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Gold Fields Limited (NYSE:GFI)
Q2 2020 Earnings Call
Aug 20, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Nicholas J Holland -- Chief Executive Officer

Good afternoon or good morning, everybody depending on where you are in the world today. We'd like to take you through the highlights of our first half year results for 2020, that is up to the six months to June.

In the presentation here, you can see, I've shown you a slide of some wind turbines and a solar farm, this comes from our Agnew Gold Mine in Western Australia, where we've recently completed a micro grid, which on a good day it gives us almost a 100% of energy from renewables. So a great project for us and it's going to enable us to reduce our carbon footprint to make an impact in terms of climate change. And I think it provides a very good working model for us to consider elsewhere in the Group. Given the fact that ESG issues are now fully incorporated into business planning and integrated into decision making. We thought it would be good just to again share with you what has been widely regarded as one of the most successful prototypes of what a renewable project could be combining gas, wind, battery and solar. So that you can actually integrate them all and work out what is the best configuration in a particular time of the day. So thank you for that.

Can we move on to the next slide, please go ahead. All right. So going on to the highlights for the first half. We've been in a very unusual period as we all know because of the COVID issue. And we've been able to weather the storm much better than what I thought we would. And so far, we've largely contained the impact. We did give updated guidance for the year in May that indicated our production would be between 3% and 4% down on our original guidance given in February. And I must say so far, as you'll see in the results that we put out, it looks like we should still be good for that. Of course, there's always the caveat that is provided we don't hit the second or a third wave and things get fundamentally worse.

We've been well shielded in Australia, where we've had no cases on our operations, and production is continued almost unchanged, albeit that we've had to dedensify flights, accommodation facilities etc. And that's worked reasonably well for us with a small incremental cost. The big impacts have been in South Africa and in Peru, where we have had national lockdowns that resulted in the operations being closed for a period of time. And that's one of the reasons we had to reduce our guidance. Thankfully, we're back now to almost normality with South Deep being backed around 80% manning today, 80% that is. And with Cerro Corona being up to around about 70% manning. So we're looking reasonably good at this stage to make sure that we can get back to normal operations within the next month or so. Ghana's head cases but the recovery rates been incredibly good, up to almost 90% recovery. So that's been a good result for us.

I think importantly, as we've said all along, we wanted to deliver the gold price to the bottom line. In this particular half year, the mines have made $400 million of cash even after having to absorb some hedge losses on hedges taken out as a risk management exercise during the course of last year. And net cash flow after all costs including interest $320 million for the half year. That's meant that our net debt has come down around about $400 million to just under $900 million. Normalized earnings, about 2.5 times up to over $300 million. And an interim dividend, that is the same as the total dividends declared for 2019. And I think that gives you an indication of our intent to one, comply with our policy; and number two, to show that higher earnings will result in higher dividends for shareholders.

The Salares Norte project has commenced. We got the approval to proceed in February. So we started that project around three months earlier. And we've secured an equity raise of $250 million, which will fund about 30% of the total capital needs, and we believe this places us in a strong position, whereby, the balance can be funded most likely from internal cash flows, but it's not from combination of cash flows and from available debt facilities.

Thank you. The next slide. We put this table in the book, so I won't dwell too much on the table. This gives you an idea of what we're doing on COVID. We are testing fully, all of our people in Ghana, Peru, Chile and in South Africa through proper diagnostic PCR tests, which will give us reliable results. And as you can see we've tested 20,000 people. As of today, we have active cases of 658, and of that around about two-thirds is in Peru, the bulk of the rest is in South Africa. Luckily we're finding that, as we've active cases occurring, we also have people coming back after they've recovered from the illness. And so we're starting to see now that returning employees are equal or greater than new cases. That's a very important turning point in this pandemic. But I have to say, we have to be mindful of the risks of a second or a third wave. So we're watching this very carefully in over the balance of the year.

Next slide, please. Just giving you highlights of the production results over the half year. If we look at the total portfolio, just over -- just under 1.1 million ounces produced, all-in costs of $1,065. Now let me just say, this is fully loaded costs. This is everything. Unfortunately, a lot of our peer companies do not report the true all-in cost figure they leave stuff out, this is everything including as well the expenditure on the Solaris Norte projects in Chile. So this is fully loaded and when you wanted to do proper models to work out how much cash we're going to make, you can use these costs with reliability. That's given you mine cash flow $400 million, net cash flow of $320 million.

If we look at the individual regions. West Africa produced 384,000 ounces, made a $139 million of cash in the half year. The Americas region produced 108,000 ounces obviously, hard hit by the closure we had to put in place because of COVID, That made still $49 million for the half year. South Deep, despite the fact that we had the mine closed for full month in April and then Agnew operated at about 50% capacity for six weeks and still haven't got back to full production, still managed to make a little bit of money in the half year. It would have made a lot more money had it not been for the closure, clearly production was significantly curtailed. And then Australia, of course, annualizing at just around 1 million ounces a year, making cash of $208 million for the half year. So as you can see, despite the COVID issue, the results have been much better than we could have expected given the impact of the pandemic.

Next slide, please, go ahead, Garry. Let's look back over what we've achieved relative to our commitments. Over the last seven years, we've hit our numbers consistently on production and on costs. I think it's fair to say looked at as a group, we've got a track record of delivery over that period. South Deep, which has been a problematic asset in the past has implemented a turnaround strategy, which included a labor restructuring in 2018. As a consequence, in 2019, we exceeded our guidance on production. We did much better. We had a really good quarter one and we were building up momentum. Unfortunately, the pandemic has pulled us back, but the integrity of the things we're doing at South Deep have not changed. The relationship with organized labor is better. The morale of the mine is good. And the focus on short-term interval controls around mine planning, delivery, maintenance of equipment and making sure that geotechnically, we comply with all of the key issues is in good shape.

