The Gold Mining Company of the Future Nick Holland, CEO Gold Fields Gordon Institute of Business Science, Johannesburg| 28 October 2015
Contents Where are The global Gold Industry has failed to we today? realize full value over the last decade due to 6 headwinds 1
WHERE ARE WE TODAY? The global Gold Industry has failed to realize full value over the last decade due to 6 headwinds Geological inflation 1 is driving double-digit cost inflation Today it takes an average of 18 years from discovery to first production versus 10 years a decade ago The average grade of gold mined has fallen 3%p.a. since 2000 Clashes with local communities rose 22% p.a. in the last decade Governments seeking greater benefits from mining operations Gold prices have declined by 36% since the peak 1 includes grade degradation, processing recoveries and tougher operating conditions 2
WHERE ARE WE TODAY? Even though prices are up 3x since 2000, costs have risen squeezing margins Average annual gold price and cost, US$ per ounce AISC 1 Gold Price 2,000 1,800 1,600 -36% 1,400 1,200 1,000 800 +339% 600 400 200 Margin, % 27 21 21 12 12 12 7 6 2 2 0 -3 -3 -3 -6 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 2014 1 All In Sustaining Costs = total cash cost + sustaining capex Source: World Bank Pink Book, WoodMackenzie 3
WHERE ARE WE TODAY? As a result, shareholder value has been destroyed by between 50-80% since 2007 Enterprise value and invested capital Size = Enterprise value representation US$ bn 2007 2014 4.0 3.5 3.0 2.5 Enterprise Value to 2.0 Invested Capital Ratio 1.5 Multiple 1.0 0.5 0 0 5 10 15 20 25 30 35 Invested capital 1 US$ bn 1 Invested capital including Goodwill and other intangibles Source: McKinsey Corporate Performance Analysis Team, Capital IQ, Annual reports ,McKinsey analysis 4
Contents What about We are still relevant and gold as a important to the global commodity? economy, particularly in We are still relevant and important to the global economy, developing countries particularly in developing countries 5
WHAT ABOUT GOLD AS A COMMODITY? Gold mining is critical to the people it employs as well as the local community … especially in developing economies… Key elements in developing countries Investment in people … Impact beyond the mine … invested in people employed 3 4.2M US$284M socio-economic (1M directly) development 1,2 Significant infrastructure spend on road, power, water 90% local employees facilities and educational and health facilities Focus on healthcare – dependency ratio for 3-10 each direct employee eg. HIV/AIDS, TB, malaria 1 2014 data for: Gold Corp, Newcrest, Barrick, Newmont Mining, Gold Fields, AngloGold Ashanti, Kinross 2. 1% of total expenditure 3 2013 Source: Press search, company annual reports 6
WHAT ABOUT GOLD AS A COMMODITY? …to the global economy Contribution to global economy… … and a safe haven around geo-political crises Gold price, US$/oz US$171.6Bn 3 total GDP Peak post 2,400 contribution , financial crisis (direct contribution 1,670 = 49 percent ) 2,000 Soviet/Afghanistan war; Iranian revolution 77%-90% 3 1,600 of operational expenditure 615 Black remains in the host 1,200 Monday country 1, 2 Oil shock 800 446 60% 3 161 of the top 30 gold producing countries 400 are low or lower- middle income 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 1 2014 Press search 2 2014 data for: Gold Corp, Newcrest, Barrick, Newmont Mining, Gold Fields, AngloGold Ashanti, Kinross 3 2013 World Gold Council Source: Press search, Company annual reports 7
WHAT ABOUT GOLD AS A COMMODITY? … and is still an industry worth investing in Long-term Long-term Trend price impact Trend price impact Development of new Far East Increase in Chinese and investment platforms to Jewelry Investment Indian middle classes stimulate local demand for Demand gold Portfolio diversification; Central banks continue to be Central Protection against inflation Investment banks net purchasers and sovereign risk Exploration spend has more Short term cost reduction and than halved from 2012 to efficiency improvements Pipeline Productivity 2014 – reduced mine supply largely implemented from 2006/17 Implementation of cost Supply Average reserve life has fallen reduction programmes and Mining Pipeline from 18 years to 13 years inflation leaner production methods have mostly been implemented Increased secondary supply Grade No short-term technology Secondary from 2017 onwards in line with erosion/ advancements supply depletion price recovery Source: CPM Group, SNL Metal Economics Group, McKinsey Global Institute, Press Search, Gold Fields 8
