fatalities in 2008, we had infrastructure that hadn't been properly maintained for years, and we had to fix all of that. We even had to shut down one of our main shafts at Kloof for six months, but hoisted 40% of its gold. And as you know, Kloof is one of the richest mines in South Africa. So we had to fix all of those things, we had to deliver our projects, get those projects completed in Cerro Corona in Peru, Tarkwa in Ghana. We did all of that. We brought those projects to full production. So if I look back over the year, I'm pleased with what we've done compared to the situation we're in.

ALEC HOGG: Why did the maintenance fall off in the last five years?

NICK HOLLAND: Look, I think a lot of it's due to the low gold price and certain critical expenditure got deferred. And that was a mistake, certainly.

ALEC HOGG: But you guys went and bought South Deep in that period, so it wasn't like you didn't have any money.

NICK HOLLAND: No, we had the money to do it, but I guess it's a question of priorities. And when I took over as CEO I then found out the magnitude of this maintenance backlog, and it was critical that the new team in place had to fix this - and we have. So I'm pleased that we've got this up to date. We can never let this deteriorate again to that point. But if I look at the dividend for the year as a whole, we have to remember that Gold Fields is the only company that pays dividends of substance, and that might be surprising to you. But if you look at the North Americans, they don't really pay dividends and, even in the local market, you know, Harmony has not paid a dividend for many years. And if you look at our final dividend compared to AngloGold's it's substantially higher. So we are the one company that does pay dividends. Now, the capital that we've had to spend over the year in getting Cerro Corona to full production, getting Tarkwa in and also starting that expenditure on South Deep, getting that to full production is taken account of in our final dividend. And also I'm conscious of the fact that going into 2010 we have to spend more money to get South Deep along the curve. If we don't spend that money on South Deep, we'll never realise the potential of what is truly a tremendous ore body.

ALEC HOGG: Nick, with a gold mining operation, though, investors do like to see cash flow - or certainly they used to like to see cash flow. Now - and it's not your fault - that the share price is so high, but with a dividend of only 1%, it's an earnings yield of only 4%, isn't this a good time to go out there, raise more capital, retire the R6bn worth of debt that you still have - and more for those projects into the future?

NICK HOLLAND: Well, certainly, if one looks at our share price compared to the rest of the sector, on a relative basis I still believe we are undervalued compared to the rest of the sector.

ALEC HOGG: But shouldn't you be comparing it to those kind of ratios, dividend yield of 1%. Wow, David, I think there are any number of industrial companies that would love to be in that position.

DAVID SHAPIRO: 1% dividend yield?

ALEC HOGG: Mmm. Even SABMiller, whoever, you just name them. Shouldn't you be looking at that - sure, it might be undervalued relative to other gold shares - relative to the market as a whole?

NICK HOLLAND: No, Alec, I think the better strategy for us is to ensure that we continue to grow the production profile, sweat the assets. We have tremendous ore bodies. The one thing that Gold Fields does have - and maybe that's why it's rated the way it is - we have tremendous ore bodies that will go for many, many years in this country, long after the other mines have closed down. We have South Deep, which will be a truly wonderful mechanised mine. The best strategy for us is to make sure we can continue sweating the assets and make sure the assets perform to their potential.

ALEC HOGG: So you've got lots of reserves here in South Africa. But interesting to see that your exploration expenditure has been spent in Peru - and you'll have to pronounce the name of this country - Kyrgyzstan.

NICK HOLLAND: KUR-GIS-TAN [as pronounced].

ALEC HOGG: That's not where Borak comes from, I think? He's next door - Kazakhstan. Is it close by?

NICK HOLLAND: It is. It's right next to it, and the interesting thing about that part of the world, it had what we called the Tian Shan Belt, which is a large anomaly of potential gold deposits that extend from Eastern Europe through Central Asia into China. In fact, I was there two months ago and I was pleasantly surprised by what I saw. And the potential there is significant, the potential for large ore bodies exists. There's ...[?] - that's 50m ounces, Kumtor, that's probably 20m ounces.

ALEC HOGG: Unexplored?

NICK HOLLAND: Largely unexplored. And this is what I call new frontiers. And one of the things that Gold Fields is going to do if it's going to stand out from the rest of the pack, is go into new frontiers and not just follow the herd in the rest of the world.

ALEC HOGG: What are they called, the people from that country?

NICK HOLLAND: Kurdis.

ALEC HOGG: Suppose it made a lot of sense. You did say that looking to the next year, you are going to be focusing on safety. Still 21 fatalities this year. It is down from 47 in the previous financial year. Have you got a target? Is it possible to put a target?

NICK HOLLAND: Oh, yes, in fact I want to improve by at least another 35-40% next year, and all of our top targets are internally set to do that. You know, if you look at it, we've cut out a lot of these silly accidents and, in particular, fall-of-ground accidents from gravity we've sizeably reduced. Seismicity is the one area that we are spending a lot of time on.

ALEC HOGG: Seismicity meaning?

NICK HOLLAND: Well, general rock bursts that we have underground...

ALEC HOGG: From earthquakes?

NICK HOLLAND: Energy release rates, as you mine the ore body. We've done a lot of work on that, and I'm sure we can improve. I look forward to us reporting a similar improvement for next year.

ALEC HOGG: And the production for the year as a whole, down slightly, down by 6%, but it was getting better towards the end, though, of the 12-monthg period.

NICK HOLLAND: You've got to look at it as a year of two halves. The first half of the year, fixing a lot of the issues that the new team inherited, and getting the new projects into production; and the second half, delivering on those projects and now creating a much better platform for 2010.

ALEC HOGG: Nick, we've been talking with the bankers this week - first Maria Ramos and then Mike Brown - about their write-offs. We'd expect that from bankers because they lend out money. You've had a massive write-off, though, as well, of R1.1bn on an operation called Rusoro. Give us the background.

NICK HOLLAND: Rusoro is the company that bought our Venezuelan assets that we owned a couple of years back, and we sold those assets for a combination of cash and shares. We got a sizeable cash component. But with Venezuela being what it is today, the political discount in that country is huge and, despite the fact that they've got some tremendous ore bodies, and they've got a good growth profile, we deemed it prudent to write the investment down to its market value.

ALEC HOGG: The share price of Rusoro has actually fallen.

NICK HOLLAND: It hasn't fallen. It's remained low. Last year we didn't take the impairment because it was fairly early on after the transaction, but given a sustained period of weakness we decided we needed to make the impairment. We believe that the inherent value of that operation is significantly higher, and I am sure that in time the potential will be realised.

ALEC HOGG: In time and a post-Chavez society?

NICK HOLLAND: Probably.

ALEC HOGG: But you did do well by selling when you sold.

NICK HOLLAND: Well, we did, because we did get in almost $200m in cash, so we did recoup a sizeable portion of our initial purchase of those assets, and then we took the shares, which is an option on the upside. And over time it's interesting to see what's going to happen. So it's a long-tem option on Venezuela. I don't think we should get too fixated about a book-entry write-down here. We could well get the value back in time.

ALEC HOGG: Nick Holland is the chief executive of Gold Fields.

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