I would say, I'm much more optimistic on South Deep today than I have been in some years. We've reinvested for the future of the business. Gruyere has been built pretty much very close to plan in terms of cost and schedule. And that hits commercial levels of production in September last year. So that's showing really nice numbers for us. And the Damang Reinvestment is ahead of schedule, we've mined more tons more ounces. We're not getting into the good stuff in the orebody, I'll show you a little later. And we're quite excited about the second half of the year and what we expect to see. And of course, the feasibility on Salares was completed, and we've started the project.

Next slide, please. Further achievements over this period. We've extended the life of Cerro Corona by seven years to 2030. So that's given us a tremendous benefit there, particularly in the context of being one of our lowest cost assets, and we're not done yet. There's certainly more. We believe, there's another potential pushback to the side of the ore body to the West, and that could provide further potentially. St Ives, the invincible complex continues to grow, both laterally and at depth. And has now become the mainstay of the St Ives operation. And I'll show you a little bit more on our ledger as well. Agnew, an asset that hasn't been well understood by the market and in some respects, that's because of the lack of visibility on what exploration success might be, we're looking much better than we ever have. And we're now at a stage where we not just looking for targets anymore, we have targets and we're getting better resolution on what they're going to deiver for us.

We've addressed our reserves concern. We've now got over 20 million ounces outside of South Africa with around the 10-year life. And that benchmarks pretty well against most companies around us, even if you leave South Deep out. And we're in good shape to deliver between 2 million ounces and 2.5 million ounces a year for the next 10 years. All of our assets have organic growth opportunities. And over the years, this has been one of the best investments for us, is to find more gold where we're mining our golds at present because we have the Sun Capital, we have the infrastructure in place, it's usually lower risk and higher return for us. And we have added back reserves to Tarkwa for the first time. I think that's an indication of what's coming into the future as well.

Next slide, please. I'm just talking about Tarkwa, we've put a picture in here that shows the measured and indicated resources in green and mustard color, you can see there, and then you've got inferred, which is sort of yellow strips. But the area I wanted to focus on is the down dip extensions, which are not in resources or reserve, that's in the life magenta color. And you can see here, just by going down dip around 200 meters around the entire open pit property, we've got around a 11 million-ounce potential.

Looking at the drill holes we've got so far, looking at the thickness of the packages and there are a number of packages here that are very similar to what we mined. And this is an ore body with tremendous consistency and repeatability in terms of these structures that continue throughout the property. So we're going to be spending some money over the next three years or so drilling the South better, and trying to figure out how we get this into a plan. So I think Tarkwa has got a lot ahead of us, which makes us very, very excited. Flagship operation in the Company has certainly got life beyond 10 years.

Next slide, please. Looking at Damang, it's a cross-section of the pit. And you can see over here, if you look at the bottom, you could see the pit shell. That's the Damang Reinvestment Plan LOM. That's where we're going to be when we have mined everything out over the next four or five years. And then you can see at the top there where we are right now. And I think the important thing here is to look at the colors on the right that is giving the different grades. Now think as you can see we're moving from this very variable Huni Sandstones, which is characterized a lot of the mining we've had and we're getting into the higher grade material, particularly in the phyllites and also the the other lithologies that have higher grade at the banket hangingwall as well.

So you're going to see us getting into the higher grade areas really in the next month or so. We're just about there. So that's why our confidence on the second half is good. And that's been great control drilled as well. So it's got a high degree of resolution. Also I've noticed, just slip below the current picture, you can see some more high-grade materials, probably another 2 million ounces there. And that's going to be the subject of some studies into the future as we consider whether Damang will go beyond the current phase and have another pushback of sorts. Work to be done there, but certainly there is potential.

Thank you. Next slide. If we look at Agnew, in the past, we've started the recapitalization of this mine which has been in our portfolio for 20 years almost, by first of all, getting our own power solution, as I mentioned at the outset, the integrated micro grid; and then secondly, getting our own accommodation village, which you can see on the left here, which is in close proximity to the mine. In fact you can walk to the mine in the morning and go back in the evening. Previously, we had to bus all of our people in from Leinster. Leinster and rented accommodation, which was quite pricey. So that's been the first phase of our recapitalization.

The second phase now, next slide, is to look at how we bring to account the significant potential that we have across the different ore body. This is the Greater Waroonga area and we flagged here in red, the highest priority areas and in grey, the second priority areas. And you can see all of the extensions here clearly set out cash flow and Waroonga North low in particular, recording excited about the grade there, it's pretty good. St is a further extension. We think there's further extensions to the south of Kim, which has been a great mine to us. FBH, down dip and also across to the south. And if you add all this up, the potential to add over here over a three- to five-year window is between 1 million ounces to 2 million that we could add into resources. So that's just the Waroonga operation of Agnew.

Then if you look at New Holland on the next slide, Garry, you can see again, this is an ore body that's got a 3 kilometer strike potential with multiple loads replicated, it started off with the Genesis 200, 300, 400, then 500, and we're down to even the 600. And we're starting to see now, as we've been able to get access underground and get drill cuddies in, in development drives that we can start drilling out these areas. Remember it's too prohibitive from a cost perspective to do this drilling from surface, much better to do it from underground, but then you got to get the access. As we've extended our mining, we're getting access setting up these platforms and drilling out. And again, we're seeing here the potential for between 1 million ounces to 2 million ounces here over three- to five-year window.