Contents What does the future In the future, our industry look like? will look vastly different from today 9
WHAT DOES THE FUTURE LOOK LIKE? A new recipe is needed for Gold for Gold to be viable Requires new recipe for success ▪ Optimise major operational risks (e.g., labour, grade, ore complexity) ▪ Access new reserves or create value from previously unmined reserves ▪ Drive disciplined capital spending – better return for the dollar ▪ Deliver productivity and throughput increase with same resources ▪ Develop new approach to manage key stakeholders ▪ Willingness to enter partnerships to ensure sustainable operations Gold industry needs to shift from reactivity to proactively shaping the gold industry of the future Source: Company annual reports and investor presentations 10
WHAT DOES THE FUTURE LOOK LIKE? The gold industry of the future has four focus areas Operating practices & technology Talent and leadership Partnerships ▪ New exploration trends ▪ More technical skills – ▪ Governments – contributing strong analytics and decisions equity ▪ Mechanised, automated and based on empirical evidence ▪ Partnerships and Shared Value digitized operations ▪ High specialisation with local communities ▪ Technical advances through ▪ Local talent development ▪ Risk-Reward relationship with collaboration with OEMs and IT firms employees ▪ New type of CEO ▪ Greater energy efficient ▪ Strategic partnerships and operations JVs to share benefits and manage risks ▪ Reduced environmental impact ▪ Stakeholders will demand commitment to socio-economic and environmental factors ▪ Close involvement of investors with greater transparency and access to Responsibility operational data & transparency ▪ Knowledgeable investors will demand stringent corporate governance and adherence to world-class frameworks and standards Source: Gold Fields 11
OPERATING PRACTICES & TECHNOLOGY The “big operational issues” confronting gold mining… Embracing digital mining and full integration of big data, advanced analytics and new software technologies Mining on demand and ability to run agile production schedules Converting outstanding conventional mining practices to mechanisation & automation Improving the economics of: Low grade ore bodies Residual ore bodies Embracing energy and water efficiency with significantly reduced impact on the environment 12
OPERATING PRACTICES & TECHNOLOGY For some of our challenges… Exploration What challenges need to What technologies could be addressed address this Size and qualities of Airborne Gravimetry - discoveries are declining Electromagnetic surveys that provide greater coverage and ▪ Reducing the cost of depth exploration 3D Seismics – High-resolution Increasing the chance of 3D geology model exploration success Directional drilling – drilling holes from a single Deeper ore bodies Exploration site in different directions without surface outcrops 13
OPERATING PRACTICES & TECHNOLOGY For some of our challenges… Mining and Extraction What challenges need to What technologies be addressed could address this Advanced analytics and modelling Increased mining depth Geographic Information Systems Narrower ore bodies Real-time tracking of equipment/people Improved safety Advanced mine planning – Grade reduction understanding the dependencies necessitates high volumes Precision drilling Increased remoteness Back-filling of waste to boost extraction of mining operations ratio Mining and Rising labour costs Automation extraction Escalating energy costs In-pit crushing and conveying Remote hauling trucks and loaders Hard-rock, non-explosive continuous mining AI and Robotics – learn from the military Underground technologies: Remote pillar mining; Large-scale block caving; Raise boring 14
OPERATING PRACTICES & TECHNOLOGY For some of our challenges… Processing What challenges need to What technologies be addressed could address this In-pit crushing and conveyance Refractory ore bodies Predictive equipment Lower grades, which reduce maintenance monitoring recoveries High pressure grinding rolls Increasing environmental Processing controls Transmission sorting of ore through X-ray, density Increasing water scarcity assessment Increasing electricity costs High pressure leaching – when conventional leaching does not liberate the metals Environmentally friendly bio-leaching Real-time, accelerated rock sorting technologies Flexible closed-belt conveyor – adaptable to bends and changes in elevation 15
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