We're not done yet at Agnew, we're also looking at the Greater Redeemer Complex. This was on old open pit that was minned out many years ago that we backfilled. We did some early drilling, but we didn't think it was going to be perspective. We come back here and now we're seeing the makings of another substantial ore body there could be over 1 million ounces again of good grades. And another open pits underground opportunity in close proximity called barren lands. That's an interesting description, because based on our current drilling it's anything but barren. So it shows you the potential over here at Agnew. We want to share that with you and just to indicate. But this doesn't mean now we're going to be spending tens and tens of millions of dollars every year. This is going to be dealt with and taken forward within the context of our existing exploration budget in Australia.

Right at St Ives, I've talked about the very prolific Invincible camp, and as you can see over here, we believe that there is another 1 million ounces to 2 million ounces, potentially could be added over here. Certainly over the next three years or so, there is real potential to add at depth as Invincible gets deeper. And then across the Alpha Island fault, which we've mined through Invincible South, Invincible South extensions, you can see it's extending out laterally to the south and also down dip. So this is been an incredible ore body for us and continues to get bigger.

All right. So, moving on to Slide 15, Garry, cash generation, I think this gives you an idea of what our capital for the half year. And what we're looking at for the year overall is close to our original guidance around about $615 million to $625 million for the entire year. That's very close to what we said it would be. And we again, giving you an indication as to how we've de-geared the company, $700 million over the last 18 months in fairness, that's got the equity raise in there as well. So if you want to take that out. Then we dropped $450 million, even though we've had to fund the Damang project to pushback and also the final stages of Gruyere, which was commissioned last year. We have raised two new bonds. So essentially we pre-financed the redemption of the 2020 bond, which is $600 million [Phonetic] that has been paid off just before the end of the year. And also we've restructured the bank debt. So Paul Schmidt and his team have done a fantastic job here. And our credit is now well sought after.

Next slide, please. So I've talked about the balance sheet. Nice to have almost $1 billion of cash on the balance sheet. It gives us real liquidity. Now particularly given the COVID risks, we weren't too sure what was going to happen whether our production would be more impacted in fact than what it has been, but that's actually worked out very well. So in really good shape. And as I say, the prices hold up at these sort of levels, and we would expect to materially reduce our debt, again, between now and the end of the year. That's quite important for us because Salares Norte is a big capital year in 2021. We're going to be spending probably just shy of around $500 million on Salares next year. So if we can go into next year at a very strong position, we believe that cash flow from the operations could fund most of that. And even at very conservative prices, our net debt to EBITDA ratio would not get back to the levels it's been. And so a really good position for us to be in.

Next slide, Salares. The one thing I've seen in my time at Gold Fields is that we've never been able to start a project with the level of engineering, detailed design, what we call feed at this kind of level. And before we start spending the really big money toward the end of the year, we will have fully engineered this project. And why is that so important? It's important because you get real resolution on the exact detail of the designs. And it makes sure that if there is any flex in your costs that needs to be considered that you've got it in place before we start spending the money. The other thing is trying to do detailed engineering when you're building the mine is very difficult, but often projects try and to it coterminously. But getting it done upfront, which we've been able to do is put us in a very strong position.

The critical path item for Salares is camp accommodation capacity. We have commissioned just this last week, our Phase I. And at the moment, we're not mobilizing up to about 400 people on site. And we hope to have Phase II finished in the next three months. And then that's important because we've already got the mining contractor mobilizing, that will have to do their early pioneering work that setting up the site and also all of the different packages on the process plant construction, which starts at the same time as a pre-strip. Remember, we've got about 50 million tonnes of pre-strip to do. We've got to build the process plant at the same time. So the key phase is going to be from quarter four -- late quarter four right through until commissioning in the first quarter of 2023. So we're getting ready for all of the stuff.

Sectorial permits are not going to be a hand break for us. We've got the umbrella permit, remember. And we're in good shape to make sure all of those are in place. And the team has been able to interact virtually with the authorities on getting these key permits in place. The mining contract is awarded, diversion channels are being constructed, this is obviously to ensure that we shield the site from flood events. We don't have a whole bunch of water coming into the site and it's been structured on a one-in-thousand [Phonetic] flood plan, [Phonetic] so it's very conservative for us. So I think we're in good shape for that. And then we're starting, obviously, the preparation for the site. 61% of the total capital has been awarded and priced. What's left to worry about is largely inflation. Around about two-thirds of this project is in local currency. We've taken out a hedge on that. So that's given us an additional cushion, which is beyond the $88 million of contingency that was in our $860 million. So I think we're in pretty good shape here to withstand potential cost overruns, but it is early days of course.

And then exploration continues on Horizonte. I've shared with you previously some very exciting results. And I think we'll see more of that into the future. That program will be resuscitated again in the spring, which is next month, and will continue our drilling on the Horizonte project, which is, by the way, it's by four times the size in terms of land package as the combined Agua Amarga and Brecha Principal project that represents the current Salares mine. And that could be an exciting addition to this project into the future.

Right. So just to show you a few pictures on the next slide. You can see at the top here, you've got the diversion channels, you can see that, that's the area where we need some concrete base. So those are concrete slabs you're seeing there. And then on the right, you can see some of the trenching, the earth works there. Bottom left, you can see the first phase camp accommodation that's in place. And then alongside that is the foundation for the second phase, which as I mentioned earlier, we should have ready to go and be used toward the end of the year.

For our regional overviews, Australia, I'm not going to spend too much time on these because I've talked to the front-end, done really well. Nice to see Gruyere coming through. I think the rest of the operations have done well. is Some mines is changing. Interesting to note that of the 115,000 ounces mined, and you can see this in our book, you'll see 85,000 ounces of that, is from underground. So it's becoming predominantly an underground operation, with Neptune the only open pit ore source at the moment. Hamlet is coming through, Hamlet North, nothing to do with the Old Hamlet, but it's an offset, at much higher grade that's coming through. And that's why you'll see the underground grades have gone up at St Ives. But we're on track for another good year in Australia.

If we move out to the next slide to the Americas, as I've mentioned, this operation was severely impacted by the COVID issues. So the numbers don't make a whole bunch of sense. Our production has come off significantly from where we were in the second quarter. So that's meant that the first half looks a lot lower than the first half of last year. But we're getting back up. I don't think anything we've seen on the COVID issue is going to affect the long-term integrity of the operation.

West Africa on the next slide, Garry. We've seen a slight reduction in production compared to the previous year because we finished the higher grade Amoanda satellite deposits my mining last year. And we have had some real great challenges in Huni Sandstones, I spoke about earlier at Damang. So it's almost been a double whammy effect. Fortunately, as you may have seen, if you look at the quarter two results, our mining volumes have picked up substantially, both waste and ore, and also the grade has started to improve. And you will see the mine grade was higher than the process grade, that's because a lot of the higher grade stuff from the top of the phyllites came through toward the end of the quarter and we couldn't get that through the plant. But I think you'll start to see that coming through into the second half. And then very good cash flow as well. And nice to see that we got $38 million in funding redeemed by Asanko, that certain goes back to Damang and some of our investment there.

Going to South Africa, regrettably, one fatality. I should have also mentioned that we did have three people lost their lives to COVID, I should have mentioned that upfront. But let me just say that, unfortunately, three people succumbed to COVID. And in addition, we have the one fatality at South team, very unfortunate and tragic. We're going to redouble our safety efforts here and the team is working very, very hard on that. So I think it's fair to say that South Deep is doing incredibly well given what it's had to work through. Remember, one month complete shutdown, around about five to six weeks at only 50% of capacity and the rest, probably at about 70% of capacity.

So actually, I'm amazed of what they've achieved. And I think this shows you that some of the interventions that have been put in place are starting to really work for us. A 30% improvement in productivity on destress and development. And we're seeing stoping compliance improve. Why is that important? Because these are the big mining cavities where we get the high grade, high volume. And if we can improve our compliance on this, it's going to make a massive difference to us. We need to get our development going into new mine again. That's been delayed because of COVID, but I'm hopeful the team can still start that work in the next quarter.

Right. In terms of the outlook. The guidance, we're still looking at 2.2 million ounces to 2.5 million ounces, that's what we gave you in May, around about 3% of the original guidance. All-in sustaining costs are up $40 an ounce in the range. All-in costs up $35 an ounce, and that's principally because of the COVID costs. We think, COVID has cost us something around about $10 an ounce so far, probably going to cost a little bit more by the time we're done. Royalties because of higher price is about $20. And I think if you adjust for those two, that really is most of it.

All right. So from here, let's continue to manage this COVID issue and see where we go to. Damang, we've got to obviously make sure that we have a really good second half and all of the indications are, we will. Get Salares ready to start the pre-strip. And the construction of the process plant in quarter four. And continue to work on South Deep. Restarting the new mine development. And let's use the cash that we can make while the gold price is higher, because we don't want the gold prices going to be next year or the year after. And as you've seen, we've paid a nice dividend. The interim dividend is the same as what we paid out for the whole of last year. So maybe that's an indication as to what's to come.

And then lastly, we'll end on another ESG type slides. The last slide, there you can see, that is the Cerro Corona sales tails dam. That is going to contain around about 100 million tonnes over our life. That's been constructed over a period from 2008 to now, there has been multiple lifts. Obviously, there is a new tailings dam standard, but the industry has adopted supported by the ICMM of which we are members and we're intimately involved. But I'm pretty sure that Cerro Corona is going to be reviewed again in terms of these new standards. And hopefully, it will come up -- trumps as it has before in all of the independent external reviews we've conducted over the years, along with the same process on a three-year cycle on all of our other tails dams. This is a critical issue for the industry, we're going to get it right. We can't have another tragedy like we've seen in Brazil.

So on that note, we'll hand it over for questions which either myself or Paul will take. Thank you, Garry.

You just had to unmute it. Yes, we can hear you now. Oh, I must ask. [Speech Overlap] Okay, are there any questions on the conference call? We'll start with that.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from Shilan Modi from UBS. Please go ahead, Shilan.

Shilan Modi -- UBS -- Analyst

Good afternoon [Indecipherable]. Congrats on a good set of numbers given the circumstances that we've been dealing with for the last few months. Couple of questions from my side, Nick, I just saw in the media this afternoon that you're going to be stepping down in September 2021. Maybe this is a bit of an unfair question, so forgive me if it is. What would you have done differently looking back at the last 13 years as the -- I mean, we've been having debates for about 10 years but maybe tell us -- maybe tell me what you would have done differently? And then, I kind of touched on this earlier, but I mean, you're changing your gold price assumption for your reserve from $1,200 to $1,300 an ounce. Maybe a follow-up on that was, what is your expected all-in sustaining cost margin at the new reserve price? So would it be the same margin as it was before or is it higher? Given your dividend policy of I think it's 25% to 35% of normalized earnings, and with gold prices are now, could we expect something higher in the nearer term? So maybe at the top end of it band or even higher than that? Thanks.

Nicholas J Holland -- Chief Executive Officer

I'll ask Paul to deal with all the back-end questions then I'll come back to your earlier question. Paul, do you want to have a crack?

Paul A Schmidt -- Chief Financial Officer

Yes. If I can also on the dividend policy, obviously it's 25% to 35% and we went at the bottom end of the range for the interim one, but an Nick stated, it was equivalent to the full one from last year. Let's see how the rest of the year plays out. We don't know what's going to happen with we COVID. We could still have further issue, but assuming the rest of the year goes according to plan, we should have another good dividend at the end of the year. What was the other question? Sorry, it was on the dividend? What was the other one?

Nicholas J Holland -- Chief Executive Officer

Reserves. The margin on the reserves.

Paul A Schmidt -- Chief Financial Officer

The margin is still 15% at $1,300. And as we discussed with you earlier this morning, we've raised that to $1,300 to take into account inflation, you'd said we're at $1,200 for many years and that's why we're using $1,300. But at the minimum, we would still be the 15% margin. We did state that in the glossies earlier in the year, where we said 15% of $1,300 is our free cash flow margin target. Hope that answers your question.

Shilan Modi -- UBS -- Analyst

That's good. [Technical Issues] margin just -- now it's just at a higher price.

Paul A Schmidt -- Chief Financial Officer

Correct. But we did state that already in the glossies at the end of last year. That's what is the target. Yes.

Nicholas J Holland -- Chief Executive Officer

I think you -- just to add, we have to remember on a look through basis, there's probably 35% to 40% of our costs that are labor. When I say look through, including the contract as we use and those labor rates are going up every year. And we can't always contain that through productivity and efficiency improvements. So -- and the gold price never comes for free. Generally, when there is an increase in the gold price, the cost base doesn't stand still. I think coming back to your earlier question. I would say, where we are today has surpassed my expectations of where the Company would be. If you went back and you bought a Gold Field share just before we unbundle Sibanye, back in 2012, and you held those two shares, I think you would get a compound annual rate over the period of over 15%, I think. So that's real shareholder value for us.

And I think the one frustration I've had and the management team have had is, South Deep has been a tough nut to crack. We've had a number of false starts here. But I do think it is different this time and feel that we're on the right track. And I guess one thing that gave me the the determination to continue is that the ore body is there, it's not like the ore body is not there. So we got something to work with here, it's just a question of improving the portfolio. But thanks for asking me to reflect on the history.

Okay. Other questions.

Operator

[Operator Instructions] The next question comes from Tanya Jakusconek from Scotiabank. Please go ahead, Tanya.

Tanya Jakusconek -- Scotiabank -- Analyst

Yes, good afternoon, everybody. Can you hear me?

Nicholas J Holland -- Chief Executive Officer

Yes, Tanya, good afternoon to you.

Tanya Jakusconek -- Scotiabank -- Analyst

Hi, Nick, how are you. I guess, congratulations on your retirement. Maybe I could just start on that. Just to confirm that it is a mandatory retirement in South Africa based on ages. Is that correct?

Nicholas J Holland -- Chief Executive Officer

It's part of our employment policy as retirement is 63. This has been disclosed, actually in our annual report for some time. So this is not something new, it's not a surprise. It's an internal policy issue that retirement is at 63.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. No. I just wanted to confirm that. And I just wanted to ask how the succession planning will go from now until your retirement, is this a plan to have someone overlap you over this next year? Or how are you seeing this play out over the next year?

Nicholas J Holland -- Chief Executive Officer

Yes, look, the Board will obviously be in control of this situation. There is a search process that will commence. And we will work out the timing of all of that with the Board. Obviously, we've got to get someone first. And I'll do whatever is required in terms of providing a seamless process. But there is a very good management team in the Company. Paul is also being with me for a long, long time. So I don't think there's going to be any issue of continuity factors or anything like that. We want to do this in a way that is least disruptive for the organization.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. No, that's good to hear. Anyway, congratulations on that. I'm just going to move on to the mining operations, if I could and exploration, which was very interesting on some of those slides. If I could just start on the mines that were impacted by COVID and I didn't get to hear all of them, unfortunately, my line was a bit fuzzy. But just on Cerro Corona, I think you said that we are up at about 70% capacity, and we will be within the next month or so at normal rates. So does that mean that Q4 is a more normalized quarter for us at Cerro Corona?

Nicholas J Holland -- Chief Executive Officer

Yes. I think Q4, we would expect to start getting back to where we were. Obviously, we've had to prioritize our mining with ore to try and keep the process plant going. So the waste strip is a little bit behind and we won't cash all of that up this year. So some of that will go into next year, but we don't have an overriding concern on it. But I think, quarter four will start looking more like quarter one, but not entirely, because we haven't fully exposed all of the ore we would have done, had the waste been running at the extent it was. But closer to normality, and then next year, I think we'll be better. So we factored all of that into the updated guidance for the year.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. And then ore at South Deep, I understood again that we're up to about 70% capacity or so right now. Does that -- is this a similar scenario that on Q4 is going to be a more normalized quarter and we're just ramping up this quarter?

Nicholas J Holland -- Chief Executive Officer

No, we're actually, we're ahead of the game. We're up to about 80% now. And we're expecting quarter three to be closer to normal at this stage. So we're not going to have the same impact there, because we're up to 80%, we're bringing back the lot of the people from the neighboring countries who couldn't get back after the shutdown. So I think quarter three should be more reasonable, not quite there but not too far off. And in quarter four, I think it should be pretty normal.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. And just to confirm that you mentioned the Australian operations are performing well, you haven't been impacted by COVID neither on the second wave that hit Australia?

Nicholas J Holland -- Chief Executive Officer

The second wave has been on the eastern states. It hasn't got to Western Australia. But I must just give the caveat on all of the operations, Tanya, is that if we get a second wave in South Africa, we give a second wave in Peru, if all of a sudden, Western Australia starts reporting whole lot of cases, all bets are off. And we can't predict that today we can only give you where we think we're going based on what we know today. The bank [Phonetic] could be very different in a month's time. So that's just the overriding caveat.

Tanya Jakusconek -- Scotiabank -- Analyst

Yes. I appreciate it was on the East side, just to make sure that nothing has impacted you supply wise, or are other things getting to the mine site.

Nicholas J Holland -- Chief Executive Officer

Yes. It's being...

Tanya Jakusconek -- Scotiabank -- Analyst

And then just the...

Nicholas J Holland -- Chief Executive Officer

Sorry, go ahead.

Tanya Jakusconek -- Scotiabank -- Analyst

Yes. And maybe just on the exploration. I just wanted to make sure I understand when you were talking about Tarkwa, I think I heard a 11 million-ounce potential resource number. I just wanted to check that. And my understanding is that at a two-year envelope around your existing deposit, if you were to just project the existing grade and depth out 200 meters, that's sort of your potential. Is that a correct assumption I made?

Nicholas J Holland -- Chief Executive Officer

Yes, it's correct. It's also based on very limited drilling that we've got, which is indicating we're seeing the same geological structures. We're seeing the same number of packages. We're seeing the same sort of grades, the same thickness. And that's the magic of Tarkwa is the continuity of the structure and width of the ore body are very, very consistent. So it's not like, you got to do a whole bunch of closely spaced drilling to understand where you go. And again, it's only 200 meters down dip around that entire perimeter. That perimeter is obviously, -- it's large perimeter around all these pits of the 20 kilometers. So that gives you an idea, and that's resource, additional resource, not beyond that.

Tanya Jakusconek -- Scotiabank -- Analyst

Yes. Okay. No, that's how I understood it. And my final question just on capital allocation, at higher gold price, what are you intending to do with this incremental cash flow?

Nicholas J Holland -- Chief Executive Officer

Well, we've got three main areas we need to focus on. One is we've got to build Salares Norte. Rremember, we did a $250 million [Phonetc] equity raise, but the total project spans $860 million [Phonetic] before inflation. Number two, we want to continue delevering. Number three, we want to make sure that these higher profits translate into higher dividends using our payout ratio. Fourthly, we will be looking at how we can add organically to all of the mines in the group. Every mine in the group has got potential to add more. And this is really good business for us because we've got the infrastructure, we've got Sun Capital, it's lower risk, so we will be looking carefully at that. And things like a Wallaby underground mine. As we're getting deeper, one of the ways to offset the increase in costs is another decline. And we can actually debottleneck the deeper part of the mine for example. At Agnew, given the significant exploration potential, we want to look at upgrading the crusher and increase the plant throughput from 1.2 million tonnes a year to probably 1.6 million tonnes to 1.7 million tonnes a year. So these are all projects that we're going to be thinking about over the next couple of years in addition to obviously, continuing our exploration and of course, the Salares project. So we've got a fair number of things to do with the money. Let's make it first, of course.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. And just -- I understood that you've set the policy of 25% to 35%. And you're going to remain that intact, you're at the lower end of the range, you could potentially move yourself up to the upper end of the range with this excess cash, would that be a fair statement?

Nicholas J Holland -- Chief Executive Officer

Yes. Well, if you look at the average over the last five years, we've been about 30%. So Paul and I've discussed that, and we're not averse to that. Maybe Paul should jump in and give his thoughts.

Paul A Schmidt -- Chief Financial Officer

Yes. Tanya, it's Paul here. As I said earlier, we paid at the lower end. We're just worried that we may not -- we still may be caught by the second wave of COVID, but assuming that we don't and the operations run in the gold price state, I'm sure we'll be playing a good dividend at the year and then maybe higher than the 25% that we paid in the interim.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. And last, how much cash do you need to keep on the balance sheet, your minimum cash that you're comfortable with in terms of running your operations and before you pay out all the excess that we've talked about?

Paul A Schmidt -- Chief Financial Officer

Tanya, we would like -- we normally keep around $400 million, we've discussed this as well. I would never -- at the moment, we still in a net debt situation. Assuming we get beyond that, I would still like to keep a bit more than that on the balance sheet. Because you never know what's going to happen in the future, it would be silly to pay out a extra dividend pay out all your cash and the next year prices drop and you actually then have to go and borrow. Our aim is to delever the company and keep probably between $500 million and $1 billion of cash in reserve once we've got all our debt of the balance sheet. But the minimum requirement for the mines is around $400 million to $500 million that we keep at any time.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. That's helpful. Thank you very much.

Nicholas J Holland -- Chief Executive Officer

Thank you, Tanya.

Operator

The next question comes from Patrick Mann from Bank of America. Please go ahead, Patrick.

Patrick Mann -- Bank of America -- Analyst

Hi, and thanks for the opportunity. I thought -- I just want to follow up on the reserve side again, and apologies for kind of beating the [Indecipherable] on this constantly. But -- at first more philosophically, how do you think about this because we've obviously have a pretty flat gold price for the last 10 years or so. I mean, if you were starting with a clean sheet of paper, and you went up to $1,200 today, what would be the methodology to pick the NPV maximizing the best value answer for the reserve price. So I'm just trying to understand really Gold Fields' philosophy around this and how it could -- because at the moment, it seems like we're anchored to $1,200, will move up because the gold price has gone up and costs have gone up. But if you were starting from scratch, what should it be -- what could be the best value-maximizing reserve price to use? Thanks.

Paul A Schmidt -- Chief Financial Officer

Patrick, a lot of it -- it's not only our view. It's based on the long-term view. Remember we decided on this number it was probably March, April. And at that stage, the long-term gold price for most of the consensus analyst was just above $1,300. It was about $1,300, $1,400. And if you check our financials, that's the number that we used in our impairment calculations. So, that guided us to a large degree as to what we should be using for based on what the market and that is analyst consensus as to what the long-term price was going to be. So, that was the science behind it. It was based on forecasts and looking at what the market is telling us the long-term prices should be.

Patrick Mann -- Bank of America -- Analyst

And so, I mean to push a little bit on that. So, if the market or mark-to-market and we all start using closer to spot prices. Does that change -- does that drive Gold Fields' strategy around reserve pricing?

Paul A Schmidt -- Chief Financial Officer

No, I think we would like to keep the $1,300 fairly consistent for a couple of years. I mean this is the first time we've moved it in a while. $1,300 has been around for a while, the long-term price but we decided let's mix it based on the inflation maybe it's time to move. But it's not that every year when the long-term forecast changed, Gold Fields is going to change its reserve price, no. I mean, $1,300 is going to be around with us for a while I think as a reserve price. And we'll look at it again in a couple of years but I wouldn't expect anything in the next two or three years if we change reserve prices, no.

Patrick Mann -- Bank of America -- Analyst

Okay, thank you. Thanks, guys.

Nicholas J Holland -- Chief Executive Officer

Most companies -- Patrick? Sorry, most companies that we've surveyed have been around $1,200. So, I think the peer group has been around $1,200 and we think $1,200 for a couple of years. But at some point, you need to flex the gold price because costs don't stand still. Wages, as I said, make up a sizable component of our cost base. And we have to have a balance between NPV and margin today. One thing we got to be careful about is not being too conservative, but also not being too aggressive. If you're too conservative, you got to leave money on the table. If you're too aggressive, you're going to be in a difficult position if prices come back. So, $1,300 we believe give us 15% margin comfortably and it leaves a lot of flexibility for margin expansion on higher prices.

Patrick Mann -- Bank of America -- Analyst

Yes. I mean, we've been debating this internally and with clients, which I think -- and I'm sure that other analyst have as well, that's why these questions are coming up. But it's kind of -- if it was a brownfield expansion, which have $1,700, $1,800 dollars amount gave you a 20%, 30% IRR. It seems we have to keep your reserve price of $1,300 and not go for it. But with the benefit of hindsight, if you do go further, the gold price comes back again and you impair it, then you'll be accused of making the same mistakes as the last cycle. So, just interested in your thoughts on how you asses it because it's a very difficult one to have an answer to.

Nicholas J Holland -- Chief Executive Officer

Yes. I was running this company in the last cycle, when the gold price collapsed. And we had done exactly as you indicated, across certain operations. And we have scheduled a massive restructuring exercise. And the one thing I've learned is when you let cost in the business, cost are quite easy to get in, but very difficult to get out. And it's better not to relax. And we don't know where the gold price is going to go. It could come back significantly. I remember in 2013, people told me gold came to $2,000 and two months later, it was down $1,300. So, it can change. Experience has taught Paul and I to be cautious and conservative on this one. And certainly, that's what we've heard from investors, too.

Patrick Mann -- Bank of America -- Analyst

Got it. Thank you. Thanks.

Operator

The next question is a follow-up question from Shilan Modi from UBS. Please go ahead, Shilan.

Shilan Modi -- UBS -- Analyst

Hi, guys. Thanks for taking further questions from me. On one of the slides, it shows that your discovery cost of ounces in Australia is about AUD80 an ounce. I just want to confirm, this is per ounce found? And then the second thing is you're talking about looking for about 2 million ounces at Agnew. That implies about AUD160 million that you'd have to spend. And assuming you'd spend over four years, it's about AUD40 million a year, does that kind of make sense and should we be baking those into the numbers? And then the second thing was how should we think about your capex, your overall group capex numbers to stay in business and growth over the next three to five years? Thanks.

Nicholas J Holland -- Chief Executive Officer

Yes. So just the AUD80 per reserve ounce, so you have to look at what you convert and typically you convert between 40% and 50% maybe, if you look at the averages. So that will scale it back somewhat. And we see the potential to bring those ounces in within the envelope of what we're currently spending in Australia. Wouldn't want you to go where I think somebody is going to be spending a whole lot of extra money. In terms of same business capital, I think we've said probably somewhere between $250 and $300 per ounce is a good number. If you take into account the need to replace mines in the group that need to obviously continue exploration, replace tailing dams, ventilation, drives undergrounds, there's a whole heap of things, replacement of fleet when you're doing in operations. That seemed about the right number to us and probably the right number for the industry at large. I don't know if Paul wants to add something to that?

Paul A Schmidt -- Chief Financial Officer

No. I think you're right. It's around -- this could be just over $600 million. And if you look at our guidance for this period it was around $650 million and that included some capex for Salares. But I would say if you want to model same business, a bit around $600 million. And that ties up with Nick saying, the $300 on 2 million ounces circa. So that's a fair number.

Shilan Modi -- UBS -- Analyst

Okay. Thanks. And then, if we added your exploration to be, say, about $50 million to $100 million per year for exploration?

Nicholas J Holland -- Chief Executive Officer

That's -- no, that's in there.

Paul A Schmidt -- Chief Financial Officer

That's included. Sorry. Yes. We include the exploration in our same business capital. So if you want to, then you can take that probably -- it was probably close to $100 million up quickly spinning between Australia and the other regions on the exploration. So, if you want to back scale it, you can look at $500 million, same business capital, $100 million exploration capital. If you want to book that way.

Shilan Modi -- UBS -- Analyst

Okay. Perfect. Thanks.

Nicholas J Holland -- Chief Executive Officer

Okay. We got some other questions coming through.

Avishkar Nagaser -- Investor Relations

Yes. I'm going to ask a couple of questions from the webcast. Paul, I think you can answer a few of these. Do you expect to book further hedging losses in H2 and into 2021, given current gold prices?

Paul A Schmidt -- Chief Financial Officer

No. I don't think there will any hedge losses in '21, because remember, the only hedging we've got for '21 are the goods that we really paid for. So they are basically done and invested. Obviously, we booked, we mark our hedges at the end of the [Indecipherable]. Gold has moved a little bit since then, but at the moment, for modeling, you can return about $30 million to $35 million a month if you're playing out on the hedges and that could be till the end of the year. Again, you need to pick a gold price to work out how much more the loss could move from what the add at the half year end. We were using just over $1,800 gold price at the end of the half year.

Avishkar Nagaser -- Investor Relations

Okay. Nick, this one is for you. In your forward-looking statements that contained a less of general risk that shareholders should be aware of, one of the statements, the effects of regional rewashing capacity. Has there even been present event that caused the problem?

Nicholas J Holland -- Chief Executive Officer

No. We haven't got any events that have indicated our problem. At the moment, we are dewatering, so there's no water but it's getting out of line. But it is a risk of operations around us I suppose as a concern. So, that's really part of the issue. But we have been looking at that again and we might uptake that risk into the future based on new information as we evolve that. And if anything, it looks like the risk might be reduced.

Avishkar Nagaser -- Investor Relations

Okay. Paul, another one for you. Did you finish the refinance of debt due in October 2020 with cash in the balance sheet or would you look to refinance that going forward?

Paul A Schmidt -- Chief Financial Officer

No. We wouldn't refinance. Remember we did the bonds last year, so we've got cash on the balance sheet and obviously we're making a lot of money this year. So, it will be played from cash on the balance sheet. As we said, we certainly was just over $900 million at the end of June. So we would use that cash to play down the debt -- the bond that's due.

Avishkar Nagaser -- Investor Relations

Okay. One more for you, Paul. The company's leverage has reduced significantly. Under what conditions will Gold Fields consider materially increasing its leverage?

Paul A Schmidt -- Chief Financial Officer

We're not forecasting to increase our leverage at the moment. We've said even if we take into account that -- as Nick mentioned the $500 million that we're going to spend at Salares next year with conservative gold prices around $1,300, we still forecast net-debt-to-EBITDA to be below 1 times at the end of next year even with the capital run. So, that's all what we've got under horizon at the moment with Salares and using the $1,300 gold price, we still stay below 1 times net-debt-to-EBITDA. So we don't see any reason big increase in the debt, in the leverage.

Nicholas J Holland -- Chief Executive Officer

Yes. I think, in terms of just adding to that, we do have a lot in our plate in terms of building Salares. I talked about the organic growth potential, the existing assets, the need for us to show higher dividends given higher profits. And we don't really think we need to do anything beyond that. So, I wouldn't necessarily think that we're going to be out there looking to do stuff. We're quite happy with what we have now. And we think it's going to add significant value even at lower price than where we are today.

Avishkar Nagaser -- Investor Relations

Okay. We're done with the webcast. Operator, if there are one or two more questions, we probably have time for -- if there are any?

Operator

We do not have any other questions on the audio line.

Avishkar Nagaser -- Investor Relations

Okay. Thank you so much. Nick, further comment?

Nicholas J Holland -- Chief Executive Officer

I think just to say thanks for dialing in. I must just say again the company has been able to produce really good results despite the COVID issue and have shown that it's been resilient, lots of liquidity. We're in pretty good shape. We're ready if things get worse, second waves, etc, but hopefully, we've got the protocols in place. And if you got time, have a read through all of the COVID procedures and protocols we've put in place and we've written a long section in the book because we get a lot of questions on this, so we thought we'd get that. And if you have any follow-up questions on that, feel free to contact us because we've taken this incredibly seriously as you can imagine. And lastly, be safe wherever you are in the world and we look forward to engaging with you again soon. Thank you very much for your attendance today.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Nicholas J Holland -- Chief Executive Officer

Paul A Schmidt -- Chief Financial Officer

Avishkar Nagaser -- Investor Relations

Shilan Modi -- UBS -- Analyst

Tanya Jakusconek -- Scotiabank -- Analyst

Patrick Mann -- Bank of America -- Analyst

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